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Tapestry reports strong net sales growth of 30 percent in Q3

By Prachi Singh

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Business

Net sales at Tapestry for the third quarter totalled 1.32 billion dollars, an increase of 33 percent on reported and 30 percent on a constant currency basis. The company now projects earnings per diluted share in the range of 2.57 dollars-2.60 dollars, an increase of about 19 percent to 21 percent for the year, including high single digit accretion from the acquisition of Kate Spade.

Commenting on the third quarter trading, Victor Luis, CEO of Tapestry, Inc., said in a statement: “Our solid third quarter performance was consistent with our expectations, as we achieved double-digit increases in sales and earnings per share. We were delighted to announce the appointment of Anna Bakst as CEO and Brand President, Kate Spade who officially joined us in late March. Together with Creative Director Nicola Glass, we now have the leadership team in place to drive the brand forward globally. At Stuart Weitzman, we remain confident in our long-term strategic and creative direction under the leadership of newly appointed CEO & Brand President, Eraldo Poletto and Creative Director, Giovanni Morelli.”

Review of Tapestry’s Q3 performance

Gross profit for the quarter was 909 million dollars on a reported basis, while gross margin for the quarter was 68.7 percent compared to 70.9 percent in the prior year. On a non-GAAP basis, gross profit totalled 913 million dollars, while gross margin was 69 percent as compared to 70.9 percent in the prior year.

Operating income for the quarter was 159 million dollars on a reported basis, while operating margin was 12 percent versus 15.2 percent in the prior year. On a non-GAAP basis, operating income was 184 million dollars, an increase of 14 percent versus prior year, while operating margin was 13.9 percent versus 16.3 percent in last year’s third quarter.

Net income was 140 million dollars on a reported basis, with earnings per diluted share of 0.48 dollar compared to 122 million dollars with earnings per diluted share of 0.43 dollar in the prior year period. On a non-GAAP basis, net income for the quarter totalled 158 million dollars, with earnings per diluted share of 0.54 dollar compared to non-GAAP net income of 130 million dollars with earnings per diluted share of 0.46 dollar in the prior year period.

“During the quarter, we completed the buybacks of the Coach business in Australia and New Zealand as well as the Stuart Weitzman business in Northern China, while also taking operational control of the Kate Spade joint ventures for Mainland China, Hong Kong, Macau and Taiwan. As we’ve demonstrated with our past experiences, we believe that controlling these businesses directly allows us to accelerate international growth and enhance each brand’s development in these markets,” added Luis.

Coach brand net sales rise 6 percent in the third quarter

Net sales for Coach totalled 969 million dollars for the third fiscal quarter, an increase of 6 percent on a reported basis and 3 percent on a constant currency basis. Global comparable store sales rose 3 percent, including a benefit of approximately 100 basis points driven by an increase in global e-commerce.

Gross profit for Coach totalled 691 million dollars on a reported basis, while gross margin for the quarter was 71.3 percent. On a non-GAAP basis, gross profit totalled 692 million dollars, while gross margin was 71.4 percent, including a benefit of approximately 50 basis points from currency. This compared to gross margin of 71.7 percent in the prior year period on both a reported and non-GAAP basis. Operating income for Coach was 241 million dollars on a reported basis, while operating margin was 24.9 percent. On a non-GAAP basis, operating income was 242 million dollars, while operating margin was 25 percent. This compared to operating margin of 24.4 percent in the prior year, both on a reported and non-GAAP basis.

Net sales for Kate Spade totalled 269 million dollars, reflecting, in part, the strategic pullback in wholesale disposition and online flash sales, partially offset by the consolidation of the joint ventures for Mainland China, Hong Kong, Macau and Taiwan. Global comparable store sales declined 9 percent, including the negative impact of approximately 800 basis points from a decline in global e-commerce.

Gross profit for Kate Spade totalled 172 million dollars on a reported basis, while gross margin for the period was 64 percent. On a non-GAAP basis, gross profit was 173 million dollars, while gross margin was 64.3 percent. Operating income for Kate Spade was 4 million dollars on a reported basis, representing an operating margin of 1.4 percent. On a non-GAAP basis, operating income totalled 14 million dollars, while operating margin was 5.1 percent.

Net sales for Stuart Weitzman were 84 million dollars, an increase of 5 percent. Gross profit for Stuart Weitzman totalled 45 million dollars on a reported basis, while gross margin for the quarter was 54.1 percent on a reported basis compared to 62.1 percent in the prior year. On a non-GAAP basis, gross profit totalled 47 million dollars, while gross margin was 56.6 percent as compared to 62.1 percent in the prior year.

Operating income for Stuart Weitzman was a loss of 12 million dollars on a reported basis, while operating margin was negative 13.9 percent versus 3.2 percent in the prior year. On a non-GAAP basis, operating income was a loss of 5 million dollars or negative 5.8 percent of sales versus 5.3 percent in the prior year.

Tapestry expects 30 percent growth in FY18 revenues

The company continues to expect revenues for fiscal 2018 to increase about 30 percent versus fiscal 2017, to 5.8 to 5.9 billion dollars, with low-single digit organic growth and the acquisition of Kate Spade adding over 1.2 billion dollars in revenue.

In addition, the company is now projecting operating income growth of at least 22 percent versus fiscal 2017 driven by mid-single-digit organic growth, the acquisition of Kate Spade, and estimated synergies of approximately 45 million dollars. These synergies are expected to offset the reduction in profitability from the strategic and deliberate pullback of Kate Spade wholesale disposition and online flash sales channels. Taken together, the Kate Spade business and resulting synergies are expected to contribute approximately 145 million dollars to operating income.

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Picture credit:Tapestry

Tapestry