Tapestry (TPR) Q4 Earnings Meet, Shares Tumble On Weak View

Shares of Tapestry, Inc. (NYSE:TPR) are down roughly 8% in the pre-market trading session on Aug 15, following the company’s fourth-quarter fiscal 2019 results. While earnings came in line, net sales fell short of the Zacks Consensus Estimate. Also, soft first-quarter fiscal 2020 view was not well perceived by investors.

We note that the company posted adjusted quarterly earnings of 61 cents a share, which met the Zacks Consensus Estimate but came in a penny higher than the year-ago period.

Net sales of this New York-based company came in at $1,513.7 million, up 2% year over year on a reported and 4% on a constant currency basis. Sales increase at Kate Spade and Stuart Weitzman contributed to the top-line growth. However, net sales came below the Zacks Consensus Estimate of $1,534 million. This was the third straight quarter that the company’s top line missed the estimates.

Consolidated adjusted gross profit came in at $1,017.9 million, up 1% from the prior-year quarter. However, gross margin contracted 60 basis points to 67.3%. Further, adjusted operating income of $220.8 million fell 3% from the prior-year quarter figure, while operating margin shrunk 70 basis points to 14.6%. We note that adjusted SG&A expenses increased 2% to $797.1 million, while as a percentage of net sales, the same increased 10 basis points to 52.7%.

Shares of Tapestry have fallen 20% against the industry’s decline of 26% in the past three months.

Segment Details

Net sales for Coach came in at $1,096.6 million, almost flat year over year. On a constant currency basis, net sales increased 2%. Comparable-store sales rose 2%, comprising roughly a 150-basis-point benefit due to a rise in global e-commerce. While adjusted gross margin for the segment expanded 10 basis points to 69.7%, adjusted operating margin increased 70 basis points to 27.5%.

Kate Spade sales came in at $331.9 million, up 6% year over year on a reported and 7% on a constant currency basis. Comparable-store sales slid 6% in spite of including the favorable impact of approximately 600 basis points from a rise in global e-commerce. While adjusted gross margin for the segment shriveled 300 basis points to 62.2%, adjusted operating margin shrunk 360 basis points to 9.3%.

Net sales for Stuart Weitzman totaled $85.2 million, reflecting an increase of 17% on a reported and 20% on a constant currency basis. The segment’s adjusted gross margin expanded 130 basis points to 54.8%. The segment reported adjusted operating loss of $10 million.

Store Update

At the end of the quarter, the company operated 391 Coach stores, 213 Kate Spade outlets and 71 Stuart Weitzman stores in North America. Internationally, the count was 595, 194 and 76 for Coach, Kate Spade and Stuart Weitzman, respectively.

Other Financial Details

Tapestry, which carries Zacks Rank #3 (Hold), ended the quarter with cash, cash equivalents and short-term investments of $1,233.8 million, long-term debt of 1,601.9 million and shareholders' equity of $ 3,513.4 million.

During the quarter, the company repurchased approximately 3.4 million shares for a total of roughly $100 million. At the end of the period, the company still had $900 million remaining under its current buyback program. The company plans to return about $700 million to its shareholders in fiscal 2020 via share buybacks and dividends.

Guidance

For fiscal 2020, management anticipates revenues to increase at a low-single-digit rate with earnings per share expected to be even with the prior year. The company now envisions modest top-line growth at Kate Spade in North America. It reaffirmed top and bottom-line growth at Coach and improved profitability at Stuart Weitzman. However, Tapestry expects first-quarter revenues to be marginally below the prior year and earnings per share to decrease year over year.

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