01—Abstract
Summary
Summary of the 10-K filed August 15, 2014. Cited figures are marked; the original filing is the authoritative source.
Coach, Inc. (now Tapestry, Inc.) reported fiscal 2014 (ended June 28, 2014) net sales of $4.81 billiona, down 5.3% from $5.08 billion in fiscal 2013, with net income of $781.3 million ($2.79 per diluted share) versus $1.03 billion ($3.61 per diluted share) a year earlier.
The decline was driven by North America, where net sales fell 10.9% to $3.10 billionb on lower comparable store sales of $460.5 million (down 15%), largely due to lower traffic. International net sales rose 5.5% to $1.64 billion, and operating income fell 26.5% to $1.12 billion, with operating margin dropping to 23.3% from 30.0%. The company announced a multi-year Transformation Plan in the fourth quarter of fiscal 2014, which included $131.5 million of pretax charges in fiscal 2014 (affecting comparability by $0.31 per diluted share), about $500 million in store and wholesale capital improvements, closure of approximately 70 North American stores in fiscal 2015, roughly $50 million in incremental advertising, and a scale-back of promotions.
The company expects an additional $120 million to $170 millionc of pretax Transformation Plan charges, primarily in fiscal 2015. Balance sheet and cash flow changed notably: cash and cash equivalents fell to $591.9 million from $1.06 billion, $140.0 million was drawn on the $700 million JP Morgan revolving facility, and operating cash flow declined to $985.4 million from $1.41 billion.
The company paid $1.35d per share in dividends declared for the year and repurchased $524.9 million of stock, leaving $836.7 million remaining under its repurchase program. Coach also committed to invest about $350 million in the Hudson Yards joint venture for its new headquarters, with occupancy expected in fiscal 2016.
02—Key points
Key Highlights
- Net sales of $4.81 billion in fiscal 2014, down 5.3% from $5.08 billion, with North America down 10.9% and International up 5.5%.
- Net income of $781.3 million, or $2.79 per diluted share, down 24.5% from $1.03 billion ($3.61 per diluted share) in fiscal 2013.
- Operating margin fell to 23.3% from 30.0%, with $131.5 million of Transformation Plan charges affecting comparability.
- North America comparable store sales declined $460.5 million, or 15%, largely due to lower traffic.
- Transformation Plan includes about $500 million in store and wholesale investments, closing approximately 70 North American stores in fiscal 2015, and about $50 million in incremental advertising.
- Cash and cash equivalents decreased to $591.9 million, and $140.0 million was outstanding under the revolving credit facility at year-end.
- Dividends declared were $1.35 per share, and $836.7 million remained under the stock repurchase program as of June 28, 2014.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Tapestry kept $0.16.
- Revenue$4.81B100.0%
- Cost of revenue−$1.51B31.4%
- Gross profit$3.30B68.6%
- Operating costs−$2.18B45.3%
- Operating income$1.12B23.3%
- Interest, other & tax−$338.8M7.0%
- Net income$781.3M16.3%
Where FY2014 revenue went
$4.81B- SG&A: $2.18B, 45% of revenue
- Cost of revenue: $1.51B, 31% of revenue
- Net income: $781.3M, 16% of revenue
- Interest, other & tax: $338.8M, 7.0% of revenue
Kept 16% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed August 15, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $4.81B$5.08B | −5.3% |
| Cost of Revenue | $1.51B$1.38B | +9.6% |
| Gross Profit | $3.30B$3.70B | −10.8% |
| SG&A Expenses | $2.18B$2.17B | +0.2% |
| Operating Income | $1.12B$1.52B | −26.5% |
| Interest Expense | $1.70M$1.40M | +21.4% |
| Net Income | $781.30M$1.03B | −24.5% |
| EPS (Basic) | $2.81$3.66 | −23.2% |
| EPS (Diluted) | $2.79$3.61 | −22.7% |
| Shares Outstanding (Basic) | 277.80M282.50M | −1.7% |
| Shares Outstanding (Diluted) | 280.40M286.30M | −2.1% |
05—Questions
Frequently Asked Questions
What drove the decline in fiscal 2014 results?
The decline was primarily driven by lower sales in North America, where net sales fell 10.9% to $3.10 billion. The filing attributes this mainly to lower comparable store sales of $460.5 million, largely due to lower traffic, and it also cites a more promotional environment and the elimination of third-party Internet events. International net sales increased 5.5% to $1.64 billion, partially offsetting the decline.
What is the Transformation Plan and what will it cost?
The Transformation Plan is a multi-year strategy announced in the fourth quarter of fiscal 2014 to transform the brand and return to best-in-class profitability. It includes about $500 million in capital improvements to stores and wholesale locations, closing about 70 underperforming North American stores in fiscal 2015, about $50 million in incremental advertising, and scaling back promotions. The company recorded $131.5 million of charges in fiscal 2014 and expects additional pretax charges of approximately $120 million to $170 million, primarily in fiscal 2015.
How did cash flow and liquidity change?
Net cash provided by operating activities fell to $985.4 million from $1.41 billion, and cash and cash equivalents decreased by $470.9 million to $591.9 million. The company borrowed $140.0 million under its $700 million JP Morgan revolving credit facility, which had no borrowings in fiscal 2013. Management stated that existing liquidity sources are sufficient for its operating, capital and debt service requirements.
What is the status of the dividend and share repurchases?
Dividends declared were $1.35 per share in fiscal 2014, up from $1.24 in fiscal 2013, and the Board has discretion to change or discontinue dividends. The company repurchased and retired 10.2 million shares for $524.9 million in fiscal 2014. As of June 28, 2014, $836.7 million remained under the $1.5 billion repurchase program, which expires in June 2015.
What is the Hudson Yards joint venture?
Coach formed a joint venture with Related Companies, L.P. to develop a new office tower in Manhattan's Hudson Yards district, in which the company owns less than 43%. The company invested $87.2 million in fiscal 2014 and expects to invest approximately $350 million over the next two years, including about $240 million in fiscal 2015. Occupancy of the new global headquarters is expected in fiscal 2016, and the company expects to fund its share with cash, debt and about $130 million from the sale of its current headquarters buildings.
06—Continue