Market Overview

Tapestry, Inc. Reports Fiscal 2018 Fourth Quarter and Full Year Results

Share:
  • Fourth Quarter and Fiscal Year Net Sales Increased 31% Driven by
    the Acquisition of Kate Spade and Organic Growth
  • Fourth Quarter Earnings per Diluted Share Rose 36% on a GAAP Basis
    to $0.73 and 21% on a Non-GAAP Basis to $0.60
  • Full Year Earnings per Diluted Share Exceeded Guidance
  • Board Declares Quarterly Dividend

Tapestry, Inc. (NYSE:TPR), a leading New York-based house of modern
luxury accessories and lifestyle brands, today reported fourth quarter
and full year results for the periods ended June 30, 2018.

This press release features multimedia. View the full release here:
https://www.businesswire.com/news/home/20180814005208/en/

(Photo: Business Wire)

(Photo: Business Wire)

Victor Luis, Chief Executive Officer of Tapestry, Inc., said, "Our
strong fourth quarter results capped an excellent FY18 performance for
Tapestry which demonstrated the power of our multi-brand model. We
achieved our annual sales and operating income guidance, driving
significant growth while earnings per share outpaced our forecast. It
was also a year of many milestones, as we completed the acquisition of
Kate Spade and evolved into a true House of Brands, establishing
Tapestry as our new corporate identity. Our company is built on shared
values and a common operating platform while our brands retain their
distinctive personalities, individual narratives and unique positioning."

"We strengthened our executive and creative leadership across our
brands, with a clear focus on executing our strategic vision. In
addition, we expanded our Board with the appointment of new Directors
who bring fresh perspectives and extensive and relevant business
experience. Finally, we announced several important business development
initiatives during the year, which allow each of our brands to assume
greater direct control over their international distribution and, in
keeping with our strategic priority, maximize the opportunity with
Chinese consumers globally across our portfolio. To this end, we're
excited to announce that we've entered into purchase agreements to
acquire Kate Spade's operations in Singapore, Malaysia and Australia as
well as Stuart Weitzman's business in Southern China."

"Coach posted a strong finish to fiscal 2018, with positive fourth
quarter comparable store sales, again led by outperformance in North
America and driven by fashion innovation across materials and price
points. In addition, and as expected, at Coach we drove significant
gross margin expansion in the quarter, driving the full year margin
above prior year levels. Taken together with tightly controlled
expenses, we achieved operating income growth and operating margin
expansion for the quarter and year."

"The successful integration of Kate Spade onto the Tapestry platform
continued, as we achieved the anticipated synergies for the year. Kate
Spade fourth quarter results exceeded our expectations from both a top-
and bottom-line perspective with both sales and operating margin
increasing from reported prior year results. In its first year within
Tapestry, Kate Spade delivered double digit earnings per share
accretion, despite the strategic pullback in online flash and wholesale
disposition. "

"Finally at Stuart Weitzman, as anticipated, fourth quarter results
continued to be negatively impacted by development and delivery delays
which pressured sales and margins. For the year, sales were essentially
unchanged, reflecting the second half challenges. During the quarter, we
continued to implement the production and planning processes necessary
to drive the business forward and remain confident in the long term
opportunities for the brand."

Non-GAAP Reconciliation Items:

During the fiscal fourth quarter, the Company recorded pre-tax charges
associated with Integration and Acquisition activities and its
Operational Efficiency Plan. In addition, during the quarter, the
Company recorded certain favorable tax impacts associated with the
recently enacted U.S. tax legislation as well as a one-time reversal of
certain valuation allowances that were established in connection with
purchase accounting for the Kate Spade acquisition and subsequently
released in the fiscal fourth quarter due, in part, to the enactment of
the tax legislation changes. Taken together, these items increased the
Company's fourth quarter reported net income by $36 million or about
$0.13 per diluted share. On a full year basis, these items reduced the
Company's reported net income by $362 million or about $1.25 per diluted
share. Please refer to the financial tables included herein for a
detailed reconciliation of the Company's reported to non-GAAP results.

Overview of Fourth Quarter 2018 Tapestry, Inc.
Results:

Fiscal 2018 fourth quarter performance includes the contribution of Kate
Spade, which the Company acquired on July 11, 2017 and therefore is not
included in the prior year results.

