01—Abstract
Summary
Summary of the 10-K filed August 18, 2017. Cited figures are marked; the original filing is the authoritative source.
Coach, Inc. (now Tapestry, Inc.) reported fiscal 2017 (52 weeks ended July 1, 2017) net sales of $4.49 billiona, essentially flat versus $4.49 billion in fiscal 2016, which included a 53rd week contributing $84.4 million.
Operating income rose 20.5% to $787.4 millionb and net income rose 28.3% to $591.0 million, or $2.09 per diluted share. Excluding non-GAAP items, operating income increased 4.6% to $812.6 million and diluted EPS rose 9.1% to $2.15. Coach brand net sales declined 0.8% to $4.11 billion, with North America down 2.0% to $2.35 billion and International up 0.7% to $1.72 billion.
Stuart Weitzman net sales grew 8.4% to $373.6 millionc. The most significant development was the July 11, 2017 acquisition of Kate Spade & Company for $18.50 per share in cash, approximately $2.4 billion, funded by senior notes, term loans and cash on hand. Total indebtedness at fiscal year-end was $1.6 billion, and the company borrowed $1.1 billion in term loans after year-end.
Cash and cash equivalents rose to $2.67 billiond at July 1, 2017, up from $859.0 million, largely due to the sale of the Hudson Yards investment for $680.6 million and proceeds from $997.2 million of senior notes issued in fiscal 2017. Management plans to close about 10 North America retail stores in fiscal 2018 and expects $150 to $200 million of Kate Spade integration costs in fiscal 2018.
The company remains focused on its Operational Efficiency Plan, with remaining charges of $10 to $15 million expected in fiscal 2018, and on expanding the Coach brand internationally. Quarterly dividends of $0.3375 per share were maintained, totaling $1.35 per share for the year.
02—Key points
Key Highlights
- Net sales were $4.49 billion in fiscal 2017, down 0.1% from $4.49 billion in fiscal 2016, which included a 53rd week worth $84.4 million.
- Operating income increased 20.5% to $787.4 million; operating margin rose to 17.5% from 14.5%. Excluding non-GAAP items, operating income rose 4.6% to $812.6 million.
- Net income increased 28.3% to $591.0 million, and diluted EPS rose 26.7% to $2.09; excluding non-GAAP items, diluted EPS was $2.15, up 9.1%.
- Acquisition of Kate Spade & Company completed July 11, 2017 for approximately $2.4 billion in cash, creating a multi-brand luxury lifestyle company.
- Total indebtedness was $1.6 billion at July 1, 2017; the company borrowed a further $1.1 billion in term loans after year-end to fund the Kate Spade acquisition.
- Cash and cash equivalents increased to $2.67 billion, supported by the $680.6 million Hudson Yards investment sale and $997.2 million of net senior note proceeds.
- Coach brand North America net sales fell 2.0%, reflecting the strategic closure of about 25% of wholesale doors, while International net sales rose 0.7% and Stuart Weitzman grew 8.4%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Tapestry kept $0.13.
- Revenue$4.49B100.0%
- Cost of revenue−$1.41B31.4%
- Gross profit$3.08B68.6%
- Operating costs−$2.29B51.1%
- Operating income$787.4M17.5%
- Interest, other & tax−$196.4M4.4%
- Net income$591.0M13.2%
Where FY2017 revenue went
$4.49B- SG&A: $2.29B, 51% of revenue
- Cost of revenue: $1.41B, 31% of revenue
- Net income: $591.0M, 13% of revenue
- Interest, other & tax: $196.4M, 4.4% of revenue
Kept 13% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed August 18, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $4.49B$4.49B | −0.1% |
| Cost of Revenue | $1.41B$1.44B | −2.3% |
| Gross Profit | $3.08B$3.05B | +1.0% |
| SG&A Expenses | $2.29B$2.40B | −4.3% |
| Operating Income | $787.40M$653.50M | +20.5% |
| Interest Expense | $26.80M$32.90M | −18.5% |
| Net Income | $591.00M$460.50M | +28.3% |
| EPS (Basic) | $2.11$1.66 | +27.1% |
| EPS (Diluted) | $2.09$1.65 | +26.7% |
| Shares Outstanding (Basic) | 280.60M277.60M | +1.1% |
| Shares Outstanding (Diluted) | 282.80M279.30M | +1.3% |
05—Questions
Frequently Asked Questions
How did Coach perform in fiscal 2017 compared with fiscal 2016?
Net sales were essentially flat at $4.49 billion, down 0.1%, but fiscal 2016 included a 53rd week worth $84.4 million. Operating income rose 20.5% to $787.4 million and net income rose 28.3% to $591.0 million, driven by lower SG&A expenses, which fell 4.3% to $2.29 billion.
What was the Kate Spade acquisition and how was it financed?
Coach completed its acquisition of Kate Spade & Company on July 11, 2017 for $18.50 per share in cash, totaling approximately $2.4 billion. The purchase was funded through a combination of senior notes (including $400.0 million of 3.000% notes due 2022 and $600.0 million of 4.125% notes due 2027), term loan facilities of $1.1 billion, and cash on hand.
What is the company's debt position after fiscal 2017?
Consolidated indebtedness was $1.6 billion at July 1, 2017, consisting of $1.6 billion of senior notes. Subsequent to year-end, the company borrowed $1.1 billion under term loan facilities. The company also had a undrawn $900.0 million revolving credit facility maturing May 30, 2022.
What restructuring and integration costs should investors expect in fiscal 2018?
The company expects $10 to $15 million of remaining Operational Efficiency Plan charges in fiscal 2018, plus an estimated $150 to $200 million of Kate Spade integration costs covering severance, store closure costs and inventory realignment. It also expects about $45 million of acquisition-related expenses and roughly $60 million of severance and related costs for certain Kate Spade executives.
What is the dividend policy?
Coach declared quarterly dividends of $0.3375 per share in each quarter of fiscal 2017, totaling $1.35 per share for the year, consistent with fiscal 2016 and fiscal 2015. The filing notes that future dividends remain at the discretion of the Board of Directors.
06—Continue