- Fourth Quarter and Fiscal Year Net
Sales Increased 31% Driven by the Acquisition of Kate Spade and
Organic Growth
- Fourth Quarter Earnings per Diluted
Share Rose 36% on a GAAP Basis to $0.73 and 21% on a Non-GAAP Basis
to $0.60
- Full Year Earnings per Diluted Share
Exceeded Guidance
- Board Declares Quarterly
Dividend
Tapestry, Inc. (NYSE:TPR), a leading New York-based house of
modern luxury accessories and lifestyle brands, today reported
fourth quarter and full year results for the periods ended June 30,
2018.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20180814005208/en/
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Victor Luis, Chief Executive Officer of Tapestry, Inc., said,
“Our strong fourth quarter results capped an excellent FY18
performance for Tapestry which demonstrated the power of our
multi-brand model. We achieved our annual sales and operating
income guidance, driving significant growth while earnings per
share outpaced our forecast. It was also a year of many milestones,
as we completed the acquisition of Kate Spade and evolved into a
true House of Brands, establishing Tapestry as our new corporate
identity. Our company is built on shared values and a common
operating platform while our brands retain their distinctive
personalities, individual narratives and unique positioning.”
“We strengthened our executive and creative leadership across
our brands, with a clear focus on executing our strategic vision.
In addition, we expanded our Board with the appointment of new
Directors who bring fresh perspectives and extensive and relevant
business experience. Finally, we announced several important
business development initiatives during the year, which allow each
of our brands to assume greater direct control over their
international distribution and, in keeping with our strategic
priority, maximize the opportunity with Chinese consumers globally
across our portfolio. To this end, we’re excited to announce that
we’ve entered into purchase agreements to acquire Kate Spade’s
operations in Singapore, Malaysia and Australia as well as Stuart
Weitzman’s business in Southern China.”
“Coach posted a strong finish to fiscal 2018, with positive
fourth quarter comparable store sales, again led by outperformance
in North America and driven by fashion innovation across materials
and price points. In addition, and as expected, at Coach we drove
significant gross margin expansion in the quarter, driving the full
year margin above prior year levels. Taken together with tightly
controlled expenses, we achieved operating income growth and
operating margin expansion for the quarter and year.”
“The successful integration of Kate Spade onto the Tapestry
platform continued, as we achieved the anticipated synergies for
the year. Kate Spade fourth quarter results exceeded our
expectations from both a top- and bottom-line perspective with both
sales and operating margin increasing from reported prior year
results. In its first year within Tapestry, Kate Spade delivered
double digit earnings per share accretion, despite the strategic
pullback in online flash and wholesale disposition. ”
“Finally at Stuart Weitzman, as anticipated, fourth quarter
results continued to be negatively impacted by development and
delivery delays which pressured sales and margins. For the year,
sales were essentially unchanged, reflecting the second half
challenges. During the quarter, we continued to implement the
production and planning processes necessary to drive the business
forward and remain confident in the long term opportunities for the
brand.”
Non-GAAP Reconciliation Items:
During the fiscal fourth quarter, the Company recorded pre-tax
charges associated with Integration and Acquisition activities and
its Operational Efficiency Plan. In addition, during the quarter,
the Company recorded certain favorable tax impacts associated with
the recently enacted U.S. tax legislation as well as a one-time
reversal of certain valuation allowances that were established in
connection with purchase accounting for the Kate Spade acquisition
and subsequently released in the fiscal fourth quarter due, in
part, to the enactment of the tax legislation changes. Taken
together, these items increased the Company’s fourth quarter
reported net income by $36 million or about $0.13 per diluted
share. On a full year basis, these items reduced the Company’s
reported net income by $362 million or about $1.25 per diluted
share. Please refer to the financial tables included herein for a
detailed reconciliation of the Company’s reported to non-GAAP
results.
Overview of Fourth Quarter 2018
Tapestry, Inc. Results:
Fiscal 2018 fourth quarter performance includes the contribution
of Kate Spade, which the Company acquired on July 11, 2017 and
therefore is not included in the prior year results.
- Net sales totaled $1.48 billion
for the fourth fiscal quarter as compared to $1.13 billion in the
prior year, an increase of 31% on a reported basis. On a constant
currency basis, net sales increased 29%.
- Gross profit totaled $1.00
billion on a reported basis, while gross margin for the quarter was
67.6% on a reported basis compared to 66.5% in the prior year. On a
non-GAAP basis, gross profit totaled $1.01 billion, while gross
margin was 68.0% as compared to 66.8% in the prior year.
- SG&A expenses totaled $816
million on a reported basis and represented 55.0% of sales compared
to 49.5% in the year-ago quarter. On a non-GAAP basis, SG&A
expenses were $781 million and represented 52.7% of sales as
compared to 50.9% in the year-ago period.