  • Net sales totaled $1.48 billion for the fourth fiscal quarter
    as compared to $1.13 billion in the prior year, an increase of 31% on
    a reported basis. On a constant currency basis, net sales increased
    29%.
  • Gross profit totaled $1.00 billion on a reported basis, while
    gross margin for the quarter was 67.6% on a reported basis compared to
    66.5% in the prior year. On a non-GAAP basis, gross profit totaled
    $1.01 billion, while gross margin was 68.0% as compared to 66.8% in
    the prior year.
  • SG&A expenses totaled $816 million on a reported basis and
    represented 55.0% of sales compared to 49.5% in the year-ago quarter.
    On a non-GAAP basis, SG&A expenses were $781 million and represented
    52.7% of sales as compared to 50.9% in the year-ago period.
  • Operating income for the quarter was $187 million on a reported
    basis, while operating margin was 12.6% versus 17.0% in the prior
    year. On a non-GAAP basis, operating income was $228 million, an
    increase of 27% versus prior year, while operating margin was 15.3%
    versus 15.8% in last year's fourth quarter.
  • Net interest expense was $14 million in the quarter on a
    reported and non-GAAP basis as compared to $14 million on a reported
    basis in the year ago period, which included $10 million in expense
    associated with bridge financing in connection with the acquisition of
    Kate Spade. On a non-GAAP basis, net interest expense was $4 million
    in the fourth quarter of fiscal 2017.
  • Net income for the quarter was $212 million on a reported
    basis, with earnings per diluted share of $0.73. This compared to
    reported net income of $152 million with earnings per diluted share of
    $0.53 in the prior year period. The reported tax rate for the quarter
    was (22.5)%, primarily due to favorable tax impacts associated with
    tax legislation changes as well as a one-time reversal of valuation
    allowances, as noted above. This compared to a reported tax rate of
    15.5% in the prior year. On a non-GAAP basis, net income for the
    quarter totaled $176 million, with earnings per diluted share of
    $0.60. This compared to non-GAAP net income of $142 million with
    earnings per diluted share of $0.50 in the prior year period. The
    non-GAAP tax rate for the quarter was 17.4% compared to a 19.2% in the
    prior year.
  • Inventory was $674 million at the end of quarter versus ending
    inventory of $470 million in the year ago period. The increase over
    prior year was primarily driven by the acquisition of Kate Spade as
    well as the inventory associated with regional buyback activity this
    fiscal year.

Fourth fiscal quarter results in each of the Company's reportable
segments were as follows:

Coach Fourth Quarter of 2018 Results:

  • Net sales for Coach totaled $1.10 billion for the fourth fiscal
    quarter as compared to $1.05 billion in the prior year, an increase of
    5% on a reported basis and 3% on a constant currency basis. Global
    comparable store sales rose 2% in aggregate, including e-commerce, as
    well as for bricks and mortar stores.
  • Gross profit for Coach totaled $762 million on a reported
    basis, while gross margin for the quarter was 69.3%. On a non-GAAP
    basis, gross profit totaled $765 million, while gross margin was
    69.6%, including a benefit of approximately 30 basis points from
    currency. This compared to gross margin of 67.4% in the prior year
    period on both a reported and non-GAAP basis.
  • SG&A expenses totaled $478 million for Coach on a reported
    and non-GAAP basis, while SG&A expenses as a percentage of sales were
    43.5% as compared to 43.9% in the prior year.
  • Operating income for Coach was $284 million on a reported basis,
    while operating margin was 25.8%. On a non-GAAP basis, operating
    income was $287 million, while operating margin was 26.1%. This
    compared to operating margin of 23.5% in the prior year, both on a
    reported and non-GAAP basis.

Kate Spade Fourth Quarter of 2018 Results:

  • Net sales for Kate Spade totaled $312 million, reflecting, in
    part, the strategic pullback in wholesale disposition and online flash
    sales, partially offset by the consolidation of the joint ventures for
    Mainland China, Hong Kong, Macau and Taiwan. Global comparable store
    sales declined 3%, including the negative impact of approximately half
    a point from a decline in global e-commerce due to the reduction in
    online flash sales, as noted.
  • Gross profit for Kate Spade totaled $205 million on a reported
    basis, while gross margin for the period was 65.5%. On a non-GAAP
    basis, gross profit was $205 million, while gross margin was 65.6%.
  • SG&A expenses for Kate Spade were $181 million on a
    reported basis and represented 57.9% of sales. On a non-GAAP basis,
    SG&A expenses were $174 million and represented 55.7% of sales.
  • Operating income for Kate Spade was $24 million on a
    reported basis, representing an operating margin of 7.6%. On a
    non-GAAP basis, operating income totaled $31 million, while operating
    margin was 9.9%.

Stuart Weitzman Fourth Quarter of 2018 Results:

  • Net sales for Stuart Weitzman totaled $73 million for the
    fourth fiscal quarter compared to $88 million reported in the same
    period of the prior year.
  • Gross profit for Stuart Weitzman totaled $37 million on a
    reported basis, while gross margin for the quarter was 50.3% on a
    reported basis compared to 56.2% in the prior year. On a non-GAAP
    basis, gross profit totaled $39 million, while gross margin was 53.5%
    as compared to 58.9% in the prior year.
  • SG&A expenses for Stuart Weitzman were $57 million on a
    reported basis and represented 78.6% of sales as compared to 59.5% of
    sales in the prior year's fourth quarter. On a non-GAAP basis, SG&A
    expenses were $56 million or 76.7% of sales as compared to 53.9% of
    sales in the prior year.
  • Operating income for Stuart Weitzman was a loss of $21 million
    on a reported basis, while operating margin was (28.3)% versus (3.2)%
    in the prior year. On a non-GAAP basis, operating income was a loss of
    $17 million, while operating margin was (23.2)% versus 5.0% in the
    prior year.

