Tapestry, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2023, ended April 1, 2023. The request metadata says “2022 Q3,” but the filing reports fiscal 2023 Q3. The quarter and prior-year comparable quarter were each 13 weeks. Financial statements are unaudited.
Financial results and liquidity
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Net sales | $1,509.5 million | $1,437.5 million | $5,041.4 million | $5,059.6 million |
| Gross profit / margin | $1,098.3 million / 72.8% | $1,005.1 million / 69.9% | $3,542.2 million / 70.3% | $3,531.2 million / 69.8% |
| Operating income / margin | $226.3 million / 15.0% | $169.5 million / 11.8% | $898.8 million / 17.8% | $927.3 million / 18.3% |
| Net income | $186.7 million | $122.7 million | $711.9 million | $667.5 million |
| Diluted EPS | $0.78 | $0.46 | $2.93 | $2.42 |
- Cash flow: Nine-month operating cash flow was $574.8 million, versus $616.4 million. Investing activities provided $40.6 million, including $154.6 million of investment maturities and sales and $41.9 million from settlement of a net investment hedge, partly offset by $149.6 million of property and equipment purchases. Financing activities used $768.7 million, including $502.0 million of share repurchases and $214.2 million of dividends.
- Cash and liquidity: Cash and equivalents were $637.2 million at April 1, 2023, down from $789.8 million at July 2, 2022; short-term investments were $14.6 million. The company reported total available liquidity of $1.90 billion, including $1.25 billion of undrawn revolver capacity.
- Debt: Balance-sheet debt was $25.0 million current and $1,641.6 million long term, net of discounts and issuance costs. The revolving facility had no borrowings. Credit facilities mature in May 2027; the company reported no known debt defaults.
- Working capital and capital returns: Inventory was $934.1 million, compared with $994.2 million at fiscal 2022 year-end. The company repurchased $500.0 million of shares and paid $214.2 million in dividends during the nine months; 231.8 million shares were outstanding at quarter-end.
Material changes versus comparable periods
- Quarterly sales rose 5.0% reported and 8.7% in constant currency. Coach sales increased 6.7% reported; Kate Spade declined 1.4%; Stuart Weitzman increased 7.3%.
- Nine-month sales declined 0.4% reported but increased 3.4% in constant currency. Coach was essentially flat reported; Kate Spade increased 0.7%; Stuart Weitzman declined 10.9%, with China-related disruption cited as a factor.
- Quarterly gross margin expanded 290 basis points, benefiting from lower freight costs and pricing, partly offset by currency. Nine-month gross margin increased 50 basis points. Lower freight expense improved gross margin by approximately 360 basis points for the quarter and 120 basis points year to date.
- Quarterly operating income grew 33.6%. Nine-month operating income declined 3.1%; excluding prior-year comparability items, it declined $60.2 million. Nine-month net income rose 6.7% reported, but declined 3.7% excluding prior-year comparability items. Prior-year results included a $53.7 million debt-extinguishment charge and Acceleration Program costs; FY2023 had no comparable charges.
- Foreign exchange reduced sales by $52.8 million in the quarter and $188.5 million year to date, and reduced diluted EPS by $0.10 and $0.30, respectively. The nine-month diluted EPS increase also reflected lower weighted-average shares.
Outlook, management commentary and risks
- Management’s stated “2025 growth strategy” focuses on customer relationships, product innovation, omnichannel experiences and global growth, with North America and China prioritized and opportunities identified in Southeast Asia and Europe.
- The filing does not provide a clear full-year revenue or earnings forecast. Management expected fiscal 2023 capital expenditures and cloud-computing costs of approximately $280 million; nine-month amounts were $205.8 million. It also intended to repurchase approximately $700 million of shares in fiscal 2023 under the existing authorization.
- Management described the macroeconomic environment as challenging and volatile, citing inflation, tighter monetary and fiscal policies, financial-market volatility, geopolitical uncertainty and discretionary-spending risks. It said business trends in Greater China improved after certain restrictions were lifted in December 2022.
- Supply-chain and freight pressures had moderated, and the company said production shifts and reduced air freight supported its ability to meet anticipated demand. Further disruption remains possible.
- Other risks include currency volatility, tariffs and trade changes, cyber and data-security threats, competition, changing consumer and fashion trends, and pandemic-related disruption. The company noted potential future tax effects from U.S. and OECD minimum-tax rules, whose impact was unclear; the share-repurchase excise tax had no material financial-statement impact.
- Management believes cash flows, cash, investments and credit access are adequate for operating, capital and debt-service needs, while cautioning that financing may not be available on acceptable terms. Routine legal proceedings were not expected, in aggregate, to materially affect the company. No impairment charges were recorded in the periods presented; management highlighted Kate Spade’s relatively narrower fair-value cushion and the possibility of impairment if profitability trends weaken.
Important facts for investors to verify
- Confirm that comparisons distinguish reported from constant-currency growth and account for the prior-year debt-extinguishment and Acceleration Program items.
- Track whether freight savings persist and whether currency, pricing, product mix and higher SG&A—particularly at Kate Spade—affect margins.
- Monitor Greater China demand, Stuart Weitzman performance and progress under the 2025 growth strategy.
- Assess cash conversion, inventory and working-capital movements alongside planned capital spending, dividends and share repurchases.
- Review debt covenant headroom, variable-rate exposure, foreign-exchange hedges and the potential impact of future tax rules.