01—Abstract
Summary
Summary of the 10-K filed August 14, 2015. Cited figures are marked; the original filing is the authoritative source.
Coach, Inc. (now Tapestry, Inc.) reported fiscal 2015 (52 weeks ended June 27, 2015) net sales of $4.19 billiona, down 12.8% from $4.81 billion in fiscal 2014, with net income of $402.4 million ($1.45 per diluted share) versus $781.3 million ($2.79) a year earlier.
Excluding $145.9 millionb of Transformation Plan charges and $24.6 million of Stuart Weitzman acquisition-related charges, net income was $531.2 million ($1.92 per diluted share), a decrease of 38.9% from the prior year on an adjusted basis. The decline was driven mainly by North America, where net sales fell 20.4% to $2.47 billion as comparable store sales dropped 22% amid lower promotional activity, while International net sales fell 1.3% to $1.62 billion. Gross margin rose to 69.4% from 68.6%, but SG&A expenses rose 5.2% to $2.29 billion, reducing operating income 44.8% to $618.0 million.
The company acquired Stuart Weitzman on May 4, 2015 for $531.1 millionc in cash, which contributed $43.0 million in net sales within the Other segment. To fund the acquisition and related investments, Coach issued $600.0 million of 4.250% senior notes due 2025 and drew a $300.0 million term loan, leaving total debt of $890.4 million at year end versus $140.5 million a year earlier.
Cash, cash equivalents and investments rose to $1.93 billiond, and the company did not repurchase any shares in fiscal 2015 after the repurchase program expired in June 2015. The company continues its multi-year Transformation Plan, with aggregate pre-tax charges expected to total about $325 million and roughly $50 million of additional charges expected in fiscal 2016, alongside planned closure of approximately 15-20 North America retail stores in fiscal 2016.
02—Key points
Key Highlights
- Net sales fell 12.8% to $4.19 billion in fiscal 2015, with North America down 20.4% to $2.47 billion and International down 1.3% to $1.62 billion.
- Net income declined 48.5% to $402.4 million ($1.45 per diluted share); excluding items affecting comparability, net income was $531.2 million ($1.92 per diluted share).
- Operating margin fell to 14.7% from 23.3%, as SG&A expenses rose to 54.6% of net sales, including $160.8 million of items affecting comparability.
- Acquired Stuart Weitzman on May 4, 2015 for $531.1 million in cash; the brand contributed $43.0 million in net sales in fiscal 2015.
- Total debt increased to $890.4 million from $140.5 million after issuing $600.0 million of 4.250% senior notes due 2025 and a $300.0 million term loan.
- Transformation Plan has aggregate pre-tax charges expected around $325 million, with about $50 million expected in fiscal 2016; approximately 15-20 North America retail stores are expected to close in fiscal 2016.
- No share repurchases in fiscal 2015 compared with $524.9 million in fiscal 2014; the repurchase program expired in June 2015 with zero remaining availability.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Tapestry kept $0.10.
- Revenue$4.19B100.0%
- Cost of revenue−$1.28B30.6%
- Gross profit$2.91B69.4%
- Operating costs−$2.29B54.6%
- Operating income$618.0M14.7%
- Interest, other & tax−$215.6M5.1%
- Net income$402.4M9.6%
Where FY2015 revenue went
$4.19B- SG&A: $2.29B, 55% of revenue
- Cost of revenue: $1.28B, 31% of revenue
- Net income: $402.4M, 9.6% of revenue
- Interest, other & tax: $215.6M, 5.1% of revenue
Kept 9.6% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed August 14, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $4.19B$4.81B | −12.8% |
| Cost of Revenue | $1.28B$1.51B | −15.0% |
| Gross Profit | $2.91B$3.30B | −11.8% |
| SG&A Expenses | $2.29B$2.18B | +5.2% |
| Operating Income | $618.00M$1.12B | −44.8% |
| Interest Expense | $11.90M$1.70M | +600.0% |
| Net Income | $402.40M$781.30M | −48.5% |
| EPS (Basic) | $1.46$2.81 | −48.0% |
| EPS (Diluted) | $1.45$2.79 | −48.0% |
| Shares Outstanding (Basic) | 275.70M277.80M | −0.8% |
| Shares Outstanding (Diluted) | 277.20M280.40M | −1.1% |
05—Questions
Frequently Asked Questions
Why did Coach's profitability decline so sharply in fiscal 2015?
Net sales fell 12.8%, driven mainly by North America, where comparable store sales decreased 22% due to lower traffic from reduced promotional activity, especially on the outlet Internet sales site. Operating income fell 44.8% to $618.0 million, and SG&A expenses rose 5.2% to $2.29 billion, with deleveraging as sales declined. The company also recorded $145.9 million of Transformation Plan charges and $24.6 million of Stuart Weitzman acquisition-related charges.
What is the Transformation Plan and what does it cost?
The Transformation Plan is a multi-year strategy announced in the fourth quarter of fiscal 2014 to transform the brand and reinvigorate growth, including store and wholesale investments, organizational streamlining, inventory realignment, roughly $50 million of incremental advertising, and scaled-back promotions. The company expects aggregate pre-tax charges in the range of $325 million under the plan, with about $50 million of additional charges in fiscal 2016.
How did Coach finance the Stuart Weitzman acquisition and what debt does it carry now?
The acquisition was funded through cash on hand and debt proceeds. In March 2015 the company issued $600.0 million of 4.250% senior unsecured notes due April 1, 2025 at 99.445% of par and amended its revolving facility to include a $300.0 million term loan maturing March 18, 2020. Total debt was $890.4 million at June 27, 2015, and the company stated no known events of default existed.
Is Coach's balance sheet still strong despite the earnings decline?
At June 27, 2015, cash, cash equivalents and investments totaled $1.93 billion, up from $1.35 billion, and stockholders' equity was $2.49 billion. The company stated that cash flows from operations, credit access and on-hand cash are expected to provide adequate funds for its operating, capital and debt service requirements. Net cash from operating activities was $937.4 million in fiscal 2015 compared with $985.4 million in fiscal 2014.
What is the outlook for North America stores and the new headquarters?
The company expects to close approximately 15-20 North America retail stores in fiscal 2016 under the Transformation Plan and expects modest to no growth in North America outlet square footage. The new global headquarters at Hudson Yards is expected to be occupied in fiscal 2016, with about $210 million of further investment in the joint venture and about $185 million of additional direct capital expenditures expected over the remaining construction period.
06—Continue