Tapestry, Inc. Reports Fourth Quarter and Full Year Fiscal 2024 Results
Tapestry, Inc. (NYSE: TPR), a house of iconic accessories and lifestyle brands consisting of Coach, Kate Spade, and Stuart Weitzman, today reported results for the fourth quarter and year ended June 29, 2024.
Joanne Crevoiserat, Chief Executive Officer of Tapestry, Inc., said, “Our fourth quarter results exceeded expectations, capping a successful year. This is a testament to our passionate global teams whose creativity and exceptional execution continue to fuel our brands and business. Importantly, through an unwavering focus on powering innovation and consumer connections, we meaningfully advanced our strategic agenda in fiscal year 2024, delivering strong financial results against a dynamic backdrop. From this position of strength, we have a bold vision for the future and a steadfast commitment to drive growth and shareholder value for years to come.”
Tapestry, Inc. Financial & Strategic Highlights
The Company advanced its strategic priorities throughout the year, resulting in constant currency topline gains, significant gross margin expansion, double-digit adjusted EPS growth, and robust cash flow generation in FY24 despite the complex global economic and consumer environment. Highlights include:
Build Lasting Customer Relationships
Drove customer engagement, acquiring over 6.5 million new customers during the year in North America alone, over half of which were Gen Z and Millennials.
Power Global Growth
Delivered 1% constant currency revenue growth in FY24, including a record year at Coach, which surpassed $5 billion in sales;
Achieved International topline growth of 6% at constant currency in FY24, which included revenue gains in Europe (+14%), Other Asia (+9%), Japan (+5%), and Greater China (+3%) compared to the prior year;
Realized a 1% sales decline in North America in the fiscal year, while delivering higher operating margin and profit dollars in the region compared to last year driven by gross margin expansion;
Delivered double-digit adjusted earnings per diluted share growth in the fiscal year, ahead of expectations which included operational outperformance as well as a benefit from a lower tax rate;
Generated robust operating and free cash flow of over $1.1 billion in FY24, fueling the Company’s strategic growth agenda.
Deliver Compelling Omni-Channel Experiences
Achieved Direct-to-Consumer sales in-line with prior year on a constant currency basis in FY24; wholesale revenue increased led by International, including growth on Digital platforms;
Drove global brick and mortar sales growth at constant currency in FY24, fueled by higher productivity per square foot; launched immersive retail experiences and new concepts globally, which helped to drive awareness and engagement among younger customer cohorts;
Maintained strong Digital positioning, with revenue more than three times above pre-pandemic levels, or nearly 30% of sales in the fiscal year.
Fuel Fashion Innovation and Product Excellence
Delivered compelling and distinctive assortments to consumers, with notable momentum at Coach, which drove handbag revenue growth and AUR gains in the fiscal year;
Remained disciplined brand-builders and operators, underscored by strong gross margin expansion of 250 basis points in the fiscal year, which included lower freight expense, operational outperformance, and FX tailwinds;
Leveraged Tapestry’s customer engagement platform to embed data-driven insights across go-to-market processes, enabling agility and diligent inventory management.
Overview of Fiscal 2024 Fourth Quarter Financial Results
Net sales totaled $1.59 billion compared to $1.62 billion in the prior year period, representing a decline of 2% on a reported basis. Excluding a currency headwind of approximately 170 basis points, sales were approximately even with the prior year.
Gross profit totaled $1.19 billion, while gross margin was 74.9%, which included operational improvements, a benefit of approximately 90 basis points from lower freight expense, as well as FX tailwinds. This compared to prior year gross profit of $1.17 billion, representing a gross margin of 72.4%.
SG&A expenses totaled $956 million and represented 60.1% of sales on a reported basis. On a non-GAAP basis, SG&A expenses totaled $929 million and represented approximately 58.4% of sales. In the prior year period, SG&A expenses on both a reported and non-GAAP basis totaled $899 million, representing 55.5% of sales.
