Financial Roundup: Tapestry Positions for International Expansion, Michael Kors Beats Expectations, Levi’s Revenues Rise

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Tapestry received a sales boost from its Kate Spade acquisition, while Coach and Stuart Weitzman showed marginal improvement, as Michael Kors saw a similar uptick from its Jimmy Choo purchase. Levi Strauss revenues hit their stride, but the soft dollar hurt income.

Tapestry

In a Nutshell: Tapestry is focused on innovation for the Coach brand, building on Giovanni Morelli’s initial success as the creative director at Stuart Weitzman and laying a foundation for growth for the Kate Spade brand.

The company has taken action to have greater control over its business in Asia and Australia. It now has control of Kate Spade joint ventures in China, Hong Kong, Macau and Taiwan. It’s also in the process of acquiring the Stuart Weitzman business in Northern China. Additionally, Tapestry is buying back the Coach business in Australia and New Zealand from its distributor.

Tapestry affirmed its revenue guidance for fiscal 2018. Driven by low-single digit growth and the acquisition of Kate Spade, the company expects revenue to increase 30 percent over FY2017 to between $5.8 billion and $5.9 billion.

The company expects earnings per diluted share to increase between 17 percent and 21 percent for the year to $2.52 to $2.60.

Sales: Net sales for the Tapestry group increased by 35 percent to $1.79 billion in the second quarter ended Dec. 30. The performance reflects organic growth at Coach and Stuart Weitzman as well as the acquisition of Kate Spade in July.

Net sales at Coach inched up by 2 percent during the period to $1.23 billion from $1.20 billion during the same time last year. Global comp sales for the brand increased by 3 percent on the strength of e-commerce.

Kate Spade experienced a 7 percent decline in comp sales during the quarter. Net sales, which reached $435 million, were negatively impacted by the company’s decision to pull back on wholesale and flash sale activity.

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Stuart Weitzman achieved a 2 percent net sales increase to $121 million, compared to $118 million during the prior year period.

Earnings: Net income for the group was $63 million, or 22 cents per diluted share, compared to $200 million, or 71 cents per diluted share during the prior year period.

CEO’s Take: “Our second quarter performance exceeded our expectations, driven by a return to growth for Coach, sales gains at Stuart Weitzman and the contribution of Kate Spade as we continued to make progress on the brand’s integration. Importantly, Coach comparable store sales rose globally, led by outperformance in North America, reflecting our strong holiday offering and improved inventory mix, all supported by festive marketing campaigns. In addition to the top line gains, we drove significant operating income growth on better-than-expected profitability metrics, notably gross margin, while expenses were well controlled and also benefitted from timing shifts,” said Tapestry CEO Victor Luis.

Michael Kors

In a nutshell: Michael Kors Holdings reported better-than-expected results for the third quarter, fueled by headway on the Runway 2020 strategy for the Michael Kors brand. As a part of the plan, the company has reduced promotional activity, which resulted in higher average unit retails and improved product quality and innovation, leading to growth in footwear and ready-to-wear business as well as a boost to accessories.

The company announced revenue guidance of $1.11 billion to $1.13 billion for the fourth quarter. Diluted earnings per share are anticipated to fall between 50 cents and 55 cents.

Full year revenue is expected to be $4.66 billion and comp sales are expected to decline in the mid-single digits. Diluted earnings per share are pegged at $4.40 to $4.45.

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Sales: Total revenue for the group increased by 6.5% to $1.44 billion, which includes $114.7 from Jimmy Choo, which was purchased during the quarter.

Revenue from retail operations increased 1.1% to $846.3 million, attributable to 32 net new store openings. Comp sales dropped by 3.2% on better than anticipated performance in the Americas and Europe during the holidays.

As a result of the company’s strategic pullback, wholesale revenue dropped by 8.9% to $430.8 million. And licensing revenue increased 12.3% to $48.3 million.

Earnings: Net income was $219.4 million, or $1.42 per diluted share, compared to $271.3 million, or $1.64 per diluted share. 

CEO’s Take: “Our solid financial performance reflects the continued progress we are making on our Runway 2020 strategic plan,” said CEO John Idol. “We also began to increase our investments in Jimmy Choo to support our strategic plan, laying the foundation for accelerated growth in this business. We believe that the formation of our luxury group will enable us to drive long-term sales and earnings growth while also creating a platform for future acquisitions.”

Levi Strauss & Co.

In a Nutshell: Notching its best revenue gains in a while, Levi Strauss & Co. saw direct-to-consumer revenues grow 20 percent for the fourth quarter and 15 percent for the full year on strong global performance and expansion of the retail network, as well as e-commerce growth. The company had 53 more company-operated stores at the end of fiscal 2017 than it did at the end of fiscal 2016. Earnings for the full year dipped, however, in part over currency losses on soft dollar exchange rates.

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[Read more about Levi’s: What Levi’s and Glossier Are Doing to Foster Better Consumer Connections]

Sales: Net revenue for the San Fransisco-based denim giant rose 13 percent for the fourth quarter ended Nov. 26 to $1.3 billion, with revenue for the full year increasing 8 percent to $4.9 billion. Wholesale revenues grew 10 percent for the fourth quarter, reflecting higher revenues from the Americas and Europe, and were up 5 percent for the full year, primarily reflecting growth in Europe. In Asia, net revenues grew 13 percent, reflecting direct-to-consumer expansion and performance.

Earnings: Fourth quarter net income increased 20 percent to $116 million, primarily reflecting higher earnings before interest and taxes, and lower taxes due to additional net foreign tax credits, as well as the favorable impact of foreign operations as compared to 2016. Full-year net income declined 3 percent to $291 million, primarily due to a $23 million loss on early extinguishment of debt as a result of debt refinancing activities this year and net losses on foreign exchange contracts, reflecting the appreciation of most foreign currencies against the dollar during the year.

CEO’s Take: Chip Bergh, president and chief executive officer, said: “Our growth and momentum accelerated in the fourth quarter, capping the strongest revenue year the company has had in more than a decade. Our strategies are working and the investments that we’ve made to diversify our business over the past few years are paying off, best demonstrated by the strength of the Levi’s brand globally.”

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