- Operating income for the quarter
was $187 million on a reported basis, while operating margin was
12.6% versus 17.0% in the prior year. On a non-GAAP basis,
operating income was $228 million, an increase of 27% versus prior
year, while operating margin was 15.3% versus 15.8% in last year’s
fourth quarter.
- Net interest expense was $14
million in the quarter on a reported and non-GAAP basis as compared
to $14 million on a reported basis in the year ago period, which
included $10 million in expense associated with bridge financing in
connection with the acquisition of Kate Spade. On a non-GAAP basis,
net interest expense was $4 million in the fourth quarter of fiscal
2017.
- Net income for the quarter was
$212 million on a reported basis, with earnings per diluted share
of $0.73. This compared to reported net income of $152 million with
earnings per diluted share of $0.53 in the prior year period. The
reported tax rate for the quarter was (22.5)%, primarily due to
favorable tax impacts associated with tax legislation changes as
well as a one-time reversal of valuation allowances, as noted
above. This compared to a reported tax rate of 15.5% in the prior
year. On a non-GAAP basis, net income for the quarter totaled $176
million, with earnings per diluted share of $0.60. This compared to
non-GAAP net income of $142 million with earnings per diluted share
of $0.50 in the prior year period. The non-GAAP tax rate for the
quarter was 17.4% compared to a 19.2% in the prior year.
- Inventory was $674 million at
the end of quarter versus ending inventory of $470 million in the
year ago period. The increase over prior year was primarily driven
by the acquisition of Kate Spade as well as the inventory
associated with regional buyback activity this fiscal year.
Fourth fiscal quarter results in each of the Company’s
reportable segments were as follows:
Coach Fourth Quarter of 2018
Results:
- Net sales for Coach totaled
$1.10 billion for the fourth fiscal quarter as compared to $1.05
billion in the prior year, an increase of 5% on a reported basis
and 3% on a constant currency basis. Global comparable store sales
rose 2% in aggregate, including e-commerce, as well as for bricks
and mortar stores.
- Gross profit for Coach totaled
$762 million on a reported basis, while gross margin for the
quarter was 69.3%. On a non-GAAP basis, gross profit totaled $765
million, while gross margin was 69.6%, including a benefit of
approximately 30 basis points from currency. This compared to gross
margin of 67.4% in the prior year period on both a reported and
non-GAAP basis.
- SG&A expenses totaled $478
million for Coach on a reported and non-GAAP basis, while SG&A
expenses as a percentage of sales were 43.5% as compared to 43.9%
in the prior year.
- Operating income for Coach was
$284 million on a reported basis, while operating margin was 25.8%.
On a non-GAAP basis, operating income was $287 million, while
operating margin was 26.1%. This compared to operating margin of
23.5% in the prior year, both on a reported and non-GAAP
basis.
Kate Spade Fourth Quarter of 2018
Results:
- Net sales for Kate Spade totaled
$312 million, 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 3%,
including the negative impact of approximately half a point from a
decline in global e-commerce due to the reduction in online flash
sales, as noted.
- Gross profit for Kate Spade
totaled $205 million on a reported basis, while gross margin for
the period was 65.5%. On a non-GAAP basis, gross profit was $205
million, while gross margin was 65.6%.
- SG&A expenses for Kate Spade
were $181 million on a reported basis and represented 57.9% of
sales. On a non-GAAP basis, SG&A expenses were $174 million and
represented 55.7% of sales.
- Operating income for Kate Spade
was $24 million on a reported basis, representing an operating
margin of 7.6%. On a non-GAAP basis, operating income totaled $31
million, while operating margin was 9.9%.
Stuart Weitzman Fourth Quarter of 2018
Results:
- Net sales for Stuart Weitzman
totaled $73 million for the fourth fiscal quarter compared to $88
million reported in the same period of the prior year.
- Gross profit for Stuart Weitzman
totaled $37 million on a reported basis, while gross margin for the
quarter was 50.3% on a reported basis compared to 56.2% in the
prior year. On a non-GAAP basis, gross profit totaled $39 million,
while gross margin was 53.5% as compared to 58.9% in the prior
year.
- SG&A expenses for Stuart
Weitzman were $57 million on a reported basis and represented 78.6%
of sales as compared to 59.5% of sales in the prior year’s fourth
quarter. On a non-GAAP basis, SG&A expenses were $56 million or
76.7% of sales as compared to 53.9% of sales in the prior
year.
- Operating income for Stuart
Weitzman was a loss of $21 million on a reported basis, while
operating margin was (28.3)% versus (3.2)% in the prior year. On a
non-GAAP basis, operating income was a loss of $17 million, while
operating margin was (23.2)% versus 5.0% in the prior year.
Overview of Full Year 2018 Tapestry,
Inc. Results:
Fiscal 2018 performance includes the contribution of Kate Spade
for the period subsequent to the closing of the acquisition on July
11, 2017 through the end of the fiscal year on June 30, 2018. Kate
Spade is not included in the prior year results.