Operating income was $235 million on a reported basis, while operating margin was 14.8%. On a non-GAAP basis, operating income was $262 million, while operating margin was 16.5%. This compares to reported and non-GAAP operating income of $274 million and a 16.9% operating margin in the prior year period.
Net interest expense was $31 million on a reported basis, reflecting the incremental debt incurred related to the financing of the proposed acquisition of Capri Holdings Limited. On a non-GAAP basis, net interest income was $3 million. This compared to net interest expense of $6 million in the prior year period on both a reported and non-GAAP basis.
Other expense was $4 million, primarily due to an FX loss associated with the movement of the U.S. Dollar within the quarter. This compared to other expense of $1 million in the prior year period.
Net income was $159 million, with earnings per diluted share of $0.68. On a non-GAAP basis, net income was $217 million, with earnings per diluted share of $0.92. In the prior year period, net income was $224 million, with earnings per diluted share of $0.95 on both a reported and non-GAAP basis. The tax rate for the quarter was 20.7% on a reported basis and 16.8% on a non-GAAP basis. In the prior year period, the tax rate was 16.0% on both a reported and non-GAAP basis.
Overview of Fiscal 2024 Full Year Financial Results
Net sales totaled $6.67 billion as compared to $6.66 billion in the prior year. Excluding a headwind of approximately 110 basis points from currency, revenue increased 1% versus last year.
Gross profit totaled $4.89 billion, while gross margin was 73.3%, which reflected a benefit of 130 basis points from lower freight expense, as well as operational improvements and FX tailwinds. This compared to prior year gross profit of $4.71 billion, representing a gross margin of 70.8%.
SG&A expenses totaled $3.75 billion and represented 56.2% of sales. On a non-GAAP basis, SG&A expenses totaled $3.64 billion and represented approximately 54.5% of sales. In the prior year, SG&A expenses on both a reported and non-GAAP basis totaled $3.54 billion, representing 53.1% of sales.
Operating income was $1.14 billion on a reported basis, while operating margin was 17.1%. On a non-GAAP basis, operating income was $1.25 billion, while operating margin was 18.7%. This compares to reported and non-GAAP operating income of $1.17 billion and a 17.6% operating margin in the prior year.
Net interest expense was $125 million on a reported basis, reflecting the incremental debt incurred related to the financing of the proposed acquisition of Capri Holdings Limited. On a non-GAAP basis, net interest expense was $8 million. This compared to net interest expense of $28 million in the prior year on both a reported and non-GAAP basis.
Other expense was $3 million, primarily due to an FX loss associated with the movement of the U.S. Dollar. This compared to other expense of $2 million in the prior year.
Net income was $816 million, with earnings per diluted share of $3.50. On a non-GAAP basis, net income was $1.00 billion, with earnings per diluted share of $4.29. In the prior year, net income was $936 million, with earnings per diluted share of $3.88 on both a reported and non-GAAP basis. The tax rate for the year was 19.4% on a reported basis and 19.2% on a non-GAAP basis. In the prior year, the tax rate was 18.1% on both a reported and non-GAAP basis.
Balance Sheet and Cash Flow Highlights
Cash, cash equivalents and short-term investments totaled $7.20 billion and total borrowings outstanding were $7.24 billion, reflecting $6.1 billion in senior notes issued in November 2023 to fund the proposed acquisition of Capri Holdings Limited, as well the paydown of the Company’s $450 million term loan in the fiscal fourth quarter.
Inventory of $825 million was favorable to expectations and 10% below the prior year’s ending inventory of $920 million, reflecting strong inventory control as well as a shift in receipt timing into the fiscal first quarter of 2025.
Cash flow from operating activities for the fiscal year was an inflow of $1.26 billion compared to an inflow of $975 million in the prior year. Free cash flow for the fiscal year was an inflow of $1.15 billion compared to an inflow of $791 million in the prior year. Excluding deal-related costs, free cash flow for the fiscal year was $1.28 billion.
