Tapestry, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended July 1, 2023 (52 weeks); comparison is fiscal 2022, also 52 weeks. The request labels the period “2022 Q4,” but this filing reports a full fiscal year, not a standalone quarter.
Business context
Tapestry operates Coach, kate spade new york and Stuart Weitzman, selling accessories, footwear and lifestyle products through company-operated stores and e-commerce, wholesale partners, distributors and licensing. Fiscal 2023 sales mix was Coach 74.5%, Kate Spade 21.3% and Stuart Weitzman 4.2%.
Key financial metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $6.661 billion | $6.685 billion | Down 0.4%; up 2.9% at constant currency |
| Gross profit / margin | $4.715 billion / 70.8% | $4.650 billion / 69.6% | Profit up 1.4%; margin up 120 bps |
| Operating income / margin | $1.172 billion / 17.6% | $1.176 billion / 17.6% | Down $3.4 million |
| Net income | $936.0 million | $856.3 million | Up 9.3% |
| Diluted EPS | $3.88 | $3.17 | Up 22.3% |
| Operating cash flow | $975.2 million | $853.2 million | Up $122.0 million |
FY2023 net interest expense was $27.6 million, versus $58.7 million in FY2022; effective tax rate was 18.1%, versus 18.2%. FY2023 capital expenditures and cloud-computing implementation costs totaled $260.8 million.
At July 1, 2023, cash and cash equivalents were $726.1 million, short-term investments $15.4 million, and total current assets $2.364 billion against current liabilities of $1.287 billion. Debt was $1.669 billion, comprising a $468.8 million term loan and senior notes; the $1.25 billion revolving facility was undrawn. Reported available liquidity, including cash, short-term investments and the revolver, was approximately $1.992 billion. Operating lease liabilities were $1.631 billion.
Cash used in financing was $1.036 billion, including $703.5 million of share repurchases and $283.3 million of dividends. The company repurchased 17.8 million shares during FY2023 and declared dividends of $1.20 per share.
Changes versus FY2022
- Reported sales edged down, but increased 2.9% excluding currency effects. The stronger U.S. dollar reduced sales by $217.5 million and adversely affected gross and operating margins by approximately 90 and 120 basis points, respectively.
- Gross margin improved primarily on lower freight costs, better net pricing and favorable geographic mix, partly offset by currency translation. Lower freight expense of $84.8 million contributed approximately 140 basis points of gross-margin benefit.
- Reported FY2022 included $42.8 million of Acceleration Program charges and a $53.7 million debt-extinguishment loss; FY2023 had no comparability charges. Excluding the identified FY2022 items, operating income declined $46.2 million and operating margin fell 60 basis points to 17.6%; adjusted net income was nearly flat year over year.
- Coach sales rose 0.8% reported (4.5% constant currency) and operating income increased to $1.530 billion. Kate Spade sales fell 1.8% reported (up 0.2% constant currency) and operating income fell to $115.0 million. Stuart Weitzman sales declined 11.4% reported and operating loss widened to $6.7 million.
- Cash declined $63.7 million over the year, compared with a $1.218 billion decline in FY2022. Inventory was a $49.9 million source of operating cash in FY2023 versus a $311.7 million use in FY2022, reflecting lower receipts and normalized lead times.
Outlook, commentary and risks
- The company introduced its “future speed” 2025 growth strategy, focused on customer relationships, product innovation, omnichannel experiences and global growth. The filing provides no clear quantitative FY2024 sales or earnings guidance. It expects minimal overall store-count change, with regional openings and closures varying by brand.
- Management described the macroeconomic environment as challenging and volatile, citing inflation, tighter monetary and fiscal policies, market volatility and geopolitical uncertainty. Greater China was adversely affected by Covid-related disruption in the first half of FY2023; trends improved after restrictions were lifted beginning in December 2022.
- Key exposures include discretionary consumer demand, fashion and brand execution, foreign exchange, import duties and trade policy, supply-chain and sourcing concentration, cost inflation, inventory and promotional pressure, store traffic, cyber/privacy threats, and climate and ESG-related risks. The expired U.S. GSP program has increased duties and weighed on gross profit.
- Kate Spade is a notable impairment sensitivity: its reporting-unit fair value exceeded carrying value by about 20%, and its indefinite-lived brand value exceeded carrying value by about 40%. No goodwill or brand-asset impairment was recorded in FY2023, but management said weaker-than-expected profitability could prompt an interim or annual impairment test. The auditor identified this valuation as a critical audit matter.
- Subsequent event: on August 10, 2023, Tapestry agreed to acquire Capri Holdings for $57 per share in cash, with an expected purchase price of approximately $8.5 billion and anticipated closing in calendar 2024, subject to approvals and other conditions. Tapestry obtained commitments for an $8.0 billion, 364-day unsecured bridge facility; financing, integration, regulatory and realization-of-synergies risks are material.
- Contractual commitments included $1.948 billion of operating lease obligations, $352.6 million of inventory purchase obligations and $1.669 billion of debt repayment. The company reported routine legal proceedings and did not expect their aggregate outcome to materially affect its business or financial statements.
Investor facts to verify
- Confirm the intended period: the filing covers FY2023 ended July 1, 2023, rather than “2022 Q4.”
- Track Coach’s growth against declines in Kate Spade and Stuart Weitzman, including segment margins and constant-currency performance.
- Assess whether gross-margin gains from freight and pricing persist and whether SG&A growth—particularly at Kate Spade and Stuart Weitzman—can be controlled.
- Review cash generation, the pace of repurchases and dividends, debt and lease obligations, and covenant headroom before considering the proposed Capri financing.
- Monitor Capri acquisition approvals, final funding terms, transaction costs, integration execution and achievable synergies.
- Reassess Kate Spade impairment assumptions and sensitivity to sales, margins, promotional activity and international expansion.