Tapestry(TPR) - 2024 Q2 - Quarterly Report

Financial Performance - In the second quarter of fiscal 2024, net sales increased by 2.9% to $2,084.5 million compared to$ 2,025.4 million in the second quarter of fiscal 2023[180]. - Gross profit for the second quarter of fiscal 2024 was $1,493.2 million, representing a gross margin of 71.6%, up from 68.6% in the prior year[180]. - Operating income rose to$ 447.6 million, a 7.0% increase from $418.2 million in the same quarter last year, with an operating margin of 21.5%[180]. - The Company reported a net income of$ 322.3 million for the second quarter of fiscal 2024, a decrease of 2.3% from $329.9 million in the prior year[180]. - The diluted net income per share increased by 2.6% to$ 1.39 compared to $1.36 in the second quarter of fiscal 2023[180]. - Net sales for Tapestry increased by 2.9% or$ 59.1 million to $2.08 billion in Q2 FY2024 compared to Q2 FY2023, with a 3.3% increase excluding currency fluctuations[187]. - Coach's net sales rose by 6.4% or$ 92.2 million to $1.54 billion, while Kate Spade's net sales decreased by 6.1% or$ 29.9 million to $460.4 million in the same period[190]. - Net sales for the first six months of fiscal 2024 increased by 1.9% or$ 65.8 million to $3.60 billion compared to the same period in fiscal 2023[213]. - Gross profit rose by 6.0% or$ 147.0 million to $2.59 billion, with a gross margin of 72.0%, up from 69.2% in the prior year[214]. - Coach brand net sales increased by 5.1% or$ 130.3 million to $2.70 billion, while Kate Spade and Stuart Weitzman saw declines of 6.0% and 10.6%, respectively[215]. Expenses and Margins - SG&A expenses rose by 7.7% or$ 74.5 million to $1.05 billion, with SG&A as a percentage of net sales increasing to 50.2% from 47.9%[193]. - Corporate operating expenses increased by 47.2% or$ 49.5 million to $154.2 million, primarily due to higher compensation and professional fees[204]. - SG&A expenses increased by 6.7% or$ 118.7 million to $1.89 billion, representing 52.5% of net sales, up from 50.2%[218]. - SG&A expenses, excluding items affecting comparability, increased by 4.0% or$ 70.8 million to $1.84 billion[218]. - Corporate Operating Expenses increased by 39.7% or$ 82.6 million to $290.3 million in the first six months of fiscal 2024, primarily due to higher compensation costs and increased professional fees[229]. Acquisition and Financing - The Capri Acquisition is valued at approximately$ 8.5 billion, with the Company planning to finance it through new senior unsecured notes and term loans[163]. - The Company incurred pre-tax charges of $72.4 million related to the Capri Acquisition, including$ 44.1 million in financing-related charges[183]. - The company entered into a Merger Agreement for the acquisition of Capri Holdings Limited on August 10, 2023, intending to finance it through new senior unsecured notes, term loans, and cash on hand[251]. - The company incurred acquisition-related charges totaling $98.7 million, impacting net income by$ 75.7 million or $0.33 per diluted share[209]. Cash Flow and Financial Position - Net cash provided by operating activities increased by$ 439.4 million to $901.8 million in the first six months of fiscal 2024 compared to$ 462.4 million in the same period of fiscal 2023[236]. - Net cash used in investing activities was $655.0 million in the first six months of fiscal 2024, a decrease of$ 735.6 million compared to a source of cash of $80.6 million in the same period of fiscal 2023[237]. - Net cash provided by financing activities was$ 5.8 billion in the first six months of fiscal 2024, an increase of $6.3 billion compared to a use of cash of$ 504.7 million in the same period of fiscal 2023[239]. - As of December 30, 2023, cash and cash equivalents increased by $6.1 billion to$ 6,833.1 million compared to $726.1 million as of July 1, 2023[243]. - As of December 30, 2023, the company had$ 800.0 million of additional shares available for repurchase under the 2022 Share Repurchase Program, which was suspended in August 2023 due to the Capri Acquisition[250]. Tax and Interest - The effective tax rate was 20.0%, down from 20.9% in the prior year, with a comparable rate of 20.8% when excluding items affecting comparability[201]. - The effective tax rate was 19.4% in the first six months of fiscal 2024, slightly down from 19.6% in the same period of fiscal 2023[226]. - Interest expense increased by $41.3 million to$ 49.2 million, while net interest expense decreased to $5.1 million when excluding comparability items[199]. Market and Operational Outlook - The Company aims to prioritize growth in North America and China while exploring opportunities in under-penetrated markets like Southeast Asia and Europe[169]. - The macroeconomic environment remains challenging, with the International Monetary Fund forecasting growth in the global economy, albeit below historical averages[167]. - The company expects potential operational challenges related to macroeconomic factors could impact the Kate Spade brand's future cash flows and profitability trends in fiscal 2024[254]. Brand Performance and Valuation - The fair value of the Kate Spade brand reporting unit exceeded its carrying value by approximately 20%, while the indefinite-lived brand exceeded by about 40% as of the fiscal 2023 testing date[254]. - The company’s annual impairment assessment of goodwill indicated that the fair values of its Coach brand reporting units significantly exceeded their carrying values[254]. Supply Chain and Risk Management - The company’s supply chain finance program allows certain suppliers to sell receivables on a non-recourse basis, leveraging the company's credit rating[248]. - The company has not experienced significant changes in market risk management as outlined in its Annual Report for the fiscal year ended July 1, 2023[255]. - The company’s critical accounting policies have not materially changed as of December 30, 2023[253].