Overview of Full Year 2018 Tapestry, Inc.
Results:

Fiscal 2018 performance includes the contribution of Kate Spade for the
period subsequent to the closing of the acquisition on July 11, 2017
through the end of the fiscal year on June 30, 2018. Kate Spade is not
included in the prior year results.

  • Net sales totaled $5.88 billion for the fiscal year 2018 as
    compared to $4.49 billion in the prior year, an increase of 31% on
    reported basis. On a constant currency basis, total sales increased
    30%.
  • Gross profit totaled $3.85 billion on a reported basis, while
    gross margin was 65.5% on a reported basis compared to 68.6% in the
    prior year. On a non-GAAP basis, gross profit totaled $3.97 billion,
    while gross margin was 67.5% as compared to 68.7% in the prior year.
  • SG&A expenses totaled $3.18 billion on a reported basis and
    represented 54.1% of sales compared to 51.1% in the prior year. On a
    non-GAAP basis, SG&A expenses were $2.98 billion and represented 50.7%
    of sales as compared to 50.6% in the prior year.
  • Operating income was $671 million on a reported basis, while
    operating margin was 11.4% versus 17.5% in the prior year. On a
    non-GAAP basis, operating income was $992 million, an increase of 22%
    versus prior year, while operating margin was 16.9% versus 18.1% last
    year.
  • Net interest expense was $74 million on a reported and non-GAAP
    basis as compared to $28 million in the year ago period on a reported
    basis, which included $10 million in expense associated with bridge
    financing in connection with the acquisition of Kate Spade. On a
    non-GAAP basis, net interest expense was $19 million in fiscal 2017.
  • Net income was $398 million on a reported basis, with earnings
    per diluted share of $1.38. This compared to reported net income of
    $591 million with earnings per diluted share of $2.09 in the prior
    year. On a non-GAAP basis, net income totaled $760 million, with
    earnings per diluted share of $2.63. This compared to non-GAAP net
    income of $609 million with earnings per diluted share of $2.15 in the
    prior year period. The reported tax rate for the year was 33.4% as
    compared to 22.1% in the prior year. On a non-GAAP basis, the tax rate
    for the year was 17.2% as compared to
    23.2% in the prior year.

Fiscal 2018 results in each of the Company's reportable segments were as
follows:

Coach Full Year 2018 Results:

  • Net sales for Coach totaled $4.22 billion as compared to $4.11
    billion in the prior year, an increase of 3% on a reported basis and
    2% on a constant currency basis. Global comparable store sales rose
    over 1% including a benefit of approximately half a point from an
    increase in global e-commerce.
  • Gross profit for Coach totaled $2.93 billion on a reported
    basis, while reported gross margin was 69.4%. On a non-GAAP basis,
    gross profit was $2.94 billion, while gross margin was 69.5% on both a
    nominal and constant currency basis. This compared to gross margin of
    69.4% in the prior year on both a reported and non-GAAP basis.
  • SG&A expenses totaled approximately $1.85 billion for Coach
    on a reported and non-GAAP basis. As a percentage of sales, SG&A
    expenses were 43.8% on a reported basis and 43.7% on a non-GAAP basis,
    compared to 44.1% in the prior year on both a reported and non-GAAP
    basis.
  • Operating income for Coach was $1.08 billion on a reported
    basis, while operating margin was 25.7%. On a non-GAAP basis,
    operating income was $1.09 billion, while operating margin was 25.8%.
    This compared to operating margin of 25.3% in the prior year both on a
    reported and non-GAAP basis.

Kate Spade Full Year 2018 Results (for
the post-acquisition period):

  • Net sales for Kate Spade totaled $1.28 billion, reflecting, in
    part, the strategic pullback in wholesale disposition and online flash
    sales, partially offset by the consolidation of the joint ventures for
    Mainland China, Hong Kong, Macau and Taiwan. Global comparable store
    sales declined 7%, including the negative impact of nearly 500 basis
    points from a decline in global e-commerce.
  • Gross profit for Kate Spade totaled $711 million on a reported
    basis, while gross margin for the period was 55.4%. On a non-GAAP
    basis, gross profit was $818 million, while gross margin was 63.6%.
  • SG&A expenses for Kate Spade were $773 million on a
    reported basis and represented 60.2% of sales. On a non-GAAP basis,
    SG&A expenses were $659 million and represented 51.3% of sales.
  • Operating income for Kate Spade was a loss of $62
    million on a reported basis, representing an operating margin of
    (4.8)%. On a non-GAAP basis, operating income totaled $158 million,
    while operating margin was 12.3%.

