01—Abstract
Summary
Summary of the 10-K filed August 19, 2016. Cited figures are marked; the original filing is the authoritative source.
Coach, Inc. (now Tapestry, Inc.) reported fiscal 2016 (a 53-week year ended July 2, 2016) net sales of $4.49 billiona, up from $4.19 billion in fiscal 2015, driven mainly by the full-year inclusion of the Stuart Weitzman brand, which was acquired on May 4, 2015, and by growth in the International segment.
Gross margin declined to 67.9% from 69.4%, and operating income rose to $653.5 millionb from $618.0 million. Net income increased to $460.5 million, or $1.65 per diluted share, from $402.4 million, or $1.45, with the increase largely attributable to a lower tax provision. Excluding non-GAAP charges related to the Transformation Plan, Operational Efficiency Plan and acquisition costs, diluted EPS was $1.98 versus $1.92 in the prior year.
North America net sales declined 2.9% to $2.40 billionc, reflecting lower comparable store sales, a net closure of 30 retail stores, and promotional pressure in outlet and wholesale channels, with North America operating income down 10.1%. International net sales rose 5.1% to $1.70 billion, led by Europe and Greater China. The company is pursuing an Operational Efficiency Plan announced April 26, 2016, with expected pre-tax charges of $65 to $80 million, and is closing about 25% of North America wholesale doors over the next year.
Cash and cash equivalents fell to $859.0 milliond, operating cash flow was $758.6 million, and capital expenditures rose to $396.4 million, partly tied to the new Hudson Yards headquarters. After fiscal year-end, on August 1, 2016, the company sold its interest in 10 Hudson Yards for approximately $707 million net of developer amounts and leased back about 694,000 square feet for 20 years. It also prepaid approximately $285 million of Term Loan borrowings on August 3, 2016.
02—Key points
Key Highlights
- Net sales rose 7.2% to $4.49 billion, with the Stuart Weitzman segment contributing $344.7 million versus $43.0 million in fiscal 2015.
- Reported operating income increased 5.7% to $653.5 million, but operating margin was 14.5% versus 14.7%; excluding non-GAAP items, operating income declined 1.5% to $776.6 million.
- North America net sales fell 2.9% to $2.40 billion, with comparable store sales down 3.3%, and North America operating income fell 10.1% to $737.3 million.
- International net sales increased 5.1% to $1.70 billion, and International operating income rose 6.7% to $512.7 million.
- Diluted EPS was $1.65 (up 13.6%), and $1.98 excluding non-GAAP charges of $0.33 per diluted share.
- Gross margin declined to 67.9% from 69.4%, reflecting promotional activity in North America and unfavorable foreign currency effects.
- Post year-end, the company sold its 10 Hudson Yards interest for about $707 million and prepaid about $285 million of Term Loan borrowings.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Tapestry kept $0.10.
- Revenue$4.49B100.0%
- Cost of revenue−$1.44B32.1%
- Gross profit$3.05B67.9%
- Operating costs−$2.40B53.4%
- Operating income$653.5M14.5%
- Interest, other & tax−$193.0M4.3%
- Net income$460.5M10.3%
Where FY2016 revenue went
$4.49B- SG&A: $2.40B, 53% of revenue
- Cost of revenue: $1.44B, 32% of revenue
- Net income: $460.5M, 10% of revenue
- Interest, other & tax: $193.0M, 4.3% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed August 19, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $4.49B$4.19B | +7.2% |
| Cost of Revenue | $1.44B$1.28B | +12.3% |
| Gross Profit | $3.05B$2.91B | +4.9% |
| SG&A Expenses | $2.40B$2.29B | +4.7% |
| Operating Income | $653.50M$618.00M | +5.7% |
| Interest Expense | $32.90M$11.90M | +176.5% |
| Net Income | $460.50M$402.40M | +14.4% |
| EPS (Basic) | $1.66$1.46 | +13.7% |
| EPS (Diluted) | $1.65$1.45 | +13.8% |
| Shares Outstanding (Basic) | 277.60M275.70M | +0.7% |
| Shares Outstanding (Diluted) | 279.30M277.20M | +0.8% |
05—Questions
Frequently Asked Questions
How did the company's sales and profitability change in fiscal 2016?
Net sales increased 7.2% to $4,491.8 million, mainly due to a full year of Stuart Weitzman, partly offset by lower North America sales. Net income rose 14.4% to $460.5 million, primarily because the provision for income taxes fell $43.1 million, and gross margin declined to 67.9% from 69.4%.
What were the main non-GAAP charges in fiscal 2016?
The company recorded $44.1 million under the Transformation Plan, $43.9 million under the Operational Efficiency Plan and $35.1 million of acquisition-related costs, which together reduced net income by $91.2 million, or $0.33 per diluted share.
What is the outlook for North America store and wholesale footprint?
The company expects to close approximately 10 to 15 North America retail stores in fiscal 2017 and to close about 25% of North America wholesale doors from fiscal 2016 year-end levels over the next year.
What happened with the Hudson Yards headquarters after year-end?
On August 1, 2016, the company sold its investments in 10 Hudson Yards for approximately $707 million net of about $77 million due to the developer, before $26 million of transaction costs, and entered into a 20-year lease for about 694,000 square feet of headquarters space. The sale resulted in a gain of about $30 million, which will be amortized through SG&A expenses over the lease term.
How is the company's liquidity and debt position?
As of July 2, 2016, cash and cash equivalents were $859.0 million and short-term investments were $460.4 million, against total debt of $876.2 million. On August 3, 2016, the company prepaid approximately $285 million of Term Loan borrowings, while the $600.0 million 4.250% Senior Notes due 2025 remain outstanding.
06—Continue