01—Abstract
Summary
Summary of the 10-Q filed May 9, 2024. Cited figures are marked; the original filing is the authoritative source.
Tapestry, Inc. reported third-quarter fiscal 2024 results (quarter ended March 30, 2024) with net sales of $1.48 billiona, down 1.8% from $1.51 billion a year earlier, and net income of $139.4 million, or $0.60 per diluted share, versus $186.7 million, or $0.78, in the prior-year quarter.
Excluding $67.9 millionb of pre-tax acquisition costs tied to the proposed Capri Holdings Limited acquisition, the filing states net income was $190.1 million, or $0.81 per diluted share. Gross margin rose 190 basis points to 74.7%, driven by lower freight costs, favorable currency translation and net pricing improvements, while SG&A rose to 60.9% of sales from 57.8%. For the first nine months of fiscal 2024, net sales were $5.08 billion, up 0.8%, and net income was $656.7 million, or $2.82 per diluted share.
Cash and cash equivalents rose to $6.98 billionc at March 30, 2024, from $726.1 million at July 1, 2023, primarily reflecting $6.1 billion of senior unsecured notes issued to fund the Capri acquisition. Total long-term debt, net, increased to $7.67 billion from $1.64 billion. The proposed $57.00-per-share cash acquisition of Capri, with an expected enterprise value of approximately $8.5 billion, has received regulatory approval in all countries except the United States, and on April 22, 2024 the FTC filed a complaint seeking to enjoin the deal, which the company says is without merit and will defend vigorously.
The company also disclosed that it suspended share repurchases in August 2023 in connection with the Capri acquisition and repurchased no shares in the first nine months of fiscal 2024, leaving $800.0 milliond available under its 2022 repurchase program. Dividends of $0.35 per share were declared in each quarter of the period.
02—Key points
Key Highlights
- Q3 fiscal 2024 net sales of $1.48 billion, down 1.8% (down 0.2% excluding currency); Coach up 0.1% to $1.15 billion, Kate Spade down 5.6% to $280.7 million, Stuart Weitzman down 17.8% to $56.1 million.
- Q3 net income of $139.4 million ($0.60 diluted EPS) vs. $186.7 million ($0.78); excluding $67.9 million of Capri acquisition costs, net income was $190.1 million ($0.81 per diluted share).
- Gross margin increased 190 basis points to 74.7%, attributed to lower freight costs, favorable currency translation and net pricing improvements.
- Cash and cash equivalents of $6.98 billion at March 30, 2024, versus $726.1 million at July 1, 2023, after issuing $6.1 billion of senior unsecured notes to fund the Capri acquisition.
- Long-term debt, net, rose to $7.67 billion from $1.64 billion; the company was in compliance with its debt covenants as of March 30, 2024.
- The FTC filed a complaint on April 22, 2024 seeking to enjoin the proposed $8.5 billion-enterprise-value Capri acquisition; the company has received approvals from all other countries.
- No share repurchases in the first nine months of fiscal 2024; $800.0 million remained available under the 2022 Share Repurchase Program.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2024, Tapestry kept $0.09.
- Revenue$1.48B100.0%
- Cost of revenue−$375.0M25.3%
- Gross profit$1.11B74.7%
- Operating costs−$903.1M60.9%
- Operating income$204.3M13.8%
- Interest, other & tax−$64.9M4.4%
- Net income$139.4M9.4%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed May 9, 2024Financial Statements
| Revenue | $1.48B |
| Cost of Revenue | $375.00M |
| Gross Profit | $1.11B |
| SG&A Expenses | $903.10M |
| Operating Income | $204.30M |
| Interest Expense | $130.10M |
| Net Income | $139.40M |
| EPS (Basic) | $0.61 |
| EPS (Diluted) | $0.60 |
| Shares Outstanding (Basic) | 229.50M |
| Shares Outstanding (Diluted) | 234.20M |
05—Questions
Frequently Asked Questions
Why did net income fall in the third quarter?
Net income fell 25.3% to $139.4 million, mainly because of $67.9 million of pre-tax acquisition costs related to the Capri deal, including $35.0 million in SG&A and $32.9 million of financing-related interest expense. Excluding these items, net income was $190.1 million, up 1.9% from the prior-year quarter.
What is the status of the proposed Capri Holdings acquisition?
Shareholders of Capri approved the merger in October 2023, and regulatory approval has been received in all countries except the United States. On April 22, 2024, the FTC filed a complaint in the Southern District of New York seeking to enjoin the deal. The company believes the claims are without merit and intends to defend the lawsuit vigorously. The transaction is expected to close during calendar year 2024.
How is the Capri acquisition being financed?
The company issued $4.5 billion of USD senior unsecured notes and €1.5 billion of EUR senior unsecured notes on November 27, 2023, which together with $1.4 billion of delayed-draw term loan facilities complete the expected financing. Until closing, the note proceeds are held in cash and cash equivalents and short-term investments. If the acquisition is not completed by February 10, 2025 or the merger agreement is terminated, the notes are subject to a special mandatory redemption at 101% of principal plus accrued interest.
What drove gross margin improvement and what pressured sales?
Gross margin improved mainly from lower freight costs, favorable currency translation and net pricing improvements. Coach wholesale sales increased $39.8 million, mostly international, but Coach retail sales fell $21.8 million, mainly in North American e-commerce. Kate Spade and Stuart Weitzman sales declined, with Kate Spade retail sales down $21.4 million and Stuart Weitzman down 17.8% in the quarter.
Has the company changed its capital return activity?
Yes. The company suspended share repurchases in August 2023 in connection with the Capri acquisition and repurchased no shares during the first nine months of fiscal 2024. It continued to pay quarterly dividends of $0.35 per share, totaling $240.9 million in dividend payments for the nine months, and $800.0 million remained authorized under the 2022 Share Repurchase Program.
06—Continue