Breaking Down Tapestry, Inc. (TPR) Financial Health: Key Insights for Investors

Understanding Tapestry, Inc. (TPR) Revenue Streams

Understanding Tapestry, Inc.’s Revenue Streams

The company generates revenue from various segments, primarily through its three main brands: Coach, Kate Spade, and Stuart Weitzman. The following table illustrates the net sales for each brand during the first quarter of fiscal 2025 compared to the same period in fiscal 2024.

In the first quarter of fiscal 2025, the total net sales decreased by 0.4% or $5.7 million compared to the first quarter of fiscal 2024. Excluding the impact of foreign currency, net sales remained flat year-over-year.

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rate has shown varying trends across different segments:

• Coach experienced a modest increase of 1.1%.
• Kate Spade faced a decline of 6.6%.
• Stuart Weitzman saw a slight rise of 2.1%.

Overall, the decline in total net sales indicates challenges in maintaining growth across all segments, particularly in the Kate Spade brand.

Contribution of Different Business Segments to Overall Revenue

The contribution of each brand to the overall revenue in the first quarter of fiscal 2025 is as follows:

Coach remains the dominant revenue driver, contributing a significant portion of the overall sales.

Analysis of Significant Changes in Revenue Streams

Key observations regarding significant changes in revenue streams include:

• Coach's increase in net sales was driven by a rise in direct-to-consumer (DTC) sales, particularly through e-commerce, which grew by $32.9 million.
• Kate Spade's decline was largely attributed to a decrease in DTC sales of $24.4 million, partially offset by a $4.9 million increase in wholesale sales.
• Stuart Weitzman showed resilience with an increase in sales, indicating a potential recovery in brand performance.

The overall revenue analysis highlights the need for strategic focus on enhancing performance across all brands, especially for segments facing revenue declines.

A Deep Dive into Tapestry, Inc. (TPR) Profitability

A Deep Dive into Tapestry, Inc.'s Profitability

Gross Profit: In the first quarter of fiscal 2025, gross profit increased by 3.4% or $37.2 million to $1.1349 billion compared to $1.0977 billion in the first quarter of fiscal 2024. The gross margin improved by 280 basis points to 75.3% from 72.5%.

Operating Profit: Operating income for the first quarter of fiscal 2025 was $252.0 million, reflecting a slight decrease of $1.2 million from $253.2 million in the prior year. The operating margin remained stable at 16.7%.

Net Profit: Net income for the first quarter of fiscal 2025 was $186.6 million, down 4.3% or $8.4 million from $195.0 million in the same period last year. The net income per diluted share decreased to $0.79 from $0.84.

Trends in Profitability: Over the past year, the gross margin has shown a steady upward trend, primarily due to net pricing improvements and reduced freight costs. Operating income has remained relatively stable, indicating consistent operational performance despite fluctuations in net sales.

Comparison with Industry Averages: The average gross margin for luxury goods companies in the industry is approximately 70-75%, positioning the company slightly above this average. The operating margin of 16.7% is competitive against the industry average of about 15-20%.

Operational Efficiency: Selling, General, and Administrative Expenses (SG&A) rose to $882.9 million in the first quarter of fiscal 2025, an increase of 4.5% from $844.5 million in the previous year, reflecting higher marketing and compensation costs. SG&A as a percentage of net sales increased to 58.6% from 55.8%.

The increase in operating margin is attributed to improved gross margins, although offset by rising SG&A costs. The company's focus on cost management and efficiency will be critical for maintaining profitability moving forward.

Debt vs. Equity: How Tapestry, Inc. (TPR) Finances Its Growth

Debt vs. Equity: How Tapestry, Inc. Finances Its Growth

The financial structure of Tapestry, Inc. is characterized by a significant reliance on debt financing. As of September 28, 2024, the company reported:

The debt-to-equity ratio, a crucial indicator of financial leverage, stands at 2.45, calculated from total debt of $7,311.7 million against total stockholders' equity of $2,981.9 million as of September 28, 2024. This ratio is above the industry average of 1.5, suggesting a higher reliance on debt compared to peers in the luxury goods sector.

In terms of recent activities, Tapestry issued approximately $6.10 billion in senior notes to finance the acquisition of Capri Holdings Limited, alongside a €1.50 billion issuance of EUR Senior Notes. The company's credit ratings reflect its financial strategy, with Moody's rating the company at Ba2 and S&P at BB, indicating a stable outlook despite its leveraged position.

Tapestry's balance between debt financing and equity funding is evident in its financial maneuvers. The company has utilized its debt to fund strategic acquisitions while maintaining a consistent dividend payout, which was $0.35 per share, amounting to $81.4 million in dividends declared in the last quarter. The company’s ability to manage its debt effectively is highlighted by a net interest expense of $30.7 million, which is a significant increase from $13.3 million in the prior year.

Overall, Tapestry's debt structure, characterized by substantial long-term obligations, allows it to pursue growth opportunities through acquisitions while balancing the risks associated with higher leverage.

Assessing Tapestry, Inc. (TPR) Liquidity

Assessing Tapestry, Inc.'s Liquidity

Current and Quick Ratios

The current ratio for Tapestry, Inc. as of September 28, 2024, is 2.1, indicating a strong liquidity position. The quick ratio, which excludes inventory, stands at 1.5. These ratios suggest that the company has sufficient short-term assets to cover its short-term liabilities.

Analysis of Working Capital Trends

As of September 28, 2024, Tapestry has total current assets of $7.3 billion and current liabilities of $3.5 billion, resulting in a working capital of $3.8 billion. This represents a $320.9 million increase in cash and cash equivalents compared to the previous quarter, indicating a positive trend in working capital management.

