Tapestry, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended July 2, 2022 (52 weeks). The filing compares results with fiscal 2021, a 53-week year. Although the request metadata says “2021 Q4,” this filing reports fiscal 2022 annual results, not a standalone quarter.
Business and financial performance
Tapestry operates Coach, Kate Spade and Stuart Weitzman, selling through stores, e-commerce, wholesale and licensing channels. Fiscal 2022 sales mix was Coach 73.6%, Kate Spade 21.6% and Stuart Weitzman 4.8%.
| Metric | Fiscal 2022 | Fiscal 2021 |
|---|---|---|
| Net sales | $6,684.5 million | $5,746.3 million |
| Gross profit / margin | $4,650.4 million / 69.6% | $4,081.9 million / 71.0% |
| Operating income / margin | $1,175.8 million / 17.6% | $968.0 million / 16.8% |
| Net income | $856.3 million | $834.2 million |
| Diluted earnings per share | $3.17 | $2.95 |
| Operating cash flow | $853.2 million | $1,323.7 million |
Sales grew 16.3% reported and 16.8% excluding currency effects. Fiscal 2021 included an estimated $92.7 million benefit from its extra week. Excluding items affecting comparability, fiscal 2022 operating income was $1,218.6 million, net income $936.5 million and diluted EPS $3.47; comparable fiscal 2021 figures were $1,095.3 million, $841.1 million and $2.97. These are non-GAAP measures and should be considered alongside GAAP results.
Coach sales rose 15.7%, Kate Spade 19.5% and Stuart Weitzman 12.2%. Digital revenue was approximately $2 billion, or 30% of sales. Gross margin fell 140 basis points as reported; management cited higher freight costs and, by brand, duties and channel or geographic mix, partly offset by lower promotions, pricing and favorable product mix. Incremental freight expense versus fiscal 2021 was $178.5 million.
Cash, debt and capital allocation
- Cash and cash equivalents were $789.8 million, and short-term investments were $163.4 million at year-end, versus cash of $2,007.7 million and short-term investments of $8.1 million a year earlier.
- Cash used in investing was $253.6 million; property and equipment purchases were $93.9 million. Total capital expenditures and cloud-computing implementation costs were $161.6 million.
- Cash used in financing was $1,778.1 million, including $1.60 billion of share repurchases, $264.4 million of dividends and $900 million of debt repayments, partly offset by $998.5 million of net debt proceeds.
- Debt was approximately $1.70 billion: $31.2 million current and $1,659.2 million long-term, net of discounts and issuance costs. The company had no borrowings on its $1.25 billion revolving facility. Reported available liquidity was $2,203.2 million, including cash, short-term investments and the undrawn revolver.
- In fiscal 2022, Tapestry issued $500 million of 3.050% notes due 2032, tendered $500 million of its 2025 and 2027 notes, and drew a $500 million term loan to redeem its 2022 notes. A $53.7 million debt-extinguishment loss reduced GAAP earnings. Credit facilities mature in 2027 and include a maximum leverage covenant.
Outlook, risks and notable items
- Management said it expected no further Acceleration Program expenses in fiscal 2023; the program had generated approximately $300 million in annual gross run-rate savings in fiscal 2022. The company planned approximately $700 million of fiscal 2023 share repurchases, subject to conditions and authorization.
- Store plans for fiscal 2023 included minimal overall change for Coach, modest reductions for Kate Spade in North America and Japan, and modest Stuart Weitzman expansion in mainland China offset by a slight North American reduction.
- Management described continued uncertainty from Covid-19, particularly Greater China demand and potential store restrictions, alongside supply interruptions, port congestion, longer transit times and higher freight costs. Inflation, recession risk, foreign exchange, trade duties and geopolitical developments could pressure demand, costs and margins.
- Other material risks include fashion and brand execution, competition, inventory and promotional exposure, reliance on third-party manufacturers and fulfillment providers, cybersecurity and privacy, foreign-currency movements, and the ability to meet debt covenants. Operating lease obligations were $2.06 billion; inventory purchase obligations were $460.7 million.
- The annual impairment test found no fiscal 2022 goodwill or indefinite-lived intangible impairment. Kate Spade fair value exceeded carrying value by approximately 50% for goodwill and 90% for its brand intangible; management warned weaker-than-expected performance could lead to impairment testing and a charge.
- Fiscal 2022 effective tax rate was 18.2%, versus 7.0% in fiscal 2021, when tax benefits materially lowered the rate. The filing notes that the Inflation Reduction Act, enacted after year-end, was expected to take effect beginning fiscal 2024; its impact was unclear.
- Management and the auditor concluded that internal control over financial reporting was effective. The auditor’s critical audit matter concerned valuation assumptions in the Kate Spade impairment assessment. Management said pending legal proceedings, in aggregate, were not expected to have a material effect.
Investor verification priorities
- Reconcile reported and adjusted earnings, including the debt-extinguishment charge, Acceleration Program costs and the fiscal 2021 extra week.
- Track whether sales growth, digital performance and margin recovery can offset freight, duty, wage and other cost pressures, especially if Greater China remains volatile.
- Assess working-capital and inventory trends: operating cash flow declined, while inventory rose to $994.2 million from $734.8 million.
- Monitor debt, cash deployment, the 4.0-to-1.0 credit-facility covenant and planned repurchases against liquidity needs and lease commitments.
- Review Kate Spade performance and valuation headroom, as well as the assumptions supporting goodwill and brand-asset impairment estimates.