NEW YORK - Tapestry, Inc. (NYSE: NYSE:TPR), the parent company of luxury brands Coach , Kate Spade, and Stuart Weitzman, reported third-quarter earnings that surpassed analyst expectations, but shares fell as the company's revenue outlook disappointed investors.
The company's adjusted earnings per share (EPS) for the third quarter was $0.81, exceeding the consensus estimate of $0.68. However, the revenue for the quarter was $1.48 billion, falling short of the analyst estimate of $1.5 billion.
Tapestry's stock price dropped by 4% following the earnings release, indicating a negative market response, primarily driven by the company's revenue guidance for fiscal year 2024.
The company forecasts revenue of over $6.6 billion, which is below the consensus estimate of $6.74 billion, and anticipates adjusted EPS to be in the range of $4.20 to $4.25, which hovers around the analyst consensus of $4.22.
Joanne Crevoiserat, CEO of Tapestry, highlighted the company's operational achievements, stating, "Our third quarter earnings results outperformed expectations, reflecting our unwavering commitment to disciplined brand building and operational excellence."
She also emphasized the company's success in engaging customers, particularly noting the acquisition of approximately 1.2 million new customers in North America, with over half belonging to the Gen Z and Millennial demographics.
The company reported a 2% decline in net sales compared to the same quarter last year, with gross profit totaling $1.11 billion and a gross margin of 74.7%. This represents an increase from the previous year's gross margin of 72.8%.
The improvement in gross margin was attributed to lower freight expenses, favorable foreign exchange (FX) tailwinds, and operational efficiencies.
Despite the positive performance in earnings, the market's reaction was colored by the future revenue outlook. The company's guidance for fiscal year 2024 suggests flat revenue growth on a reported basis and only a 1% increase on a constant currency basis. This cautious outlook, coupled with the current economic backdrop, has led to investor concern.
The company's balance sheet remains robust, with cash, cash equivalents, and short-term investments totaling $7.42 billion, and a significant year-to-date operating and free cash flow of over $900 million, which is well above the prior year's figures.
Tapestry's Board of Directors declared a quarterly cash dividend of $0.35 per common share, payable on June 24, 2024, to shareholders of record as of the close of business on June 7, 2024. The company also reiterated its commitment to returning approximately $325 million to shareholders through dividend payments, representing a 17% increase from the previous year.
In summary, while Tapestry's third-quarter earnings beat expectations, the company's stock took a hit due to its revenue guidance for the upcoming fiscal year, which fell short of analyst estimates. Management remains confident in their strategic initiatives and their ability to drive sustainable growth and shareholder value in the long term.
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