Cash Flow Statements Overview

The following table summarizes the cash flow statement for Tapestry, Inc. for the three months ended September 28, 2024, compared to the same period in the previous year:

Potential Liquidity Concerns or Strengths

Despite the strong liquidity ratios, Tapestry's long-term debt is $7.0 billion as of September 28, 2024, which raises potential concerns regarding its solvency. However, the company's ability to generate cash flow from operations, evidenced by a $119.5 million increase in operating cash flow, mitigates these concerns. The company holds $6.5 million in total assets against its liabilities, indicating a stable financial footing.

Overall, Tapestry, Inc. demonstrates solid liquidity and manageable solvency concerns, supported by robust cash flow trends and a favorable working capital position.

Is Tapestry, Inc. (TPR) Overvalued or Undervalued?

Valuation Analysis

In evaluating whether the company is overvalued or undervalued, several key financial ratios and metrics are essential. These include the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios. As of the latest financial data:

• P/E Ratio: 18.4
• P/B Ratio: 4.2
• EV/EBITDA Ratio: 12.5

Next, let's examine the stock price trends over the last 12 months. The stock price has shown the following movements:

• 12-Month High: $48.00
• 12-Month Low: $29.50
• Current Stock Price: $38.00

In terms of dividends, the company has declared a dividend of $0.35 per share, with a payout ratio of 40.0%. This indicates a commitment to returning capital to shareholders while retaining sufficient earnings for growth.

Analyst consensus on the stock valuation is mixed, with the following recommendations:

• Buy: 5 Analysts
• Hold: 10 Analysts
• Sell: 2 Analysts

Key Risks Facing Tapestry, Inc. (TPR)

Key Risks Facing Tapestry, Inc. (TPR)

Understanding the risk factors affecting Tapestry, Inc. is crucial for investors. The company faces a variety of internal and external risks that can impact its financial health.

Industry Competition

The luxury goods sector is highly competitive. Tapestry competes with major global brands, which can affect market share and pricing strategies. Recent reports indicate that net sales decreased by 0.4% or $5.7 million to $1.51 billion in the first quarter of fiscal 2025 .

Market Conditions

Fluctuations in consumer spending and economic downturns can adversely impact sales. In the first quarter of fiscal 2025, net sales for Kate Spade dropped by 6.6% or $20 million . This highlights vulnerability to market conditions.

Regulatory Changes

Changes in trade policies and regulations can pose risks. The company’s operations in various countries expose it to compliance costs and potential disruptions. Regulatory changes could impact supply chain logistics and operational costs.

Operational Risks

Supply chain disruptions remain a significant risk. The company's reliance on global suppliers means that geopolitical tensions or natural disasters could hinder operations. Additionally, the company recorded a 4.5% increase in SG&A expenses, amounting to $882.9 million in the first quarter of fiscal 2025, reflecting rising operational costs.

Financial Risks

The company's debt levels pose a financial risk. As of September 28, 2024, long-term debt stood at $7.008 billion . This level of debt could constrain financial flexibility and increase interest expenses, which rose to $30.7 million in the first quarter of fiscal 2025 .

Strategic Risks

The acquisition strategy poses its own set of risks, particularly the Capri Holdings acquisition, which involved pre-tax charges of $70.8 million . If integration fails, it could lead to financial setbacks.

Mitigation Strategies

Tapestry employs various strategies to mitigate risks, including diversifying its product offerings and expanding its digital sales channels. The company increased direct-to-consumer sales by $32.9 million , which helps reduce reliance on wholesale channels.

Future Growth Prospects for Tapestry, Inc. (TPR)

Future Growth Prospects for Tapestry, Inc.

Analysis of key growth drivers includes product innovations, market expansions, and acquisitions. The company has focused on expanding its product lines across its major brands, which include Coach, Kate Spade, and Stuart Weitzman. In fiscal 2025, the company reported net sales of $1.51 billion, which reflects a slight decrease of 0.4% compared to $1.51 billion in fiscal 2024 .

Future Revenue Growth Projections and Earnings Estimates

For fiscal 2025, the company anticipates modest revenue growth driven by strong direct-to-consumer (DTC) sales. In particular, Coach's DTC sales increased by $32.9 million, contributing significantly to its overall performance . Analysts project earnings per diluted share of approximately $0.79 for the first quarter of fiscal 2025, down from $0.84 in the previous year .

Strategic Initiatives or Partnerships

The acquisition of Capri Holdings is a strategic initiative aimed at enhancing market presence and product offerings. The financing for this acquisition includes $4.5 billion in senior unsecured notes and €1.5 billion in Euro-denominated senior unsecured notes . This merger is expected to significantly bolster the company’s competitive positioning in the luxury market.

Competitive Advantages

Tapestry, Inc. holds several competitive advantages, including strong brand recognition and a diverse product portfolio. The company reported a gross margin of 75.3% in the first quarter of fiscal 2025, an increase of 280 basis points year-over-year . This improvement is attributed to net pricing enhancements and favorable currency impacts, which position the company well for future growth.

The data illustrates the financial performance across the company's segments, highlighting the strengths and areas for improvement as it navigates growth opportunities in an evolving market landscape.

Updated on 16 Nov 2024

Resources:

1. Tapestry, Inc. (TPR) Financial Statements – Access the full quarterly financial statements for Q1 2025 to get an in-depth view of Tapestry, Inc. (TPR)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Tapestry, Inc. (TPR)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.