Stuart Weitzman Full Year 2018 Results:

  • Net sales for Stuart Weitzman totaled $374 million compared to
    $374 million reported in the prior year.
  • Gross profit for Stuart Weitzman totaled $211 million on a
    reported basis, while gross margin was 56.5% on a reported basis
    compared to 60.5% in the prior year. On a non-GAAP basis, gross profit
    totaled $217 million, while gross margin was 58.1% as compared to
    61.3% in the prior year.
  • SG&A expenses for Stuart Weitzman were $214 million on a
    reported basis and represented 57.2% of sales as compared to 56.4% of
    sales in the prior year. On a non-GAAP basis, SG&A expenses were $206
    million or 55.1% of sales as compared to 51.6% of sales in the prior
    year.
  • Operating income for Stuart Weitzman was a loss of $3 million
    on a reported basis, while operating margin was (0.7)% versus 4.2% in
    the prior year. On a non-GAAP basis, operating income was $11 million
    or 3.0% of sales versus 9.7% in the prior year.

The Company also announced that its Board of Directors declared a
quarterly cash dividend of $0.3375 per common share, maintaining an
annual rate of $1.35. The dividend is payable on October 1, 2018 to
shareholders of record as of the close of business on September 7, 2018.

Mr. Luis added, "Our strong fiscal 2018 performance reflected the
benefits of diversification across brands, geographies and categories.
Looking ahead, we are focused first and foremost on execution. Our goal
is to deliver strong revenue and operating income growth in fiscal 2019,
while making the right strategic investments to support our long-term
vision and drive a return to both double-digit operating income and
earnings per share growth in fiscal 2020. We will continue to harness
the power of our multi-brand model, fuel innovation across brands, drive
global growth with an emphasis on the Chinese consumer, and advance our
digital and data analytics capabilities."

"At Coach, we will offer a heightened level of newness throughout the
pyramid of fashion, price and occasion across channels and geographies.
In addition, we will build on the successful re-launch of Signature as a
coveted brand icon. Beyond bags, we're excited about the opportunities
for women's footwear and ready-to-wear as well as men's across all
categories. In stores, we will be utilizing technology and digital to
enhance and modernize the customer experience, notably through
customization. And, we will amplify our initiatives with marketing that
balances unexpected brand placement and campaigns with broad appeal."

"Fiscal 2019 will be a pivotal year at Kate Spade as we evolve the brand
with the launch of Creative Director Nicola Glass's new collection. We
will focus on global expansion, notably in China where the brand is
nascent and we see boundless opportunity. We will also continue to
leverage the Tapestry platform and brand development expertise, driving
significant incremental synergies and fueling accelerated growth."

"At Stuart Weitzman, our near-term focus continues to be building the
infrastructure and capacity to support the brand's creative vision. We
now expect to return to topline growth in the second fiscal quarter and
remain confident in our long-term strategy to evolve into a global,
multi-channel, multi-category fashion brand grounded in quality and
design."

"Overall, we are proud of the progress we've made in FY18 and couldn't
be more excited about the opportunities ahead for Tapestry and each of
our brands," Mr. Luis concluded.

Fiscal Year 2019 Outlook

The following fiscal 2019 guidance is provided on a non-GAAP basis.

The Company expects revenues for fiscal 2019 to increase at a
mid-single-digit rate from fiscal 2018 to $6.1-$6.2 billion.

The Company is also projecting the operating income growth rate to
exceed the revenue growth rate, reflecting the organic growth of the
business, the realization of incremental synergies from the Kate Spade
acquisition as well as the impact of distributor consolidations and
buybacks and systems investments. As previously announced, the Company
expects that cost savings resulting from synergies related to the Kate
Spade acquisition will total $100-$115 million in FY19.

Net interest expense is expected to be approximately $50 million for the
year. The full year fiscal 2019 tax rate is projected at about 21% to
22% with the increase over prior year due primarily to the introduction
of a new tax regime requiring a current inclusion in U.S. federal
taxable income of certain earnings of controlled foreign corporations
(known as "GILTI").

Overall, the Company projects earnings per diluted share in the range of
$2.70-$2.80.

Fiscal Year 2019 Outlook - Non-GAAP Adjustments:

The company is not able to provide a full reconciliation of the non-GAAP
financial measures to GAAP presented in this release and on the
Company's conference call because certain material items that impact
these measures, such as the timing and exact amount of charges related
to Integration and Acquisition, the costs associated with the Company's
ERP implementation as well as the impact of the tax legislation changes
recently enacted in the U.S, have not yet occurred or are out of the
Company's control. Accordingly, a reconciliation of our non-GAAP
financial measure guidance to the corresponding GAAP measures is not
available without unreasonable effort. Where possible, the Company has
identified the estimated impact of the items excluded from its fiscal
2019 guidance.

This fiscal 2019 non-GAAP guidance excludes (1) expected pre-tax charges
of $10-$15 million attributable to the Company's ERP implementation
efforts; and (2) estimated pre-tax Integration and Acquisition charges
of $50-$60 million (of which approximately $5-$10 million is estimated
to be non-cash) as the Company continues to develop its integration plan.