- Net sales totaled $5.88 billion
for the fiscal year 2018 as compared to $4.49 billion in the prior
year, an increase of 31% on reported basis. On a constant currency
basis, total sales increased 30%.
- Gross profit totaled $3.85
billion on a reported basis, while gross margin was 65.5% on a
reported basis compared to 68.6% in the prior year. On a non-GAAP
basis, gross profit totaled $3.97 billion, while gross margin was
67.5% as compared to 68.7% in the prior year.
- SG&A expenses totaled $3.18
billion on a reported basis and represented 54.1% of sales compared
to 51.1% in the prior year. On a non-GAAP basis, SG&A expenses
were $2.98 billion and represented 50.7% of sales as compared to
50.6% in the prior year.
- Operating income was $671
million on a reported basis, while operating margin was 11.4%
versus 17.5% in the prior year. On a non-GAAP basis, operating
income was $992 million, an increase of 22% versus prior year,
while operating margin was 16.9% versus 18.1% last year.
- Net interest expense was $74
million on a reported and non-GAAP basis as compared to $28 million
in the year ago period on a reported basis, which included $10
million in expense associated with bridge financing in connection
with the acquisition of Kate Spade. On a non-GAAP basis, net
interest expense was $19 million in fiscal 2017.
- Net income was $398 million on a
reported basis, with earnings per diluted share of $1.38. This
compared to reported net income of $591 million with earnings per
diluted share of $2.09 in the prior year. On a non-GAAP basis, net
income totaled $760 million, with earnings per diluted share of
$2.63. This compared to non-GAAP net income of $609 million with
earnings per diluted share of $2.15 in the prior year period. The
reported tax rate for the year was 33.4% as compared to 22.1% in
the prior year. On a non-GAAP basis, the tax rate for the year was
17.2% as compared to 23.2% in the prior year.
Fiscal 2018 results in each of the Company’s reportable segments
were as follows:
Coach Full Year 2018
Results:
- Net sales for Coach totaled
$4.22 billion as compared to $4.11 billion in the prior year, an
increase of 3% on a reported basis and 2% on a constant currency
basis. Global comparable store sales rose over 1% including a
benefit of approximately half a point from an increase in global
e-commerce.
- Gross profit for Coach totaled
$2.93 billion on a reported basis, while reported gross margin was
69.4%. On a non-GAAP basis, gross profit was $2.94 billion, while
gross margin was 69.5% on both a nominal and constant currency
basis. This compared to gross margin of 69.4% in the prior year on
both a reported and non-GAAP basis.
- SG&A expenses totaled
approximately $1.85 billion for Coach on a reported and non-GAAP
basis. As a percentage of sales, SG&A expenses were 43.8% on a
reported basis and 43.7% on a non-GAAP basis, compared to 44.1% in
the prior year on both a reported and non-GAAP basis.
- Operating income for Coach was
$1.08 billion on a reported basis, while operating margin was
25.7%. On a non-GAAP basis, operating income was $1.09 billion,
while operating margin was 25.8%. This compared to operating margin
of 25.3% in the prior year both on a reported and non-GAAP
basis.
Kate Spade Full Year 2018 Results (for
the post-acquisition period):
- Net sales for Kate Spade totaled
$1.28 billion, 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 7%,
including the negative impact of nearly 500 basis points from a
decline in global e-commerce.
- Gross profit for Kate Spade
totaled $711 million on a reported basis, while gross margin for
the period was 55.4%. On a non-GAAP basis, gross profit was $818
million, while gross margin was 63.6%.
- SG&A expenses for Kate Spade
were $773 million on a reported basis and represented 60.2% of
sales. On a non-GAAP basis, SG&A expenses were $659 million and
represented 51.3% of sales.
- Operating income for Kate Spade
was a loss of $62 million on a reported basis, representing an
operating margin of (4.8)%. On a non-GAAP basis, operating income
totaled $158 million, while operating margin was 12.3%.
Stuart Weitzman Full Year 2018
Results:
- Net sales for Stuart Weitzman
totaled $374 million compared to $374 million reported in the prior
year.
- Gross profit for Stuart Weitzman
totaled $211 million on a reported basis, while gross margin was
56.5% on a reported basis compared to 60.5% in the prior year. On a
non-GAAP basis, gross profit totaled $217 million, while gross
margin was 58.1% as compared to 61.3% in the prior year.
- SG&A expenses for Stuart
Weitzman were $214 million on a reported basis and represented
57.2% of sales as compared to 56.4% of sales in the prior year. On
a non-GAAP basis, SG&A expenses were $206 million or 55.1% of
sales as compared to 51.6% of sales in the prior year.
- Operating income for Stuart
Weitzman was a loss of $3 million on a reported basis, while
operating margin was (0.7)% versus 4.2% in the prior year. On a
non-GAAP basis, operating income was $11 million or 3.0% of sales
versus 9.7% in the prior year.
