01—Abstract
Summary
Summary of the 10-Q filed November 7, 2024. Cited figures are marked; the original filing is the authoritative source.
Tapestry, Inc. reported first-quarter fiscal 2025 results (13 weeks ended September 28, 2024) with net sales of $1,507.5 milliona, essentially flat versus $1,513.2 million a year earlier (down $5.7 million, or 0.4%).
Excluding currency effects, net sales were even year over year. Coach net sales rose 1.1% to $1,170.6 millionb, while Kate Spade fell 6.6% to $283.2 million and Stuart Weitzman rose 2.1% to $53.7 million. Gross margin expanded 280 basis points to 75.3%, driven by net pricing improvements, lower freight costs and favorable currency impacts.
However, SG&A rose 4.5% to $882.9 millionc, leaving operating income roughly unchanged at $252.0 million and net income down 4.3% to $186.6 million, or $0.79 per diluted share. The quarter was dominated by the pending acquisition of Capri Holdings Limited for $57.00 per share in cash, with an expected enterprise value of approximately $8.50 billion. The Company has received all required regulatory approvals except in the United States, where the FTC sued to block the deal.
On October 24, 2024, the court granted the FTC's request for a preliminary injunction pending an administrative trial scheduled for December 9, 2024, and the Company and Capri filed a notice of appeal on October 28, 2024. Acquisition costs were $70.8 milliond pre-tax in the quarter, reducing net income by $55.0 million, or $0.23 per diluted share. Excluding these items, adjusted diluted EPS would have been $1.02 versus $0.93 a year earlier.
The balance sheet holds substantial liquidity to fund the deal. Cash and cash equivalents were $6,462.9 million and short-term investments were $842.3 million, while total debt, including current debt, was $7,311.7 million on a carrying basis.
The Company issued $6.10 billion of senior notes in November 2023 to finance the acquisition and must redeem them at 101% of principal if the deal does not close by February 10, 2025 or is terminated. Cash flow from operations was $119.5 million, and the Company paid $81.4 million in dividends with no share repurchases during the quarter.
02—Key points
Key Highlights
- Net sales of $1,507.5 million were down $5.7 million (0.4%) year over year and were flat excluding currency effects; Coach grew 1.1% while Kate Spade declined 6.6%.
- Gross margin rose 280 basis points to 75.3%, attributed to net pricing improvements, lower freight costs and favorable currency impacts.
- SG&A increased 4.5% to $882.9 million, including $33.4 million of Capri acquisition costs; SG&A was 58.6% of net sales versus 55.8% a year earlier.
- Operating income was $252.0 million, down $1.2 million, with operating margin steady at 16.7%.
- Net income was $186.6 million, or $0.79 per diluted share, versus $195.0 million and $0.84 a year earlier; excluding acquisition costs, diluted EPS was $1.02 versus $0.93.
- The FTC's lawsuit to block the Capri acquisition led to a preliminary injunction granted October 24, 2024, with an administrative trial set for December 9, 2024 and an appeal filed October 28, 2024.
- Cash and cash equivalents of $6,462.9 million and short-term investments of $842.3 million, against long-term debt of $7,008.3 million, reflect the pre-funded Capri Acquisition Senior Notes, which must be redeemed at 101% of principal if the deal does not close by February 10, 2025.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2025, Tapestry kept $0.12.
- Revenue$1.51B100.0%
- Cost of revenue−$372.6M24.7%
- Gross profit$1.13B75.3%
- Operating costs−$882.9M58.6%
- Operating income$252.0M16.7%
- Interest, other & tax−$65.4M4.3%
- Net income$186.6M12.4%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2025filed November 7, 2024Financial Statements
Q1 FY2025 against Q1 FY2024
| Line item | Q1 FY2025Q1 FY2024 | Change |
|---|---|---|
| Revenue | $1.51B$1.51B | −0.4% |
| Cost of Revenue | $372.60M$415.50M | −10.3% |
| Gross Profit | $1.13B$1.10B | +3.4% |
| SG&A Expenses | $882.90M$844.50M | +4.5% |
| Operating Income | $252.00M$253.20M | −0.5% |
| Interest Expense | $123.20M$22.30M | +452.5% |
| Net Income | $186.60M$195.00M | −4.3% |
| EPS (Basic) | $0.81$0.85 | −4.7% |
| EPS (Diluted) | $0.79$0.84 | −6.0% |
| Shares Outstanding (Basic) | 231.50M228.30M | +1.4% |
| Shares Outstanding (Diluted) | 235.90M232.50M | +1.5% |
05—Questions
Frequently Asked Questions
Why did Tapestry's operating income stay flat even though gross margin improved significantly?
Gross profit rose $37.2 million to $1,134.9 million, but SG&A expenses rose $38.4 million to $882.9 million. SG&A included $33.4 million of Capri acquisition costs, and excluding those items SG&A increased 3.0% to $849.5 million, mainly due to higher marketing spend and increased compensation costs. Excluding acquisition costs, operating income rose $12.6 million to $285.4 million.
What is the current status of the Capri Holdings acquisition?
Tapestry has received regulatory approval from all applicable jurisdictions except the United States. The FTC sued to block the deal, and on October 24, 2024, the court granted a preliminary injunction pending an administrative trial scheduled to begin December 9, 2024. The Company and Capri filed a notice of appeal on October 28, 2024, and on November 6, 2024, the Second Circuit set an expedited briefing schedule.
What happens to the debt raised for the Capri acquisition if the deal does not close?
If the acquisition is not completed by February 10, 2025 (or a later date mutually agreed), if the Merger Agreement is terminated, or if the Company notifies the trustee it will not pursue the acquisition, the Capri Acquisition Senior Notes will be redeemed at 101% of their principal amount plus accrued and unpaid interest.
How did Tapestry's brands perform this quarter?
Coach net sales increased 1.1% to $1,170.6 million, driven by a $32.9 million increase in DTC sales from e-commerce. Kate Spade net sales decreased 6.6% to $283.2 million, reflecting lower DTC sales from fewer stores and, to a lesser extent, e-commerce. Stuart Weitzman net sales increased 2.1% to $53.7 million. Coach operating margin rose to 33.0%, while Kate Spade's rose to 9.6%.
Did Tapestry return cash to shareholders this quarter?
Tapestry paid $81.4 million in dividends, declared at $0.35 per share. The Company did not repurchase any shares during the quarter; $800.0 million remained available under the 2022 Share Repurchase Program, which was suspended in August 2023 in connection with the Capri acquisition.
06—Continue