Conference Call Details:

The Company will host a conference call to review these results at 8:30
a.m. (ET) today, August 14, 2018. Interested parties may listen to the
conference call via live webcast by accessing www.tapestry.com/investors
on the Internet or calling 1-877-510-8087 or 1-862-298-9015 and
providing the Conference ID 88865692. A telephone replay will be
available starting at 12:00 p.m. (ET) today, for a period of five
business days. To access the telephone replay, call 1-800-585-8367 or
1-404-537-3406 and enter the Conference ID 88865692. A webcast replay of
the earnings conference call will also be available for five business
days on the Tapestry website. Presentation slides have also been posted
to the Company's website at www.tapestry.com/investors.

The Company expects to report fiscal 2019 first quarter financial
results on Tuesday, October 30, 2018. To receive notification of future
announcements, please register at www.tapestry.com/investors
("Subscribe to E-Mail Alerts").

Tapestry, Inc. is a New York-based house of modern luxury lifestyle
brands. The Company's portfolio includes Coach, Kate Spade and Stuart
Weitzman. Our Company and our brands are founded upon a creative and
consumer-led view of luxury that stands for inclusivity and
approachability. Each of our brands are unique and independent, while
sharing a commitment to innovation and authenticity defined by
distinctive products and differentiated customer experiences across
channels and geographies. To learn more about Tapestry, please visit www.tapestry.com.
The Company's common stock is traded on the New York Stock Exchange
under the symbol TPR.

This information to be made available in this press release may
contain forward-looking statements based on management's current
expectations. Forward-looking statements include, but are not limited
to, the statements under "Fiscal Year 2019 Outlook," as well as
statements that can be identified by the use of forward-looking
terminology such as "may," "will," "can," "should," "expect," "intend,"
"estimate," "continue," "project," "guidance," "forecast," "outlook,"
"anticipate," "moving," "leveraging," "capitalizing," "developing,"
"drive," "targeting," "assume," "plan," "build," "pursue," "maintain,"
"on track," "well positioned to," "look forward to," "to acquire,"
"achieve," "strategic vision," "growth opportunities" or comparable
terms. Future results may differ materially from management's current
expectations, based upon a number of important factors, including risks
and uncertainties such as expected economic trends, the ability to
anticipate consumer preferences, the ability to control costs and
successfully execute our transformation and operational efficiency
initiatives and growth strategies and our ability to achieve intended
benefits, cost savings and synergies from acquisitions, the impact of
tax legislation, etc.
Please refer to the Company's latest Annual
Report on Form 10-K, it's Quarterly Report on Form 10-Q for the period
ended December 30, 2017 and its other filings with the Securities and
Exchange Commission for a complete list of risks and important factors.

The Company assumes no obligation to revise or update any such
forward-looking statements for any reason, except as required by law.

 

TAPESTRY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Quarters and Years Ended June 30,
2018 and July 1, 2017

(in millions, except per share data)

       
(unaudited) (unaudited) (audited)
QUARTER ENDED YEAR ENDED
June 30, July 1, June 30, July 1,
2018 2017 2018 2017
 
Net sales $ 1,483.7 $ 1,133.8 $ 5,880.0 $ 4,488.3
 
Cost of sales   480.5     379.3   2,026.1   1,407.2
 
Gross Profit 1,003.2 754.5 3,853.9 3,081.1
 
Selling, general and administrative expenses   816.0     561.5   3,183.1   2,293.7
 
Operating income 187.2 193.0 670.8 787.4
 
Interest expense, net   14.4     13.6   74.0   28.4
 
Income before provision for income taxes 172.8 179.4 596.8 759.0
 
Provision for income taxes   (38.9 )   27.7   199.3   168.0
 
Net income $ 211.7   $ 151.7 $ 397.5 $ 591.0
 
Net income per share:
 
Basic $ 0.74   $ 0.54 $ 1.39 $ 2.11
 
Diluted $ 0.73   $ 0.53 $ 1.38 $ 2.09
 
Shares used in computing net income per share:
 
Basic   287.9     281.5   285.4   280.6
 
Diluted   291.3     284.7   288.6   282.8
 
 

TAPESTRY, INC.

GAAP TO NON-GAAP RECONCILIATION

For the Quarters Ended June 30, 2018 and
July 1, 2017

(in millions, except per share data)

(unaudited)

                   
June 30, 2018

GAAP Basis
(As Reported)

 

Operational
Efficiency Plan(1)

 

Integration &
Acquisition(2)

 

Impact of Tax
Legislation(3)

 

Non-GAAP Basis
(Excluding Items)

 
Gross profit $ 1,003.2 $ $ (5.5 ) $ $ 1,008.7
 
Selling, general and administrative expenses 816.0 10.0 24.8 781.2
 
Operating income 187.2 (10.0 ) (30.3 ) 227.5
 
Income before provision for income taxes 172.8 (10.0 ) (30.3 ) 213.1
 
Provision for income taxes (38.9 ) (3.1 ) (51.4 ) (21.4 ) 37.0
 
Net income 211.7 (6.9 ) 21.1 21.4 176.1
 
Diluted net income per share 0.73 (0.03 ) 0.09 0.07 0.60
             
July 1, 2017

GAAP Basis
(As Reported)

