Tapestry, Inc. — Form 10-K Summary
Reporting period: Fiscal 2021, ended July 3, 2021; it comprised 53 weeks. Fiscal 2020, ended June 27, 2020, comprised 52 weeks. This is an annual filing, not a standalone fourth-quarter filing; quarterly figures below are included for context.
Business context
Tapestry operates Coach, kate spade new york and Stuart Weitzman. Coach generated 74.0% of fiscal 2021 sales, Kate Spade 21.1% and Stuart Weitzman 4.9%. The company’s Acceleration Program focuses on consumer demand, digital capabilities, assortment productivity and cost savings. COVID-19 continued to affect stores, supply chains and consumer traffic.
Financial results
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Net sales | $5,746.3 million | $4,961.4 million |
| Gross profit / margin | $4,081.9 million / 71.0% | $3,239.3 million / 65.3% |
| Operating income (loss) / margin | $968.0 million / 16.8% | ($550.8) million / (11.1)% |
| Net income (loss) | $834.2 million | ($652.1) million |
| Diluted EPS | $2.95 | ($2.34) |
| Cash from operations | $1,323.7 million | $407.0 million |
| Capital expenditures | $116.0 million | $205.4 million |
Sales rose 15.8% year over year, or 14.1% excluding currency effects; the extra fiscal week contributed $92.7 million of sales and approximately $0.09 to diluted EPS. Despite the rebound, fiscal 2021 sales remained 4.7% below fiscal 2019. Coach sales increased 20.6%, Kate Spade 5.3% and Stuart Weitzman declined 1.0% versus fiscal 2020. Fourth-quarter sales were $1,615.4 million and net income was $199.8 million.
Reported results include significant comparability items. Excluding the items identified by management, fiscal 2021 operating income was $1,095.3 million and net income was $841.1 million, versus $438.4 million and $271.2 million, respectively, in fiscal 2020. These are non-GAAP measures. Fiscal 2021 included $95.0 million of CARES Act tax benefits, principally from an NOL carryback, and $45.8 million of lease right-of-use impairment charges; fiscal 2020 included $477.7 million of goodwill and intangible impairment, largely for Stuart Weitzman.
Cash, debt and liquidity
Cash and cash equivalents were $2,007.7 million at year-end, up from $1,426.3 million. Operating cash flow increased substantially, with accounts payable providing $307.3 million of cash; management attributed this in part to extended supplier payment terms and higher inventory in transit. Investing activities used $91.0 million, while financing activities used $666.0 million, primarily to repay the $700.0 million revolver draw made in fiscal 2020.
Debt totaled approximately $1.6 billion: $400 million of 3.000% notes due 2022, $600 million of 4.250% notes due 2025 and $600 million of 4.125% notes due 2027. The $900 million revolving facility had no borrowings at year-end. Reported available liquidity was $2,915.8 million, including cash, short-term investments and undrawn revolver capacity. Operating lease liabilities were $1,845.3 million. The company reported $4,915.4 million of contractual obligations, including lease payments, inventory commitments, debt and interest.
Material changes and outlook
- Gross margin improved to 71.0% from 65.3%; management cited reduced promotions and better assortment productivity. SKU counts were reduced by 40%–45%.
- The company achieved approximately $200 million in gross run-rate expense savings in fiscal 2021 and remained on track for $300 million. It expected $30–$45 million of additional Acceleration Program charges in fiscal 2022, with the program substantially complete by fiscal year-end.
- Fiscal 2022 capital expenditures were expected to be approximately $220 million, with continued investment in digital capabilities. The filing does not provide a clear fiscal 2022 sales or EPS forecast in the supplied text.
- After year-end, the board reinstated the quarterly dividend at $0.25 per share and announced an intention to repurchase approximately $500 million of stock in fiscal 2022, subject to applicable restrictions and business conditions.
- Management expected freight and logistics pressures—including port congestion, container shortages and higher air and ocean freight costs—to persist in fiscal 2022. Temporary manufacturing closures in Southeast Asia and renewed COVID-19 restrictions could also disrupt supply and demand.
Risks, contingencies and unusual items
Key risks include COVID-19 developments, supply-chain and fulfillment disruptions, inflation in freight and other costs, changes in consumer demand and store traffic, promotional pressure, competition, foreign exchange, tariffs and other trade restrictions, cybersecurity, and execution of the Acceleration Program. Expiration of the U.S. Generalized System of Preferences program had increased duties; renewal and retroactive treatment were uncertain. Kate Spade goodwill and brand fair values exceeded carrying values by approximately 41% and 77%, respectively, but management cautioned that weaker performance could trigger impairment. Routine legal proceedings were not expected by the company to have a material aggregate effect.
The revolver amendment required at least $700 million of available liquidity through October 2, 2021 and imposed covenant and capital-allocation restrictions during the relief period. The filing also reports $144.0 million of remaining transition-tax payments and $40.5 million of letters of credit, surety bonds and bank guarantees. The auditor issued unqualified opinions on the financial statements and internal controls; management also concluded internal controls were effective.
Most important facts for investors to verify
- Whether sales, margins and cash generation persist after the recovery year, particularly given fiscal 2021’s extra week and sales still below fiscal 2019.
- How much operating cash flow reflects sustainable earnings versus supplier-term extensions, inventory timing and other working-capital movements.
- Progress on the $300 million savings target, remaining restructuring charges and the profitability of each brand, especially Stuart Weitzman and Kate Spade.
- Actual fiscal 2022 freight, duty and supply-chain costs, and whether disruptions affect product availability or promotional activity.
- Cash needs and covenant terms around the $1.6 billion debt balance, the $400 million 2022 maturity, lease obligations and planned shareholder returns.
- Whether Kate Spade’s valuation cushion and the stated fiscal 2022 outlook remain supportable as trading conditions and impairment assumptions evolve.