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Tapestry down over the year, despite strong Q4

kate-spadeTapestry, the accessories and lifestyle group that owns Coach, Kate Spade and Stuart Weitzman, reported a 32 per cent drop in net income in FY18 to US$398 million, compared to US$591 million in FY17.

Full-year net sales were down 31 per cent to US$5.88 billion in fiscal 2018, with earnings per diluted share at US$1.38, compared to US$2.09 in fiscal 2017.

The group’s gross profit totalled US$3.85 billion, with gross margin at 65.5 per cent compared to 68.6 per cent in 2017.

“We achieved our annual sales and operating income guidance, driving significant growth while earnings per share outpaced our forecast,” Tapestry CEO Victor Luis said.

While the group’s full-year earnings were down across the board, Tapestry finished on a strong note, with Q4 results largely beating consensus estimates.

Coach saw positive comparable store sales in the quarter, led by outperformance in North America.

“At Coach we drove significant gross margin expansion in the quarter, driving the full year margin above prior year levels. Taken together with tightly controlled expenses, we achieved operating income growth and operating margin expansion for the quarter and year,” Luis said.

The brand’s net sales totalled US$4.22 billion in FY18, with gross profit reaching US$2.93 billion on a reported basis and a gross margin of 69.4 per cent.

Neil Saunders, managing director of GlobalRetail Data, said the brand’s ‘Signature’ line was a particular success, which helped drive both sales and interest in the brand.

“We are encouraged by this development as it suggests that Coach has now found a sweet spot in terms of balancing a premium positioning with accessible products that help maximize sales,” Saunders said.

The group also acquired the Kate Spade brand this year, which delivered double-digit earnings per share accretion, despite the strategic pullback in online flash and wholesale disposition.

Kate Spade’s net sales totalled US$1.28 billion, with global comparable store sales declining by 7 per cent, including the negative impact of nearly 500 basis points from a decline in global e-commerce.

Gross profit was US$711 million, with gross margin reaching 55.4 per cent. Operating income fell to US$62 million, representing an operating margin of -4.8 per cent.

Saunders noted that Tapestry worked to rebuild Kate Spade’s brand equity in the year, including pulling back on excessive promotional activity and reducing exposure to unfavorable wholesale channels.

“This effort is now almost complete and while global comparable sales were down 3 per cent, margins are strengthening and topline revenue is starting to look more favorable,” he said.

“In our view, the brand is now in a better position and should start making a solid top and bottom line contribution over the next fiscal year.”

Stuart Weitzman continued its run of poor performance with a slip in sales and margin, largely stemming from production problems delaying key seasonal styles, according to Saunders.

“Not only did this reduce sales of those products, it also weakened overall interest in the brand which meant core products had to be discounted to stimulate demand. Unfortunately, these second-half issues undid most of the advancement during the first quarter.”

Net sales were flat compared to FY17 at US$374 million, with gross profit dropping from US$217 million US$211 million and a gross margin of 56.6 per cent. Operating income was a loss of US$3 million.

“Looking ahead, we believe Tapestry is in good shape,” said Saunders.

“It should have a successful holiday quarter which will boost the first-half of its new fiscal year. And now that Kate Spade is in order, we do not preclude further acquisitions in the year ahead.”

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