01—Abstract
Summary
Summary of the 10-K filed August 18, 2022. Cited figures are marked; the original filing is the authoritative source.
Tapestry, Inc. (TPR) reported fiscal 2022 (52 weeks ended July 2, 2022) net sales of $6.68 billiona, up 16.3% from $5.75 billion in fiscal 2021, which included a 53rd week contributing $92.7 million.
Gross margin declined to 69.6% from 71.0%, driven largely by higher inbound freight costs. Operating income rose to $1.18 billionb (17.6% of net sales) from $968.0 million, and net income increased to $856.3 million, or $3.17 per diluted share, from $834.2 million, or $2.95 per diluted share. Excluding items affecting comparability, primarily Acceleration Program costs and a debt extinguishment charge, diluted EPS was $3.47.
Coach generated 73.6% of net sales, Kate Spade 21.6% and Stuart Weitzman 4.8%. The company's cash position declined sharply. Cash and cash equivalents fell to $789.8 millionc from $2,007.7 million, as operating cash flow of $853.2 million was outweighed by $1.60 billion of share repurchases, $900.0 million of debt repayment, and $264.4 million of dividends.
Total indebtedness was $1.70 billiond at year-end, and the company replaced its $900.0 million revolver with a $1.25 billion revolving credit facility and a $500.0 million term loan. The company also issued $500.0 million of 3.050% senior notes due 2032 and repurchased 42.0 million shares. It expects to repurchase approximately $700.0 million of stock in fiscal 2023.
Management cites Covid-19 disruptions, most notably in Greater China, supply chain and freight pressures, and the Acceleration Program, which achieved approximately $300 million of annual gross run-rate expense savings in fiscal 2022 and is not expected to generate further expenses in fiscal 2023. Digital revenue reached $2 billion, or 30% of total sales. The filing also notes that the Inflation Reduction Act of 2022 was signed on August 16, 2022, with its impact on the company's tax rate still unclear.
02—Key points
Key Highlights
- Net sales rose 16.3% to $6.68 billion, led by Coach at $4.92 billion (up 15.7%) and Kate Spade at $1.45 billion (up 19.5%).
- Diluted EPS was $3.17 on GAAP net income of $856.3 million; excluding items affecting comparability, diluted EPS was $3.47.
- Gross margin fell to 69.6% from 71.0%, primarily reflecting higher inbound freight costs; incremental freight costs were $178.5 million versus fiscal 2021.
- Operating income grew 21.5% to $1.18 billion, with operating margin of 17.6% versus 16.8% a year earlier.
- Cash and cash equivalents decreased by $1.22 billion to $789.8 million after $1.60 billion of share repurchases and $900.0 million of debt repayment.
- Total indebtedness was $1.70 billion; the new $1.25 billion revolver and $500.0 million term loan mature on May 11, 2027, subject to a maximum 4.0 to 1.0 net leverage ratio.
- Digital revenue reached $2 billion, representing 30% of total sales, and the Acceleration Program delivered approximately $300 million of gross run-rate savings in fiscal 2022.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Tapestry kept $0.13.
- Revenue$6.68B100.0%
- Cost of revenue−$2.03B30.4%
- Gross profit$4.65B69.6%
- Operating costs−$3.47B52.0%
- Operating income$1.18B17.6%
- Interest, other & tax−$319.8M4.8%
- Net income$856.0M12.8%
Where FY2022 revenue went
$6.68B- SG&A: $3.47B, 52% of revenue
- Cost of revenue: $2.03B, 30% of revenue
- Net income: $856.0M, 13% of revenue
- Interest, other & tax: $319.8M, 4.8% of revenue
Kept 13% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed August 18, 2022Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $6.68B$5.75B | +16.3% |
| Cost of Revenue | $2.03B$1.66B | +22.2% |
| Gross Profit | $4.65B$4.08B | +13.9% |
| SG&A Expenses | $3.47B$3.11B | +11.6% |
| Operating Income | $1.18B$968.00M | +21.5% |
| Interest Expense | $68.80M$73.50M | −6.4% |
| Net Income | $856.00M$834.20M | +2.6% |
| EPS (Basic) | $3.24$3.00 | +8.0% |
| EPS (Diluted) | $3.17$2.95 | +7.5% |
| Shares Outstanding (Basic) | 264.30M277.90M | −4.9% |
| Shares Outstanding (Diluted) | 270.10M283.00M | −4.6% |
05—Questions
Frequently Asked Questions
How did Tapestry perform financially in fiscal 2022?
Net sales increased 16.3% to $6.68 billion, operating income rose to $1.18 billion, and net income reached $856.3 million, or $3.17 per diluted share. Excluding items affecting comparability, diluted EPS was $3.47.
What drove the decline in gross margin?
Gross margin decreased to 69.6% from 71.0%. The filing attributes the Coach decline mainly to higher inbound freight costs, partly offset by reduced promotional activity and stronger sell-throughs. Kate Spade's decline was also attributed mainly to higher inbound freight costs.
How much did Tapestry return to shareholders and how is it funded?
During fiscal 2022 the company repurchased 42.0 million shares for $1.60 billion and paid dividends of $264.4 million. The company also intends to repurchase approximately $700.0 million of stock in fiscal 2023, all remaining under its current authorization.
What is the company's debt and liquidity position?
Total indebtedness was $1.70 billion as of July 2, 2022. Total available liquidity was $2.20 billion, including $789.8 million of cash and cash equivalents, $163.4 million of short-term investments and $1.25 billion of undrawn revolving credit capacity, after the company replaced its prior revolver with a new facility.
What are the main risks flagged in the filing?
Key risks include the ongoing Covid-19 pandemic, particularly in Greater China; supply chain and freight cost pressures; foreign currency exposure, with approximately 37.6% of net sales from outside the United States; competition; and the ability to execute the Acceleration Program and digital strategy. The filing also notes the Inflation Reduction Act of 2022 may affect the tax rate, with its impact not yet determined.
06—Continue