Operational
Efficiency Plan(1)

Integration &
Acquisition(2)

Non-GAAP Basis
(Excluding Items)

 
Gross profit $ 754.5 $ $ (2.3 ) $ 756.8
 
Selling, general and administrative expenses 561.5 6.8 (22.6 ) 577.3
 
Operating income 193.0 (6.8 ) 20.3 179.5
 
Income before provision for income taxes 179.4 (6.8 ) 10.8 175.4
 
Provision for income taxes 27.7 (4.0 ) (2.0 ) 33.7
 
Net income 151.7 (2.8 ) 12.8 141.7
 
Diluted net income per share 0.53 (0.01 ) 0.04 0.50
 
(1) Amounts as of June 30, 2018 represent technology
infrastructure costs. Amounts as of July 1, 2017 represent charges
primarily related to organizational efficiency and technology
infrastructure costs.
 
(2) Amounts as of June 30, 2018 represent charges
attributable to acquisition and integration costs related to the
purchase of Kate Spade & Company, the acquisition of certain
distributors for the Coach and Stuart Weitzman brands and assumed
operational control of Kate Spade joint ventures. Provision for
income taxes has been favorably impacted as a result of the reversal
of certain valuation allowances that were established during
purchase accounting. These charges include:
 
- Professional fees
- Limited life purchase accounting adjustments
- Organizational costs as a result of integration
 
Amounts as of July 1, 2017 represent acquisition costs and limited
life purchase accounting impacts related to the acquisition of
Stuart Weitzman Holdings LLC, more than offset by the reversal of an
accrual related to estimated contingent purchase price payments
which were not paid, and integration-related costs for the Kate
Spade & Company acquisition.
 
(3) Amounts as of June 30, 2018 represent charges due to
the net impact of the transition tax and re-measurement of deferred
tax balances.
 
 

TAPESTRY, INC.

GAAP TO NON-GAAP RECONCILIATION

For the Years Ended June 30, 2018 and
July 1, 2017

(in millions, except per share data)

(unaudited)

                   
June 30, 2018

GAAP Basis
(As Reported)

 

Operational
Efficiency Plan(1)

 

Integration &
Acquisition(2)

 

Impact of Tax
Legislation(3)

 

Non-GAAP Basis
(Excluding Items)

 
Gross profit $ 3,853.9 $ $ (116.4 ) $ $ 3,970.3
 
Selling, general and administrative expenses 3,183.1 19.5 185.2 2,978.4
 
Operating income 670.8 (19.5 ) (301.6 ) 991.9
 
Income before provision for income taxes 596.8 (19.5 ) (301.6 ) 917.9
 
Provision for income taxes 199.3 (6.2 ) (130.7 ) 178.2 158.0
 
Net income 397.5 (13.3 ) (170.9 ) (178.2 ) 759.9
 
Diluted net income per share 1.38 (0.05 ) (0.58 ) (0.62 ) 2.63
             
July 1, 2017

GAAP Basis
(As Reported)

Operational
Efficiency Plan(1)

Integration &
Acquisition(2)

Non-GAAP Basis
(Excluding Items)

 
Gross profit $ 3,081.1 $ $ (2.9 ) $ 3,084.0
 
Selling, general and administrative expenses 2,293.7 24.0 (1.7 ) 2,271.4
 
Operating income 787.4 (24.0 ) (1.2 ) 812.6
 
Income before provision for income taxes 759.0 (24.0 ) (10.7 ) 793.7
 
Provision for income taxes 168.0 (8.3 ) (8.1 ) 184.4
 
Net income 591.0 (15.7 ) (2.6 ) 609.3
 
Diluted net income per share 2.09 (0.05 ) (0.01 ) 2.15
 
(1) Amounts as of June 30, 2018 primarily represent
technology infrastructure costs. Amounts as of July 1, 2017
represent charges primarily related to organizational efficiency
costs, technology infrastructure costs and to a lesser extent,
network optimization costs.
 
(2) Amounts as of June 30, 2018 represent charges
attributable to acquisition and integration costs related to the
purchase of Kate Spade & Company, and to a lesser extent the
acquisition of certain distributors for the Coach and Stuart
Weitzman brands and assumed operational control of Kate Spade joint
ventures. Provision for income taxes has been favorably impacted as
a result of the reversal of certain valuation allowances that were
established during purchase accounting. These charges include:
 

- Limited life purchase accounting adjustments

- Professional fees

- Severance and other costs related to contractual payments with
certain Kate Spade executives

- Organizational costs as a result of integration

- Inventory reserves established for the destruction of inventory

 
Amounts as of July 1, 2017 represent acquisition costs and limited
life purchase accounting impacts related to the acquisition of
Stuart Weitzman Holdings LLC, more than offset by the reversal of an
accrual related to estimated contingent purchase price payments
which were not paid, and integration-related costs for the Kate
Spade & Company acquisition.
 
