01—Abstract
Summary
Summary of the 10-Q filed February 8, 2024. Cited figures are marked; the original filing is the authoritative source.
Tapestry, Inc. (TPR) reported second-quarter fiscal 2024 results for the three months ended December 30, 2023, with net sales of $2,084.5 milliona, up 2.9% or $59.1 million from $2,025.4 million a year earlier, and net income of $322.3 million, or $1.39 per diluted share, versus $329.9 million, or $1.36 per diluted share.
Operating income rose 7.0% to $447.6 millionb, but results include $72.4 million of pre-tax acquisition costs tied to the proposed Capri Holdings Limited acquisition, which the filing says would be purchased for $57.00 per share in cash, for an enterprise value of about $8.5 billion, with closing expected during calendar 2024. Excluding items affecting comparability, the filing reports net income of $376.7 million and $1.63 per diluted share. The balance sheet changed substantially during the quarter.
Cash and cash equivalents rose to $6,833.1 millionc from $726.1 million, and long-term debt, net, increased to $7,714.4 million from $1,635.8 million, reflected in $4.5 billion of U.S. dollar senior notes and EUR 1.5 billion of euro senior notes issued in November 2023 to fund the acquisition. Net cash from operating activities for the six months was $901.8 million, compared with $462.4 million a year earlier. The company suspended share repurchases in August 2023 in connection with the Capri transaction and repurchased no shares in the first half of fiscal 2024.
For the six months ended December 30, 2023, net sales were $3,597.7 milliond (up 1.9%), operating income was $700.8 million, and diluted EPS was $2.23. Coach drove growth, with net sales up 6.4% in the quarter, while Kate Spade net sales declined 6.1%. The company says its gross margin expanded to 71.6% in the quarter, largely from lower freight costs and pricing improvements.
02—Key points
Key Highlights
- Q2 FY2024 net sales of $2,084.5 million, up 2.9% (up 3.3% excluding currency), with Coach up 6.4% to $1,541.9 million and Kate Spade down 6.1% to $460.4 million.
- Q2 net income of $322.3 million, or $1.39 per diluted share, versus $329.9 million, or $1.36, a year earlier; excluding $72.4 million of Capri acquisition costs, net income was $376.7 million, or $1.63 per diluted share.
- Gross margin rose to 71.6% from 68.6%, attributed mainly to lower freight costs, favorable geography mix, and net pricing improvements.
- Operating income rose 7.0% to $447.6 million; operating margin was 21.5% versus 20.6%.
- Total debt, net, rose to $7,714.4 million long-term from $1,635.8 million after issuing $4.5 billion of U.S. dollar senior notes and EUR 1.5 billion of euro senior notes to fund the pending $8.5 billion Capri acquisition.
- Cash and cash equivalents increased to $6,833.1 million from $726.1 million at fiscal year-end 2023, with $629.2 million of short-term investments.
- Share repurchases were suspended in August 2023; $800.0 million remained available under the 2022 Share Repurchase Program, and no shares were repurchased in the first six months of fiscal 2024.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Tapestry kept $0.15.
- Revenue$2.08B100.0%
- Cost of revenue−$591.3M28.4%
- Gross profit$1.49B71.6%
- Operating costs−$1.05B50.2%
- Operating income$447.6M21.5%
- Interest, other & tax−$125.3M6.0%
- Net income$322.3M15.5%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed February 8, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $2.08B$2.03B | +2.9% |
| Cost of Revenue | $591.30M$636.10M | −7.0% |
| Gross Profit | $1.49B$1.39B | +7.5% |
| SG&A Expenses | $1.05B$971.10M | +7.7% |
| Operating Income | $447.60M$418.20M | +7.0% |
| Interest Expense | $88.60M$18.10M | +389.5% |
| Net Income | $322.30M$195.30M | +65.0% |
| EPS (Basic) | $1.41$1.38 | +2.2% |
| EPS (Diluted) | $1.39$1.36 | +2.2% |
| Shares Outstanding (Basic) | 229.30M239.30M | −4.2% |
| Shares Outstanding (Diluted) | 231.70M243.30M | −4.8% |
05—Questions
Frequently Asked Questions
What is the status of the proposed Capri Holdings acquisition and how is it being financed?
Tapestry agreed on August 10, 2023 to acquire Capri Holdings Limited for $57.00 per share in cash, for an enterprise value of about $8.5 billion, with closing expected during calendar 2024. Capri shareholders approved the merger on October 25, 2023. The company issued $4.5 billion of U.S. dollar senior notes and EUR 1.5 billion of euro senior notes in November 2023, which, together with $1.4 billion of delayed-draw term loan facilities, the filing says completes the expected financing. Pre-tax acquisition costs were $72.4 million in the quarter and $98.7 million for the six months.
How much debt does Tapestry now carry?
Long-term debt, net, was $7,714.4 million at December 30, 2023, compared with $1,635.8 million at July 1, 2023, and current debt was $25.0 million. Total interest expense related to debt was $88.6 million in the quarter, including $25.9 million of Bridge Facility financing fees. The Revolving Facility of $2.0 billion and the $1.4 billion Capri term loan facilities were both undrawn at quarter-end.
What drove the change in profitability this quarter?
Operating income increased $29.4 million to $447.6 million, reflecting gross profit growth of $103.9 million, which the company attributed mainly to lower freight costs, favorable geography mix and net pricing improvements. SG&A rose 7.7% to $1,045.6 million, primarily due to higher compensation costs and $28.3 million of acquisition-related professional fees. Net interest expense rose to $49.2 million from $7.9 million, mainly due to acquisition financing.
How did each brand perform?
Coach net sales increased 6.4% to $1,541.9 million, with operating income up 16.6% to $528.3 million and an operating margin of 34.3%. Kate Spade net sales fell 6.1% to $460.4 million, though its operating income rose 4.5% to $72.1 million. Stuart Weitzman net sales declined 3.8% to $82.2 million, with operating income of $1.4 million.
Is the company still returning cash to shareholders?
Dividends continued at $0.35 per share in the quarter, totaling $80.2 million, and dividend payments were $160.4 million for the six months. Share repurchases were suspended in August 2023 in connection with the Capri acquisition, and no shares were repurchased during the first six months of fiscal 2024.
06—Continue