The Company also announced that its Board of Directors declared
a quarterly cash dividend of $0.3375 per common share, maintaining
an annual rate of $1.35. The dividend is payable on October 1, 2018
to shareholders of record as of the close of business on September
7, 2018.
Mr. Luis added, “Our strong fiscal 2018 performance reflected
the benefits of diversification across brands, geographies and
categories. Looking ahead, we are focused first and foremost on
execution. Our goal is to deliver strong revenue and operating
income growth in fiscal 2019, while making the right strategic
investments to support our long-term vision and drive a return to
both double-digit operating income and earnings per share growth in
fiscal 2020. We will continue to harness the power of our
multi-brand model, fuel innovation across brands, drive global
growth with an emphasis on the Chinese consumer, and advance our
digital and data analytics capabilities.”
“At Coach, we will offer a heightened level of newness
throughout the pyramid of fashion, price and occasion across
channels and geographies. In addition, we will build on the
successful re-launch of Signature as a coveted brand icon. Beyond
bags, we’re excited about the opportunities for women’s footwear
and ready-to-wear as well as men’s across all categories. In
stores, we will be utilizing technology and digital to enhance and
modernize the customer experience, notably through customization.
And, we will amplify our initiatives with marketing that balances
unexpected brand placement and campaigns with broad appeal.”
“Fiscal 2019 will be a pivotal year at Kate Spade as we evolve
the brand with the launch of Creative Director Nicola Glass’s new
collection. We will focus on global expansion, notably in China
where the brand is nascent and we see boundless opportunity. We
will also continue to leverage the Tapestry platform and brand
development expertise, driving significant incremental synergies
and fueling accelerated growth.”
“At Stuart Weitzman, our near-term focus continues to be
building the infrastructure and capacity to support the brand’s
creative vision. We now expect to return to topline growth in the
second fiscal quarter and remain confident in our long-term
strategy to evolve into a global, multi-channel, multi-category
fashion brand grounded in quality and design.”
“Overall, we are proud of the progress we’ve made in FY18 and
couldn’t be more excited about the opportunities ahead for Tapestry
and each of our brands,” Mr. Luis concluded.
Fiscal Year 2019 Outlook
The following fiscal 2019 guidance is provided on a non-GAAP
basis.
The Company expects revenues for fiscal 2019 to increase at a
mid-single-digit rate from fiscal 2018 to $6.1-$6.2 billion.
The Company is also projecting the operating income growth rate
to exceed the revenue growth rate, reflecting the organic growth of
the business, the realization of incremental synergies from the
Kate Spade acquisition as well as the impact of distributor
consolidations and buybacks and systems investments. As previously
announced, the Company expects that cost savings resulting from
synergies related to the Kate Spade acquisition will total
$100-$115 million in FY19.
Net interest expense is expected to be approximately $50 million
for the year. The full year fiscal 2019 tax rate is projected at
about 21% to 22% with the increase over prior year due primarily to
the introduction of a new tax regime requiring a current inclusion
in U.S. federal taxable income of certain earnings of controlled
foreign corporations (known as “GILTI”).
Overall, the Company projects earnings per diluted share in the
range of $2.70-$2.80.
Fiscal Year 2019 Outlook - Non-GAAP Adjustments:
The company is not able to provide a full reconciliation of the
non-GAAP financial measures to GAAP presented in this release and
on the Company’s conference call because certain material items
that impact these measures, such as the timing and exact amount of
charges related to Integration and Acquisition, the costs
associated with the Company’s ERP implementation as well as the
impact of the tax legislation changes recently enacted in the U.S,
have not yet occurred or are out of the Company’s control.
Accordingly, a reconciliation of our non-GAAP financial measure
guidance to the corresponding GAAP measures is not available
without unreasonable effort. Where possible, the Company has
identified the estimated impact of the items excluded from its
fiscal 2019 guidance.
This fiscal 2019 non-GAAP guidance excludes (1) expected pre-tax
charges of $10-$15 million attributable to the Company’s ERP
implementation efforts; and (2) estimated pre-tax Integration and
Acquisition charges of $50-$60 million (of which approximately
$5-$10 million is estimated to be non-cash) as the Company
continues to develop its integration plan.
Conference Call Details:
The Company will host a conference call to review these results
at 8:30 a.m. (ET) today, August 14, 2018. Interested parties may
listen to the conference call via live webcast by accessing
www.tapestry.com/investors on the Internet or calling
1-877-510-8087 or 1-862-298-9015 and providing the Conference ID
88865692. A telephone replay will be available starting at 12:00
p.m. (ET) today, for a period of five business days. To access the
telephone replay, call 1-800-585-8367 or 1-404-537-3406 and enter
the Conference ID 88865692. A webcast replay of the earnings
conference call will also be available for five business days on
the Tapestry website. Presentation slides have also been posted to
the Company’s website at www.tapestry.com/investors.
