Tapestry's (TPR) Q3 Earnings & Sales Beat Estimates, Rise Y/Y

·5-min read

In spite of a challenging backdrop, Tapestry, Inc. TPR reported better-than-expected results for third-quarter fiscal 2021. This house of modern luxury accessories and lifestyle brands witnessed a significant improvement in sales trends on a sequential basis.

While the quarter marked the sixth straight top-line beat, the bottom line surpassed the Zacks Consensus Estimate for the fourth time. Also, the company attained a meaningful improvement in earnings per share on a year-over-year basis owing to gross margin expansion and lower SG&A expenses.

Management highlighted that strength in e-commerce and China contributed to this upbeat performance. In fact, the company saw a triple-digit increase in digital sales globally. Notably, the company registered new customer acquisition across all brands.

Tapestry posted adjusted earnings of 51 cents per share that surpassed the Zacks Consensus Estimate of 30 cents. Also, the bottom line compared favorably with adjusted loss of 27 cents per share in the year-ago quarter.

Tapestry, Inc. Price and Consensus

Tapestry, Inc. Price and Consensus
Tapestry, Inc. Price and Consensus

Tapestry, Inc. price-consensus-chart | Tapestry, Inc. Quote

Net sales of this New York-based company were $1,273.3 million, ahead of the Zacks Consensus Estimate of $1,231 million. Moreover, the metric increased 18.7% on a year-over-year basis.

Let’s Take an Insight

Clearly, Tapestry’s impressive performance reflects significant progress with the previously-announced Acceleration Program. The program aims at transforming into a leaner and more responsive organization, building significant data and analytics capabilities with focus on e-commerce channels, and operating with a clearly defined path and strategy for each brand.

Impressively, management made significant progress on its Acceleration Program. It recruited nearly 700,000 new customers via its e-commerce channels in North America and witnessed higher purchase frequency year over year. The company saw significant growth in China on integrated and comprehensive brand-building strategies with innovative product and solid marketing efforts.

Moreover, Tapestry used data and analytics tools across its platform to enhance customer experience. It has also been enhancing the flexibility of its operating model via a streamlined organizational structure and optimized global fleet. Markedly, it is on track to realize about $300 million in gross run rate expense savings, including $200 million projected for fiscal 2021.

Although management did not provide any detailed guidance for fiscal 2021 owing to the pandemic, its actions to lower promotional activity and improve Average Unit Retail or AURs across brands as well as disciplined expense management helped the company see the third successive quarter of operating income growth.

Again, given the stronger-than-expected results in the first nine months and anticipations of sustained recovery, Tapestry now envisions revenues for fiscal 2021 to improve at a mid-teens rate on both a 52 and 53-week basis. This outlook includes anticipations of operating income and earnings per share increases compared to fiscal 2019 on a 52 and 53-week basis.

Margin Discussions

Consolidated adjusted gross profit came in at $912 million, up 26.7% from the year-ago period. Also, adjusted gross margin expanded 450 basis points (bps) to 71.6% owing to lower and more disciplined promotional activity. Further, the company reported adjusted operating income of $183 million versus adjusted operating loss of $32 million reported in the year-ago period. Also, adjusted operating margin improved to 14.4% from operating margin of (2.9)% in the prior-year period.

We note that adjusted SG&A expenses contracted 3.1% to $729 million, reflecting cost-containment efforts and the earlier announced actions to transform the company’s operating model. Again, as a percentage of net sales, adjusted SG&A contracted to 57.3% from 70.1% recorded in the year-earlier quarter.

Segment Details

Net sales for Coach came in at $963.5 million, up 24.9 % year over year. Gross margin for the segment expanded 490 bps to 74.5%. We note that adjusted operating margin increased to 28.7% from 15.1% in the year-ago quarter.

Kate Spade sales came in at $252.4 million, up 1% from the year-ago period. Adjusted gross margin for the segment increased 150 bps to 63.5%. The segment reported adjusted operating margin of 4.6% versus an operating margin of (6.9)% recorded in the year-ago quarter.

Net sales for Stuart Weitzman totaled $57.4 million, up 11.8% year over year. The segment’s adjusted gross margin improved 420 bpsto 58.9%. The company reported adjusted operating loss of $8 million compared with an operating loss of $35 million in the year-ago quarter.

Store Update

At the end of the quarter, the Zacks Rank #2 (Buy) company operated 357 Coach stores, 211 Kate Spade outlets and 49 Stuart Weitzman stores in North America. Internationally, the count was 587, 202 and 54 for Coach, Kate Spade and Stuart Weitzman, respectively.

Other Financial Details

Tapestry ended the quarter with cash, cash equivalents and short-term investments of $1,659.2 million, long-term debt of $1,590 million and stockholders' equity of $3,015 million.

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