(3) Amounts as of June 30, 2018 represent charges due to
the net impact of the transition tax and re-measurement of deferred
tax balances.
 
 

TAPESTRY, INC.

GAAP TO NON-GAAP RECONCILIATION - FOR
SEGMENT RESULTS

For the Quarters Ended June 30, 2018 and
July 1, 2017

(in millions)

(unaudited)

   
June 30, 2018
GAAP   Coach   Kate Spade  

Stuart
Weitzman

  Corporate   Non-GAAP
COGS
Integration & Acquisition     (3.1 )   (0.1 )   (2.3 )      
Gross profit $ 1,003.2 $ (3.1 ) $ (0.1 ) $ (2.3 ) $   $ 1,008.7
 
SG&A
Integration & Acquisition 0.3 7.1 1.3 16.1
Operational Efficiency Plan                 10.0    
SG&A $ 816.0 $ 0.3   $ 7.1   $ 1.3   $ 26.1   $ 781.2
 
Operating income $ 187.2 $ (3.4 ) $ (7.2 ) $ (3.6 ) $ (26.1 ) $ 227.5
 
July 1, 2017
GAAP Coach Kate Spade

Stuart
Weitzman

Corporate(1) Non-GAAP
COGS
Integration & Acquisition             (2.3 )      
Gross profit $ 754.5 $   $   $ (2.3 ) $   $ 756.8
 
SG&A
Integration & Acquisition 5.0 (27.6 )
Operational Efficiency Plan                 6.8    
SG&A $ 561.5 $   $   $ 5.0   $ (20.8 ) $ 577.3
 
Operating income $ 193.0 $   $   $ (7.3 ) $ 20.8   $ 179.5
 
(1) The Company incurred $9.5 million related to bridge
financing fees recorded in interest expense within Corporate, which
is not included in the above table.
 
           

TAPESTRY, INC.

GAAP TO NON-GAAP RECONCILIATION - FOR
SEGMENT RESULTS

For the Years Ended June 30, 2018 and
July 1, 2017

(in millions)

(unaudited)

 
June 30, 2018
GAAP Coach Kate Spade

Stuart
Weitzman

Corporate Non-GAAP
COGS
Integration & Acquisition(1)     (4.1 )   (106.5 )   (5.8 )      
Gross profit $ 3,853.9 $ (4.1 ) $ (106.5 ) $ (5.8 ) $   $ 3,970.3
 
SG&A
Integration & Acquisition(1) 0.5 113.7 7.8 63.2
Operational Efficiency Plan                 19.5    
SG&A $ 3,183.1 $ 0.5   $ 113.7   $ 7.8   $ 82.7   $ 2,978.4
 
Operating income $ 670.8 $ (4.6 ) $ (220.2 ) $ (13.6 ) $ (82.7 ) $ 991.9
 

July 1, 2017

GAAP Coach Kate Spade

Stuart
Weitzman

Corporate(2) Non-GAAP
COGS
Integration & Acquisition             (2.9 )      
Gross profit $ 3,081.1 $   $   $ (2.9 ) $   $ 3,084.0
 
SG&A
Integration & Acquisition 17.7 (19.4 )
Operational Efficiency Plan                 24.0    
SG&A $ 2,293.7 $   $   $ 17.7   $ 4.6   $ 2,271.4
 
Operating income $ 787.4 $   $   $ (20.6 ) $ (4.6 ) $ 812.6
 
(1) During the first quarter of fiscal 2018, the Company
completed its acquisition of Kate Spade & Company. During the third
quarter of fiscal 2018, the Company completed its acquisition of
certain distributors for the Coach and Stuart Weitzman brands and
assumed operational control of Kate Spade joint ventures. The
operating results of the respective entity have been consolidated in
the Company's operating results commencing on the date of each
acquisition.
 
(2) The Company incurred $9.5 million related to bridge
financing fees recorded in interest expense within Corporate, which
is not included in the above table.
 

The Company reports information in accordance with U.S. Generally
Accepted Accounting Principles ("GAAP"). The Company's management does
not, nor does it suggest that investors should, consider non-GAAP
financial measures in isolation from, or as a substitute for, financial
information prepared in accordance with GAAP. Further, the non-GAAP
measures utilized by the Company may be unique to the Company, as they
may be different from non-GAAP measures used by other companies. The
financial information presented above, as well as gross margin, SG&A
expense ratio, and operating margin, have been presented both including
and excluding the effect of certain items related to our Operational
Efficiency Plan, Integration & Acquisition-Related Costs and the impact
of tax legislation for Tapestry, Inc. and separately by segment.

The Company operates on a global basis and reports financial results
in U.S. dollars in accordance with GAAP.
Percentage
increases/decreases in net sales for the Company and the Coach brand
have been presented both including and excluding currency fluctuation
effects from translating foreign-denominated sales into U.S. dollars and
compared to the same periods in the prior quarter and fiscal year.
The
Company calculates constant currency revenue results by translating
current period revenue in local currency using the prior period's
monthly average currency conversion rate.

