Tapestry(TPR) - 2025 Q2 - Quarterly Report

Financial Performance - In the second quarter of fiscal 2025, net sales increased by 5.3% to $2,195.4 million compared to$2,084.5 million in the second quarter of fiscal 2024[194]. - Gross profit for the second quarter of fiscal 2025 was $1,633.1 million, representing a gross margin of 74.4$492.8 million, with an operating margin of 22.4% compared to 21.5% in the prior year[194]. - The company reported a net income of $310.4 million for the second quarter of fiscal 2025, a decrease of 3.7$322.3 million in the same quarter of fiscal 2024[194]. - For the first six months of fiscal 2025, net sales were $3,702.9 million, a 2.9$3,597.7 million in the first six months of fiscal 2024[224]. - Gross profit for the first six months of fiscal 2025 was $2,768.0 million, representing 74.8$2,590.9 million or 72.0% in the prior year[224]. - Net income for the first six months of fiscal 2025 was $497.0 million, a decrease of 3.9$517.3 million in the first six months of fiscal 2024[224]. - Net income decreased by 3.9% or $20.3 million to$497.0 million, while excluding comparability items, net income increased by $98.8 million to$691.8 million[248]. - Net income per diluted share was $2.17, compared to$2.23 in the prior year, but increased to $3.02 when excluding items affecting comparability[249]. Sales Performance by Brand - Coach's net sales rose by 10.9$167.4 million to $1.71 billion, driven by a$135.3 million increase in DTC sales[208]. - Kate Spade's net sales decreased by 9.6% or $44.0 million to$416.4 million, primarily due to a decline in DTC sales[208]. - Stuart Weitzman's net sales fell by 15.2% or $12.5 million to$69.7 million, reflecting a decrease in both DTC and wholesale sales[208]. - Coach's net sales increased by 6.7% or $180.6 million to$2.88 billion, driven by a $168.1 million increase in DTC sales[235]. - Kate Spade's net sales decreased by 8.4$64.0 million to $699.6 million, primarily due to a$73.6 million decline in DTC sales[235]. Expenses and Margins - SG&A expenses rose by 9.1% or $94.7 million to$1.14 billion, with SG&A as a percentage of net sales increasing to 51.9%[211]. - SG&A expenses increased by 7.0% or $133.1 million to$2.02 billion, with SG&A as a percentage of net sales rising to 54.6%[238]. - Operating income increased by 10.1% or $45.2 million to$492.8 million, with an operating margin of 22.4%[214]. - Excluding items affecting comparability, operating income increased by $72.3 million to$548.2 million, with an operating margin of 24.9%[214]. - Corporate operating expenses increased by 26.5% or $40.9 million to$195.1 million in Q2 fiscal 2025[222]. Debt and Financing - The company issued $4.50 billion in U.S. dollar-denominated senior unsecured notes and €1.50 billion in Euro-denominated senior unsecured notes to finance the Capri acquisition[180]. - The company incurred total pre-tax charges of$197.6 million related to the Capri Acquisition, impacting net income by $139.8 million or$0.62 per diluted share[198]. - Loss on extinguishment of debt increased by $120.1 million in Q2 fiscal 2025, compared to$0.0 million in Q2 fiscal 2024[217]. - Net interest expense decreased by $24.7 million to$24.5 million in Q2 fiscal 2025, down from $49.2 million in Q2 fiscal 2024[218]. - Loss on extinguishment of debt increased to$120.1 million, compared to $0.0 million in the prior year[244]. - Net interest expense decreased by$7.3 million to $55.2 million, primarily due to lower interest expense on the Term Loan due 2027[245]. Cash Flow and Investments - Net cash provided by operating activities decreased by$276.3 million to $625.5 million for the first six months of fiscal 2025 compared to$901.8 million in the same period of fiscal 2024[257]. - Net cash provided by investing activities increased by $1.63 billion to$979.4 million in the first six months of fiscal 2025, primarily due to proceeds from maturities and sales of investments of $2.92 billion[258][259]. - Net cash used in financing activities was$6.78 billion in the first six months of fiscal 2025, a decrease of $12.59 billion compared to a source of cash of$5.81 billion in the same period of fiscal 2024[261]. - The Company had a total cash and cash equivalents of $983.4 million as of December 28, 2024, down from$6.14 billion on June 29, 2024, reflecting a decrease of $5.16 billion[265]. - Capital expenditures and cloud computing implementation costs were$39.2 million and $68.8 million for the three and six months ended December 28, 2024, respectively, with total fiscal 2025 capital expenditures expected to be approximately$170 million[271]. Market Conditions and Strategy - The macroeconomic environment remains challenging, with the International Monetary Fund forecasting growth below historical averages due to geopolitical instability and tighter monetary policies[184]. - The company aims to prioritize balanced growth across regions, focusing on North America and China, while exploring opportunities in Southeast Asia and Europe[182]. - The company continues to monitor global economic conditions and adjust operating strategies to mitigate impacts on results while focusing on long-term growth[182]. - The company’s effective tax rate is not expected to be materially impacted by recent tax legislation changes, including the 15% global minimum tax effective January 1, 2025[190]. - Approximately 23% of the Company's cash and short-term investments were held outside the United States as of December 28, 2024[265]. - The effect of exchange rate changes on cash and cash equivalents was $12.3 million in the first six months of fiscal 2025, down from$51.0 million in the same period of fiscal 2024[264]. Risk Management - The fair values of the Kate Spade brand reporting unit exceeded their carrying values by approximately 20% as of the fiscal 2024 testing date, indicating potential risks related to future cash flows[277]. - There have been no significant changes to the Company's market risk management as outlined in the Annual Report for the fiscal year ended June 29, 2024[279]. - The Company continues to follow the same strategies for managing market risk exposures as previously disclosed[279]. - Additional information can be found in Note 8 regarding Derivative Investments and Hedging Activities[279]. - Note 11 provides insights into the Company's Debt management strategies[279]. - Note 13 discusses the Company's Investments and related strategies[279].