Tapestry Rises After Quarterly Results As Coach Grows, Kate Spade Decline Slows

Shares of Tapestry (TPR) are on the rise after the company, formerly known as Coach, beat consensus estimates for the fourth quarter, driven by strong performance of its Kate Spade as the death of the namesake founder in June stoked nostalgia for the brand. Commenting on the quarterly results, Loop Capital analyst Laura Champine recommended continuing to buy shares as she expects the long-term cost synergies from the Kate Spade deal to be "substantial". 

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QUARTERLY RESULTS: This morning, Tapestry reported fourth quarter adjusted earnings per share of 60c and revenue of $1.48B, both above consensus estimates of 57c and $1.47B, respectively. The company also said it sees FY19 earnings per share between $2.70-$2.80, revenue of $6.1B-$6.2B, and tax rate of about 21%-22%. Additionally, the retailer reported fourth quarter Coach same-store sales up 2%, while Kate Spade were down 3%. Net sales for Coach totaled $1.1B for the fourth fiscal quarter as compared to $1.05B in the prior year, an increase of 5% on a reported basis and 3% on a constant currency basis, the company noted, adding that net sales for Kate Spade totaled $312M, 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. Tapestry is projecting FY19 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 $100M-$115M in FY19. Net interest expense is expected to be approximately $50M for the year. During its earnings conference call, Tapestry added that it will continue to expand monogramming service for Coach Create and will be rolling out a redesign of Coach.com. Further, the company pointed out that it is confident that FY19 will be a year of double-digit revenue growth for Kate Spade, and sees the brand approaching $2B in sales over time.

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