CapEx and implementation costs related to Cloud Computing for the fiscal year were $144 million versus $261 million a year ago.
Dividend
As anticipated, the Board of Directors approved the return of $321 million to shareholders in Fiscal 2024 through dividend payments, for an annual dividend rate of $1.40 per common share, which represented an increase of 17% versus prior year and a dividend payout ratio of 39% on a reported basis.
In Fiscal 2025, Tapestry expects to maintain its annual dividend rate of $1.40 per common share, and the Company’s Board of Directors declared a quarterly cash dividend of $0.35 per common share payable on September 23, 2024, to shareholders of record as of the close of business on September 6, 2024.
Acquisition of Capri Holdings Limited
On August 10, 2023, Tapestry, Inc. announced a definitive agreement to acquire Capri Holdings Limited, establishing a powerful global house of iconic luxury and fashion brands. Importantly, this transaction will bring significant benefits to the combined Company’s customers, employees, partners, and shareholders around the world. Further, the acquisition builds on Tapestry’s track record as a consumer-centric brand-builder and disciplined operator and accelerates its strategic and financial growth agenda.
On April 22, 2024, the Federal Trade Commission (FTC) filed a lawsuit in an attempt to block the proposed acquisition. The Company is confident in the merits and pro-competitive, pro-consumer nature of this transaction and looks forward to presenting its strong legal arguments in court, working expeditiously to close the transaction in calendar year 2024.
Non-GAAP Reconciliation
During the fiscal fourth quarter of 2024, the Company recorded certain items that decreased pre-tax income by $60 million, net income by $58 million, and earnings per diluted share by approximately $0.24. For the full fiscal year, the Company recorded certain items that decreased pre-tax income by $227 million, net income by $184 million, and earnings per diluted share by approximately $0.79. These items relate to costs associated with the proposed acquisition of Capri Holdings Limited, primarily financing charges and professional fees.
Please refer to Financial Schedules 3 and 4 included herein for a detailed reconciliation of the Company’s reported GAAP to non-GAAP results.
Financial Outlook
Tapestry expects the following for Fiscal 2025 on a non-GAAP basis:
Revenue in the area of $6.7 billion, representing growth compared to the prior year on a reported basis, including approximately 50 basis points of currency pressure. On a constant currency basis, revenue is expected to increase approximately 1% versus prior year;
Operating margin expansion in the area of 50 basis points compared to prior year;
Net interest income of approximately $20 million;
Tax rate of approximately 19%;
Weighted average diluted share count of approximately 238 million shares;
Earnings per diluted share of $4.45 to $4.50, representing mid-single digit growth compared to the prior year. This incorporates a negative impact of $0.35 related to the suspension of share repurchase activity due to the proposed acquisition of Capri Holdings Limited, as previously outlined, and an estimated currency headwind of approximately $0.20 versus the Company’s Fiscal 2025 EPS target as provided at its Investor Day in 2022;
Free cash flow of approximately $1.1 billion, excluding deal-related costs.
Please note this outlook assumes the following:
No revenue, net interest, or earnings impact related to the proposed acquisition of Capri Holdings Limited;
No further appreciation of the U.S. Dollar; information provided based on spot rates at the time of forecast;
No material worsening of inflationary pressures or consumer confidence;
No benefit from the potential reinstatement of the Generalized System of Preferences (“GSP”); and
No impact related to any potential policy changes resulting from the outcome of U.S. Presidential election in November 2024.
Given the dynamic nature of these and other external factors, financial results could differ materially from the outlook provided.
Financial Outlook – Non-GAAP Adjustments:
The Company is not able to provide a full reconciliation of the non-GAAP financial measures to GAAP presented in this release and on the Company’s conference call because certain material items that impact these measures, such as the timing and exact amount of acquisition, financing, purchase accounting and integration-related charges and Company costs associated with the acquisition of Capri Holdings Limited have not yet occurred and cannot be reasonably estimated at this time. Accordingly, a reconciliation of the Company’s non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.