“We are very pleased with our first quarter results, which exceeded expectations and demonstrated the bold actions we are implementing as part of our Acceleration Program. We delivered strong profit growth across our portfolio of brands in the face of an unprecedented and challenging backdrop. We drove a meaningful sequential improvement in topline trends, supported by strength in Digital and China,” CEO Joanne Crevoiserat said. “At the same time, we expanded gross margin by deliberately reducing promotional activity and raising AUR, while also tightly controlling SG&A expense. Taken together, we achieved a significant increase in EPS and generated positive free cash flow.”
Tapestry achieved sequential improvement in revenue trends across all brands and drove a second consecutive quarter of triple-digit e-commerce growth versus the prior year, while improving global store sales trends at the same time. The new strategic initiative helped the company reduce selling, general and administrative (SG&A) expenses by 27 percent, in part through a “20 percent reduction in Tapestry’s run-rate corporate headcount costs.”
The initiatives from the Acceleration Program also helped Tapestry generate positive free cash flow of $64 million versus an outflow of $66 million in the prior year.
Tapestry leveraged its new digital-first strategy to recruit nearly 800,000 new customers across brands in North America through e-commerce channels. In China, Coach is the No. 1 ranked handbag brand on Tmall.
The company closed 15 net store closures in the quarter, representing a net decrease of 50 stores from the prior year. And it said it is on track to achieve gross run-rate savings of $300 million, which includes gross savings of $200 million in fiscal 2021.
Net Sales: For the quarter ended Sept. 26, net sales fell 13.7 percent to $1.17 billion from $1.36 billion. Tapestry said it was able to leverage data and analytics to optimize marketing messaging, assortment planning and promotional levels to support higher average unit retail.
The company said it is well-positioned heading into the holiday quarter, with tightly managed inventories that declined 8 percent from the year-ago quarter.
By brand, Coach sales were down 9.4 percent to $875 million from $966 million. Gross profit was $645 million, while gross margin was 73.7 percent. Compared with year figures, gross profit was $678 million and the gross margin was 70.1 percent. SG&A expenses were $375 million, or 42.8 percent of sales, versus year-ago figures of $478 million and 49.5 percent, respectively.
Kate Spade sales fell 21.6 percent to $240 million from $306 million, reflecting the strategic pullback in lower margin wholesale disposition sales. Gross profit was $154 million, while gross margin was 64.1 percent, versus the year ago’s $192 million and 62.7 percent, respectively. The brand was able to cut its SG&A expenses to $131 million, or 54.5 percent of sales. That’s an improvement from last year, where SG&A was $199 million, or 65.0 percent of sales.
Stuart Weitzman sales fell 35.6 percent to $56 million from $87 million. Gross profit totaled $31 million, while gross margin was 55.3 percent. That’s compared with last year’s $45 million and 52.5 percent, respectively. SG&A was $31 million, or 55.2 percent of sales, versus $65 million or 74.8 percent of sales in the year-ago period.
Earnings: Net income jumped to $231.7 million, or 83 cents a diluted share, from $20.0 million, or 7 cents, in the year-ago quarter.
Wall Street was expecting diluted earnings per share of 23 cents on revenue of $1.07 billion.
Due to the uncertainty in Covid-19 and lack of visibility, the company declined to provide guidance for fiscal 2021. Tapestry did note that because of the strong start to fiscal year 2021, and presuming that there is a steady recovery from the pandemic, it “continues to expect a topline inflection in the second half of the fiscal year, with both revenue and bottom line growth now projected for fiscal 2021.”
CEO’s Take: “Our performance underscores the power of our brands, the agility of our talented teams and the competitive advantage of Tapestry’s enabling platform. Importantly, it also reinforces the potential of our Acceleration Program. Guided by an unwavering focus on the consumer and supported by new ways of working, we are positioning the Company to successfully navigate the dynamic environment and drive long-term, sustainable growth,” Crevoiserat said. “We are also leaning into the opportunity to evolve with the changing landscape and shifting consumer needs and preferences. Given the strength of the first quarter, we are increasingly optimistic in our ability to drive sustainable top and bottom line growth over our planning horizon.”