The Company expects to report fiscal 2019 first quarter
financial results on Tuesday, October 30, 2018. To receive
notification of future announcements, please register at
www.tapestry.com/investors ("Subscribe to E-Mail Alerts").
Tapestry, Inc. is a New York-based house of modern luxury
lifestyle brands. The Company’s portfolio includes Coach, Kate
Spade and Stuart Weitzman. Our Company and our brands are founded
upon a creative and consumer-led view of luxury that stands for
inclusivity and approachability. Each of our brands are unique and
independent, while sharing a commitment to innovation and
authenticity defined by distinctive products and differentiated
customer experiences across channels and geographies. To learn more
about Tapestry, please visit www.tapestry.com. The Company’s common
stock is traded on the New York Stock Exchange under the symbol
TPR.
This information to be made available in this press release may
contain forward-looking statements based on management's current
expectations. Forward-looking statements include, but are not
limited to, the statements under “Fiscal Year 2019 Outlook,” as
well as statements that can be identified by the use of
forward-looking terminology such as "may," "will," “can,” "should,"
"expect," "intend," "estimate," "continue," "project," "guidance,"
"forecast," “outlook,” "anticipate," “moving,” “leveraging,”
“capitalizing,” “developing,” “drive,” “targeting,” “assume,”
“plan,” “build,” “pursue,” “maintain,” “on track,” “well positioned
to,” “look forward to,” “to acquire,” “achieve,” “strategic
vision,” “growth opportunities” or comparable terms. Future results
may differ materially from management's current expectations, based
upon a number of important factors, including risks and
uncertainties such as expected economic trends, the ability to
anticipate consumer preferences, the ability to control costs and
successfully execute our transformation and operational efficiency
initiatives and growth strategies and our ability to achieve
intended benefits, cost savings and synergies from acquisitions,
the impact of tax legislation, etc. Please refer to the Company’s
latest Annual Report on Form 10-K, it’s Quarterly Report on Form
10-Q for the period ended December 30, 2017 and its other filings
with the Securities and Exchange Commission for a complete list of
risks and important factors. The Company assumes no obligation to
revise or update any such forward-looking statements for any
reason, except as required by law.
TAPESTRY,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Quarters
and Years Ended June 30, 2018 and July 1, 2017
(in millions,
except per share data)
(unaudited) (unaudited)
(audited) QUARTER ENDED YEAR ENDED June
30, July 1, June 30, July 1, 2018
2017 2018 2017 Net sales $ 1,483.7 $
1,133.8 $ 5,880.0 $ 4,488.3 Cost of sales 480.5
379.3 2,026.1 1,407.2 Gross
Profit 1,003.2 754.5 3,853.9 3,081.1 Selling, general and
administrative expenses 816.0 561.5
3,183.1 2,293.7 Operating income 187.2 193.0 670.8
787.4 Interest expense, net 14.4 13.6
74.0 28.4 Income before provision for income
taxes 172.8 179.4 596.8 759.0 Provision for income taxes
(38.9 ) 27.7 199.3 168.0 Net
income $ 211.7 $ 151.7 $ 397.5 $ 591.0 Net income per
share: Basic $ 0.74 $ 0.54 $ 1.39 $ 2.11
Diluted $ 0.73 $ 0.53 $ 1.38 $ 2.09 Shares used in
computing net income per share: Basic 287.9
281.5 285.4 280.6 Diluted 291.3
284.7 288.6 282.8
TAPESTRY,
INC.
GAAP TO NON-GAAP
RECONCILIATION
For the Quarters
Ended June 30, 2018 and July 1, 2017
(in millions,
except per share data)
(unaudited)
June 30, 2018
GAAP Basis(As Reported)
Operational Efficiency
Plan(1)
Integration
&Acquisition(2)
Impact of
TaxLegislation(3)
Non-GAAP Basis(Excluding
Items)
Gross profit $ 1,003.2 $ — $ (5.5 ) $ — $ 1,008.7
Selling, general and administrative expenses 816.0 10.0 24.8 —
781.2 Operating income 187.2 (10.0 ) (30.3 ) — 227.5
Income before provision for income taxes 172.8 (10.0 ) (30.3 ) —
213.1 Provision for income taxes (38.9 ) (3.1 ) (51.4 )
(21.4 ) 37.0 Net income 211.7 (6.9 ) 21.1 21.4 176.1
Diluted net income per share 0.73 (0.03 ) 0.09 0.07 0.60
July 1, 2017
GAAP Basis(As Reported)
Operational Efficiency
Plan(1)
Integration
&Acquisition(2)
Non-GAAP Basis(Excluding
Items)
Gross profit $ 754.5 $ — $ (2.3 ) $ 756.8 Selling,
general and administrative expenses 561.5 6.8 (22.6 ) 577.3
Operating income 193.0 (6.8 ) 20.3 179.5 Income before
provision for income taxes 179.4 (6.8 ) 10.8 175.4 Provision
for income taxes 27.7 (4.0 ) (2.0 ) 33.7 Net income 151.7
(2.8 ) 12.8 141.7 Diluted net income per share 0.53 (0.01 )
0.04 0.50 (1) Amounts as of June 30, 2018 represent
technology infrastructure costs. Amounts as of July 1, 2017
represent charges primarily related to organizational efficiency
and technology infrastructure costs. (2) Amounts as of June
30, 2018 represent charges attributable to acquisition and
integration costs related to the purchase of Kate Spade &
Company, the acquisition of certain distributors for the Coach and
Stuart Weitzman brands and assumed operational control of Kate
Spade joint ventures. Provision for income taxes has been favorably
impacted as a result of the reversal of certain valuation
allowances that were established during purchase accounting. These
charges include: - Professional fees - Limited life purchase
accounting adjustments - Organizational costs as a result of
integration Amounts as of July 1, 2017 represent acquisition
costs and limited life purchase accounting impacts related to the
acquisition of Stuart Weitzman Holdings LLC, more than offset by
the reversal of an accrual related to estimated contingent purchase
price payments which were not paid, and integration-related costs
for the Kate Spade & Company acquisition. (3) Amounts as
of June 30, 2018 represent charges due to the net impact of the
transition tax and re-measurement of deferred tax balances.