Guidance for certain financial information for the fiscal year ending
June 29, 2019 has also been presented
on a non-GAAP basis.

Management utilizes these non-GAAP and constant currency measures to
conduct and evaluate its business during its regular review of operating
results for the periods affected and to make decisions about Company
resources and performance.
The Company believes presenting these
non-GAAP measures, which exclude items that are not comparable from
period to period, is useful to investors and others in evaluating the
Company's ongoing operating and financial results in a manner that is
consistent with management's evaluation of business performance and
understanding how such results compare with the Company's historical
performance.
Additionally, the Company believes presenting these
metrics on a constant currency basis will help investors and analysts to
understand the effect of significant year-over-year foreign currency
exchange rate fluctuations on these performance measures and provide a
framework to assess how business is performing and expected to perform
excluding these effects.

         

TAPESTRY, INC.

SEGMENT INFORMATION

For the Quarters and Years Ended June 30,
2018 and July 1, 2017

(in millions)

(unaudited)

 
Coach(1) Kate Spade(1)

Stuart
Weitzman(1)

Corporate Total

Three Months Ended June 30, 2018

 
Net sales $ 1,098.9 $ 311.9 $ 72.9 $ $ 1,483.7
Gross profit 762.1 204.5 36.6 1,003.2
Operating income (loss) 283.8 23.9 (20.7 ) (99.8 ) 187.2
Income (loss) before provision for income taxes 283.8 23.9 (20.7 ) (114.2 ) 172.8
 

Three Months Ended July 1, 2017

 
Net sales $ 1,045.9 $ $ 87.9 $ $ 1,133.8
Gross profit 705.1 49.4 754.5
Operating income (loss) 246.1 (2.9 ) (50.2 ) 193.0
Income (loss) before provision for income taxes 246.1 (2.9 ) (63.8 ) 179.4
 

Year Ended June 30, 2018

 
Net sales $ 4,221.5 $ 1,284.7 $ 373.8 $ $ 5,880.0
Gross profit 2,931.5 711.1 211.3 3,853.9
Operating income (loss) 1,084.2 (61.9 ) (2.6 ) (348.9 ) 670.8
Income (loss) before provision for income taxes 1,084.2 (61.9 ) (2.6 ) (422.9 ) 596.8
 

Year Ended July 1, 2017

 
Net sales $ 4,114.7 $ $ 373.6 $ $ 4,488.3
Gross profit 2,855.0 226.1 3,081.1
Operating income (loss) 1,040.0 15.5 (268.1 ) 787.4
Income (loss) before provision for income taxes 1,040.0 15.5 (296.5 ) 759.0
 
(1) During the first quarter of fiscal 2018, the Company
completed its acquisition of Kate Spade & Company. During the third
quarter of fiscal 2018, the Company completed its acquisition of
certain distributors for the Coach and Stuart Weitzman brands and
assumed operational control of Kate Spade joint ventures. The
operating results of the respective entity have been consolidated in
the Company's operating results commencing on the date of each
acquisition.
 

TAPESTRY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

At June 30, 2018 and July 1, 2017

(in millions)

   
(unaudited) (audited)
June 30, July 1,
2018 2017
ASSETS
 
Cash, cash equivalents and short-term investments $ 1,250.0 $ 3,083.6
Receivables 314.1 268.0
Inventories 673.8 469.7
Other current assets   194.7   132.0
 
Total current assets 2,432.6 3,953.3
 
Property and equipment, net 885.4 691.4
Other noncurrent assets   3,360.3   1,186.9
 
Total assets $ 6,678.3 $ 5,831.6
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Accounts payable $ 264.3 $ 194.6
Accrued liabilities 673.2 559.2
Current debt   0.7  
 
Total current liabilities 938.2 753.8
 
Long-term debt 1,599.9 1,579.5
Other liabilities 895.6 496.4
 
Stockholders' equity   3,244.6   3,001.9
 
Total liabilities and stockholders' equity $ 6,678.3 $ 5,831.6
 
       

TAPESTRY, INC.

STORE COUNT

At March 31, 2018 and June 30, 2018

(unaudited)

 
As of As of

Directly-Operated Store Count:

March 31, 2018

Openings

(Closures)

June 30, 2018

 

Coach

North America 405 (3) 402
International 575 12 (2) 585
 

Kate Spade

North America 188 15 (3) 200
International 144 4 (6) 142
 

Stuart Weitzman

North America 70 (2) 68
International 33 2 35
 
         

TAPESTRY, INC.

STORE COUNT

At July 1, 2017 and June 30, 2018

(unaudited)

 
As of Acquired As of

Directly-Operated Store Count:

July 1, 2017

Stores

Openings

(Closures)

June 30, 2018

 

Coach

North America 419 3 (20) 402
International 543 21 41 (20) 585
 

Kate Spade

North America 180 32 (12) 200
International 145 10 (13) 142
 

Stuart Weitzman

North America 69 2 (3) 68
International 12 20 3 35
 

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