01—Abstract
Summary
Summary of the 10-K filed August 13, 2020. Cited figures are marked; the original filing is the authoritative source.
Tapestry, Inc. (TPR) reported fiscal 2020 (52 weeks ended June 27, 2020) net sales of $4.96 billiona, down 17.7% from $6.03 billion in fiscal 2019, as the Covid-19 pandemic closed most directly operated stores and reduced wholesale shipments.
The company swung to a GAAP operating loss of $550.8 millionb and a net loss of $652.1 million, or $(2.34) per diluted share, compared with net income of $643.4 million in fiscal 2019. The result includes $477.7 million in impairment of goodwill and intangible assets, largely for the Stuart Weitzman brand, which was fully impaired ($210.7 million goodwill and $267.0 million brand intangible). Excluding items affecting comparability, the company reports adjusted net income of $271.2 million, or $0.97 per diluted share.
Gross margin was 65.3%, versus 67.3% in fiscal 2019. The balance sheet shows total debt of $2.30 billionc, including a $700 million draw on a $900 million revolving credit facility taken as a precaution in March 2020. Cash and cash equivalents were $1.43 billion at year-end.
Under Amendment No. 1 to the credit facility, the company must maintain at least $700 milliond of available liquidity through October 2, 2021, and the amendment restricts share buybacks and cash dividends during the Covenant Relief Period. The quarterly dividend and share repurchase program were suspended. Management is running a multi-year Acceleration Program, with total pre-tax charges expected at $185 to $200 million and about $300 million in gross run-rate expense savings, including $200 million projected for fiscal 2021.
Leadership also changed during the period. Jide Zeitlin resigned as Chairman and CEO effective July 20, 2020, and Joanne Crevoiserat became Interim CEO. Investors should weigh the near-term earnings pressure, the reliance on the revolver, and the execution risk of the restructuring against the company's portfolio of three brands and its operating cash flow of $407.0 million in fiscal 2020.
02—Key points
Key Highlights
- Net sales fell 17.7% to $4.96 billion in fiscal 2020, driven by the Covid-19 outbreak, with Coach at $3.53 billion, Kate Spade at $1.15 billion and Stuart Weitzman at $286.2 million.
- GAAP operating loss of $550.8 million (operating margin of (11.1)%) versus operating income of $819.7 million in fiscal 2019, including $477.7 million of goodwill and intangible impairment charges.
- Net loss of $652.1 million, or $(2.34) per diluted share; excluding items affecting comparability, net income was $271.2 million, or $0.97 per diluted share.
- Full impairment of Stuart Weitzman goodwill ($210.7 million) and indefinite-lived brand intangible ($267.0 million) recorded in the third quarter of fiscal 2020.
- Total debt of $2.30 billion, including a $700 million revolver draw; the credit amendment requires $700 million of minimum liquidity through October 2, 2021.
- Quarterly dividend and share repurchase program suspended; the company paid $380.3 million in dividends during fiscal 2020 before the suspension took effect.
- Acceleration Program expects total pre-tax charges of $185 to $200 million and about $300 million in gross run-rate expense savings, including $200 million projected for fiscal 2021.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2020, Tapestry lost $0.13.
- Revenue$4.96B100.0%
- Cost of revenue−$1.72B34.7%
- Gross profit$3.24B65.3%
- Operating costs−$3.79B76.4%
- Operating income−$550.8M11.1%
- Interest, other & tax−$101.3M2.0%
- Net income−$652.1M13.1%
04—Financials
Financial Highlights
Figures from 10-KFY2020filed August 13, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $4.96B$6.03B | −17.7% |
| Cost of Revenue | $1.72B$1.97B | −12.7% |
| Gross Profit | $3.24B$4.05B | −20.1% |
| Operating Income | -$550.80M$819.70M | −167.2% |
| Interest Expense | $71.50M$66.90M | +6.9% |
| Net Income | -$652.10M$643.40M | −201.4% |
| EPS (Basic) | $-2.34$2.22 | −205.4% |
| EPS (Diluted) | $-2.34$2.21 | −205.9% |
| Shares Outstanding (Basic) | 278.60M289.40M | −3.7% |
| Shares Outstanding (Diluted) | 278.60M290.80M | −4.2% |
05—Questions
Frequently Asked Questions
Why did Tapestry report a net loss in fiscal 2020?
The loss reflects the Covid-19 pandemic, which led to temporary closure of most directly operated stores and lower wholesale demand, along with $477.7 million of goodwill and intangible impairment charges and $87.0 million of Acceleration Program charges. Gross profit fell 20.1% to $3.24 billion, and SG&A expenses rose to $3.79 billion, or 76.4% of net sales.
How is Tapestry funding itself during the pandemic?
The company drew $700 million from its $900 million Revolving Credit Facility in March 2020, added to cash balances, and ended the year with $1.43 billion in cash and cash equivalents. It suspended its quarterly dividend beginning in the fourth quarter of fiscal 2020 and suspended its share repurchase program. The May 2020 amendment requires $700 million of available liquidity through October 2, 2021.
What is the Acceleration Program and what does it cost?
The Acceleration Program is a multi-year growth agenda focused on sharpening the consumer focus, leveraging data and a digital-first approach, and building a leaner organization. The company expects total pre-tax charges of $185 to $200 million, with most remaining charges in fiscal 2021, and estimates about $300 million in gross run-rate expense savings, including $200 million in fiscal 2021.
Which brands drove the results?
Coach, which accounted for 71.1% of fiscal 2020 net sales, reported operating income of $589.4 million. Kate Spade reported an operating loss of $99.3 million, and Stuart Weitzman reported an operating loss of $621.4 million, primarily due to impairment charges. Excluding items affecting comparability, Coach operating income was $787.1 million, Kate Spade was $40.8 million, and Stuart Weitzman was an operating loss of $56.6 million.
Who is leading the company after the CEO change?
Jide Zeitlin resigned as Chairman, Chief Executive Officer and director effective July 20, 2020. Joanne Crevoiserat, the Chief Financial Officer, was appointed Interim Chief Executive Officer effective July 21, 2020, and Andrea Shaw Resnick was appointed Interim Chief Financial Officer.
06—Continue