TAPESTRY,
INC.
GAAP TO NON-GAAP
RECONCILIATION
For the Years
Ended June 30, 2018 and July 1, 2017
(in millions,
except per share data)
(unaudited)
June 30, 2018
GAAP Basis(As Reported)
Operational Efficiency
Plan(1)
Integration
&Acquisition(2)
Impact of
TaxLegislation(3)
Non-GAAP Basis(Excluding
Items)
Gross profit $ 3,853.9 $ — $ (116.4 ) $ — $ 3,970.3
Selling, general and administrative expenses 3,183.1 19.5 185.2 —
2,978.4 Operating income 670.8 (19.5 ) (301.6 ) — 991.9
Income before provision for income taxes 596.8 (19.5 )
(301.6 ) — 917.9 Provision for income taxes 199.3 (6.2 )
(130.7 ) 178.2 158.0 Net income 397.5 (13.3 ) (170.9 )
(178.2 ) 759.9 Diluted net income per share 1.38 (0.05 )
(0.58 ) (0.62 ) 2.63
July 1, 2017
GAAP Basis(As Reported)
Operational Efficiency
Plan(1)
Integration
&Acquisition(2)
Non-GAAP Basis(Excluding
Items)
Gross profit $ 3,081.1 $ — $ (2.9 ) $ 3,084.0
Selling, general and administrative expenses 2,293.7 24.0 (1.7 )
2,271.4 Operating income 787.4 (24.0 ) (1.2 ) 812.6
Income before provision for income taxes 759.0 (24.0 ) (10.7 )
793.7 Provision for income taxes 168.0 (8.3 ) (8.1 ) 184.4
Net income 591.0 (15.7 ) (2.6 ) 609.3 Diluted net
income per share 2.09 (0.05 ) (0.01 ) 2.15 (1) Amounts as of
June 30, 2018 primarily represent technology infrastructure costs.
Amounts as of July 1, 2017 represent charges primarily related to
organizational efficiency costs, technology infrastructure costs
and to a lesser extent, network optimization costs. (2)
Amounts as of June 30, 2018 represent charges attributable to
acquisition and integration costs related to the purchase of Kate
Spade & Company, and to a lesser extent the acquisition of
certain distributors for the Coach and Stuart Weitzman brands and
assumed operational control of Kate Spade joint ventures. Provision
for income taxes has been favorably impacted as a result of the
reversal of certain valuation allowances that were established
during purchase accounting. These charges include:
- Limited life purchase accounting
adjustments
- Professional fees
- Severance and other costs related to
contractual payments with certain Kate Spade executives
- Organizational costs as a result of
integration
- Inventory reserves established for the
destruction of inventory
Amounts as of July 1, 2017 represent acquisition costs and
limited life purchase accounting impacts related to the acquisition
of Stuart Weitzman Holdings LLC, more than offset by the reversal
of an accrual related to estimated contingent purchase price
payments which were not paid, and integration-related costs for the
Kate Spade & Company acquisition. (3) Amounts as of June
30, 2018 represent charges due to the net impact of the transition
tax and re-measurement of deferred tax balances.
TAPESTRY,
INC.
