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Tapestry with 1% increase in net sales

Mar 10, 2020 United States
Tapestry with 1% increase in net sales
The company announced second quarter results with a 1% increase in net sales. Net income presented double digit growth rate in the period. Second half guidance includes negative impact of the coronavirus outbreak
“We are pleased with our overall holiday results, which outperformed plan driven by continued momentum at Coach and a sequential improvement at Kate Spade. In addition, we exited the quarter in a good inventory position. Coach delivered its ninth consecutive quarter of positive comparable store sales growth. North America led the global comp, with notable strength online, and higher average unit retail driving gross margin expansion. In aggregate our international business was even with the prior year with strong comp growth in Other Asia, Europe and Mainland China, offsetting continued weakness in Hong Kong SAR and a slight decline in Japan, reflecting the impact of the consumption tax increase”,  commented Jide Zeitlin, Chairman and Chief Executive Officer of Tapestry, Inc... " (...) we entered our third fiscal quarter with strong underlying trends, notably at Coach, as sales growth accelerated from the holiday period. Therefore, we had anticipated maintaining our FY20 guidance despite continuing headwinds in Hong Kong SAR and challenges at Stuart Weitzman. However, the escalating coronavirus outbreak is now significantly impacting our business in China, resulting in the closure of the majority of our stores on the Mainland”, Mr. Zeitlin concluded.

Second Quarter 2020

Tapestry net sales totalled 1.82 billion US dollars for the second quarter, as compared to 1.80 billion US dollars in the prior year, an increase of 1% on a reported and constant currency basis. Gross profit totaled 1.21 billion US dollars on a reported basis, while gross margin for the quarter was 66.6% compared to 1.20 billion US dollars and 66.8%, respectively, in the prior year. Net income for the quarter was 299 million US dollars on a reported basis, with earnings per diluted share of 1.08 US dollars (compares to net income of 255 million US dollars with earnings per diluted share of 0.88 US dollars in the prior year period).

  

Coach 

Net sales for Coach totalled 1.27 billion US dollars for the fiscal second quarter, 2% above prior year on a reported and constant currency basis. Global comparable store sales increased by 2%, including a benefit of approximately 200 basis points driven by an increase in global e-commerce. Gross profit for Coach totaled 877 million US dollars, while gross margin was 69.1% (compares to 860 million US dollars and 68.9%, in similar period last year). Operating income for Coach totaled 383 million US dollars compared to reported operating income of 374 million US dollars in the prior year, while operating margin was 30.1% versus 30.0% a year ago.

Kate Spade 

Net sales for Kate Spade reached 430 million US dollars for the fiscal second quarter as compared to 428 million US dollars in the prior year. Global comparable store sales declined by 4%, including the benefit of approximately 300 basis points from global e-commerce. Gross profit for Kate Spade totaled 262 million US dollars, while gross margin for the quarter was 61.0%. This compared to reported gross profit and gross margin of 272 million US dollars and 63.6%, respectively, in similar period in the prior year. Operating income for Kate Spade was 68 million US dollars on a reported basis, representing an operating margin of 15.8% (respectively, 88 million US dollars and 20.6% on a reported basis a year ago).

Stuart Weitzman

Net sales for Stuart Weitzman totaled 116 million US dollars for the fiscal second quarter compared to 124 million US dollars reported in the same period of the prior year, a decrease of 7% and 6% on a reported and constant currency basis, respectively. Gross profit for Stuart Weitzman totaled 70 million US dollars on a reported basis, while gross margin for the quarter was 60.5% as compared to 71 million US dollars and 57.3%, respectively, in the prior year. Operating income for Stuart Weitzman was 10 million US dollars on a reported basis, while operating margin was 8.2% versus income of 10 million US dollars and 8.0%, respectively, in the prior year.

2020 Outlook

Tapestry's guidance includes an estimated negative impact of the coronavirus outbreak in China of approximately 200-250 million US dollars in sales and 0.35-0.45 US dollars in diluted earnings per share, int he second half of the year. The company underlined that given the dynamic nature of the situation, the potential financial impact to the business could be materially different. Tapestry expects revenue for fiscal 2020 to approximate 5.9 billion US dollars.

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