GAAP TO NON-GAAP
RECONCILIATION - FOR SEGMENT RESULTS
For the Quarters
Ended June 30, 2018 and July 1, 2017
(in
millions)
(unaudited)
June 30, 2018 GAAP Coach
Kate Spade
Stuart Weitzman
Corporate Non-GAAP COGS
Integration & Acquisition (3.1 ) (0.1 )
(2.3 ) —
Gross profit $ 1,003.2
$ (3.1 ) $ (0.1 ) $ (2.3 ) $ — $ 1,008.7
SG&A Integration & Acquisition 0.3 7.1 1.3 16.1
Operational Efficiency Plan — —
— 10.0
SG&A $ 816.0 $
0.3 $ 7.1 $ 1.3 $ 26.1 $ 781.2
Operating income $ 187.2 $ (3.4 ) $ (7.2 ) $ (3.6 ) $ (26.1
) $ 227.5
July 1, 2017 GAAP Coach
Kate Spade
Stuart Weitzman
Corporate(1) Non-GAAP COGS Integration
& Acquisition — —
(2.3 ) —
Gross profit $ 754.5 $ —
$ — $ (2.3 ) $ — $ 756.8
SG&A Integration & Acquisition — — 5.0 (27.6 )
Operational Efficiency Plan — —
— 6.8
SG&A $ 561.5 $
— $ — $ 5.0 $ (20.8 ) $ 577.3
Operating income $ 193.0 $ — $ — $ (7.3 ) $
20.8 $ 179.5 (1) The Company incurred $9.5 million
related to bridge financing fees recorded in interest expense
within Corporate, which is not included in the above table.
TAPESTRY,
INC.
GAAP TO NON-GAAP
RECONCILIATION - FOR SEGMENT RESULTS
For the Years
Ended June 30, 2018 and July 1, 2017
(in
millions)
(unaudited)
June 30, 2018 GAAP Coach Kate
Spade
Stuart Weitzman
Corporate Non-GAAP COGS Integration &
Acquisition(1) (4.1 ) (106.5 ) (5.8 )
—
Gross profit $ 3,853.9 $ (4.1 ) $
(106.5 ) $ (5.8 ) $ — $ 3,970.3
SG&A
Integration & Acquisition(1) 0.5 113.7 7.8 63.2 Operational
Efficiency Plan — — —
19.5
SG&A $ 3,183.1 $ 0.5
$ 113.7 $ 7.8 $ 82.7 $ 2,978.4
Operating income $ 670.8 $ (4.6 ) $ (220.2 ) $ (13.6 ) $
(82.7 ) $ 991.9
July 1, 2017
GAAP Coach Kate Spade
Stuart Weitzman
Corporate(2) Non-GAAP COGS Integration
& Acquisition — —
(2.9 ) —
Gross profit $ 3,081.1 $ —
$ — $ (2.9 ) $ — $ 3,084.0
SG&A Integration & Acquisition — — 17.7 (19.4 )
Operational Efficiency Plan — —
— 24.0
SG&A $ 2,293.7
$ — $ — $ 17.7 $ 4.6 $ 2,271.4
Operating income $ 787.4 $ — $ — $ (20.6 ) $
(4.6 ) $ 812.6 (1) During the first quarter of fiscal 2018,
the Company completed its acquisition of Kate Spade & Company.
During the third quarter of fiscal 2018, the Company completed its
acquisition of certain distributors for the Coach and Stuart
Weitzman brands and assumed operational control of Kate Spade joint
ventures. The operating results of the respective entity have been
consolidated in the Company's operating results commencing on the
date of each acquisition. (2) The Company incurred $9.5
million related to bridge financing fees recorded in interest
expense within Corporate, which is not included in the above table.
The Company reports information in accordance with U.S.
Generally Accepted Accounting Principles ("GAAP"). The Company's
management does not, nor does it suggest that investors should,
consider non-GAAP financial measures in isolation from, or as a
substitute for, financial information prepared in accordance with
GAAP. Further, the non-GAAP measures utilized by the Company may be
unique to the Company, as they may be different from non-GAAP
measures used by other companies. The financial information
presented above, as well as gross margin, SG&A expense ratio,
and operating margin, have been presented both including and
excluding the effect of certain items related to our Operational
Efficiency Plan, Integration & Acquisition-Related Costs and
the impact of tax legislation for Tapestry, Inc. and separately by
segment.
The Company operates on a global basis and reports financial
results in U.S. dollars in accordance with GAAP. Percentage
increases/decreases in net sales for the Company and the Coach
brand have been presented both including and excluding currency
fluctuation effects from translating foreign-denominated sales into
U.S. dollars and compared to the same periods in the prior quarter
and fiscal year. The Company calculates constant currency revenue
results by translating current period revenue in local currency
using the prior period’s monthly average currency conversion
rate.
Guidance for certain financial information for the fiscal year
ending June 29, 2019 has also been presented on a non-GAAP
basis.
Management utilizes these non-GAAP and constant currency
measures to conduct and evaluate its business during its regular
review of operating results for the periods affected and to make
decisions about Company resources and performance. The Company
believes presenting these non-GAAP measures, which exclude items
that are not comparable from period to period, is useful to
investors and others in evaluating the Company’s ongoing operating
and financial results in a manner that is consistent with
management’s evaluation of business performance and understanding
how such results compare with the Company’s historical performance.
Additionally, the Company believes presenting these metrics on a
constant currency basis will help investors and analysts to
understand the effect of significant year-over-year foreign
currency exchange rate fluctuations on these performance measures
and provide a framework to assess how business is performing and
expected to perform excluding these effects.
TAPESTRY,
INC.
SEGMENT
INFORMATION
For the Quarters
and Years Ended June 30, 2018 and July 1, 2017
(in
millions)
(unaudited)
Coach(1) Kate Spade(1)
StuartWeitzman(1)
Corporate Total
Three Months
Ended June 30, 2018
Net sales $ 1,098.9 $ 311.9 $ 72.9 $ — $ 1,483.7 Gross
profit 762.1 204.5 36.6 — 1,003.2 Operating income (loss) 283.8
23.9 (20.7 ) (99.8 ) 187.2 Income (loss) before provision for
income taxes 283.8 23.9 (20.7 ) (114.2 ) 172.8
Three Months
Ended July 1, 2017
Net sales $ 1,045.9 $ — $ 87.9 $ — $ 1,133.8 Gross profit
705.1 — 49.4 — 754.5 Operating income (loss) 246.1 — (2.9 ) (50.2 )
193.0 Income (loss) before provision for income taxes 246.1 — (2.9
) (63.8 ) 179.4
Year Ended June
30, 2018
Net sales $ 4,221.5 $ 1,284.7 $ 373.8 $ — $ 5,880.0 Gross
profit 2,931.5 711.1 211.3 — 3,853.9 Operating income (loss)
1,084.2 (61.9 ) (2.6 ) (348.9 ) 670.8 Income (loss) before
provision for income taxes 1,084.2 (61.9 ) (2.6 ) (422.9 ) 596.8
Year Ended July
1, 2017
Net sales $ 4,114.7 $ — $ 373.6 $ — $ 4,488.3 Gross profit
2,855.0 — 226.1 — 3,081.1 Operating income (loss) 1,040.0 — 15.5
(268.1 ) 787.4 Income (loss) before provision for income taxes
1,040.0 — 15.5 (296.5 ) 759.0 (1) During the first quarter
of fiscal 2018, the Company completed its acquisition of Kate Spade
& Company. During the third quarter of fiscal 2018, the Company
completed its acquisition of certain distributors for the Coach and
Stuart Weitzman brands and assumed operational control of Kate
Spade joint ventures. The operating results of the respective
entity have been consolidated in the Company's operating results
commencing on the date of each acquisition.
TAPESTRY,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
At June 30, 2018
and July 1, 2017
(in
millions)
(unaudited) (audited) June 30,
July 1, 2018 2017 ASSETS Cash,
cash equivalents and short-term investments $ 1,250.0 $ 3,083.6
Receivables 314.1 268.0 Inventories 673.8 469.7 Other current
assets 194.7 132.0 Total current assets
2,432.6 3,953.3 Property and equipment, net 885.4 691.4
Other noncurrent assets 3,360.3 1,186.9 Total
assets $ 6,678.3 $ 5,831.6
LIABILITIES AND STOCKHOLDERS'
EQUITY Accounts payable $ 264.3 $ 194.6 Accrued
liabilities 673.2 559.2 Current debt 0.7 —
Total current liabilities 938.2 753.8 Long-term debt 1,599.9
1,579.5 Other liabilities 895.6 496.4 Stockholders' equity
3,244.6 3,001.9 Total liabilities and
stockholders' equity $ 6,678.3 $ 5,831.6
TAPESTRY,
INC.
STORE
COUNT
At March 31, 2018
and June 30, 2018
(unaudited)
As of As of
Directly-Operated
Store Count:
March 31,
2018
Openings
(Closures)
June 30,
2018
Coach
North America 405 — (3) 402 International 575 12 (2) 585
Kate
Spade
North America 188 15 (3) 200 International 144 4 (6) 142
Stuart
Weitzman
North America 70 — (2) 68 International 33 2 — 35
TAPESTRY,
INC.
STORE
COUNT
At July 1, 2017
and June 30, 2018
(unaudited)
As of Acquired As of
Directly-Operated
Store Count:
July 1,
2017
Stores
Openings
(Closures)
June 30,
2018
Coach
North America 419 — 3 (20) 402 International 543 21 41 (20) 585
Kate
Spade
North America — 180 32 (12) 200 International — 145 10 (13) 142
Stuart
Weitzman
North America 69 — 2 (3) 68 International 12 20 3 — 35
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180814005208/en/
Tapestry, Inc.Analysts & Media:Andrea Shaw Resnick,
212-629-2618Global Head of Investor Relations and Corporate
Communicationsaresnick@tapestry.comorChristina Colone,
212-946-7252Senior Director, Investor
Relationsccolone@tapestry.com
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