Tapestry (TPR -1.85%), the corporate parent of Coach and other luxury brands, said that it lost $677 million in the quarter that ended March 28, down from a $117 million profit a year ago, as the coronavirus pandemic forced it to shutter stores around the world during the period.
On a non-GAAP (adjusted) basis, excluding one-time items and currency fluctuations, Tapestry's net loss was $76 million, or $0.27 per share, on revenue of $1.07 billion. A year ago, Tapestry reported a profit on the same basis of $122 million or $0.42 per share, on revenue of $1.33 billion.
Tapestry's loss was worse than Wall Street had expected, but its revenue was higher. Analysts polled by Thomson Reuters had expected an adjusted loss of $0.11 per share, on average, on revenue of $1.03 billion.
Image source: Tapestry.
The company's shares opened sharply lower after the news was released.
The raw numbers
Tapestry uses a fiscal year that ends in June. The quarter that ended on March 28, 2020, was the third quarter of Tapestry's 2020 fiscal year.
| Metric | Q3 FY 2020 | Q3 FY 2019 |
|---|---|---|
| Revenue | $1.07 billion | $1.33 billion |
| SG&A expenses | $1.3 billion | $806 million |
| Operating profit (loss) | ($685 million) | $110 million |
| Operating margin (negative) | (63.9%) | 8.2% |
| Net income (loss) | ($677 million) | $117 million |
| Non-GAAP net income (loss) | ($76 million) | $122 million |
| Non-GAAP earnings (loss) per share | ($0.27) | $0.42 |
| Inventory at quarter end | $853 million | $811 million |
Data source: Tapestry. SG&A = selling and general administrative. "Non-GAAP" figures exclude currency fluctuations and one-time charges.
How Tapestry is conserving cash
Since mid-March, Tapestry has made a number of moves to reduce spending and conserve cash. The company suspended its quarterly dividend and share-buyback programs, cut its orders for later in the year, and drew down $700 million from its $900 million revolving credit facility.
It's now taking a step further by trimming employees from its corporate and retail workforces, it said. Those cuts will generate pretax charges of between $55 million and $70 million, some of which will be reflected in its fiscal fourth-quarter results.
How Tapestry's brands performed in the quarter
All three of Tapestry's brands were hit hard by the need to close physical stores during the quarter. While the company's overall online sales have increased, it said, the gains have not come close to replacing lost revenue from in-store sales.
- Coach reported operating income of $38 million, down 84.1% from a year ago, on a 20% decline in net sales to $772 million.
- Kate Spade reported an operating loss of $91 million, versus an operating profit of $7 million a year ago. Net sales fell 11% from a year ago to $250 million.
- Stuart Weitzman reported an operating loss of $531 million, versus an operating loss of just $14 million a year ago. Net sales fell to $51 million from $85 million in the year-ago quarter.
One-time charges
Tapestry took a total of $654 million in pretax one-time charges, most of which were impairment charges related to the effects of the COVID-19 pandemic.
What Tapestry's CEO said
In a statement, CEO Jide Zeitlin characterized the pandemic as a "one hundred year storm" and said that Tapestry is adapting by moving resources to drive and support online sales:
We are building on our strengths and moving swiftly to adapt to the current environment with a focus on preserving liquidity and enhancing financial flexibility. We are accelerating key elements of the transformational work we began prior to the crisis, notably driving outsized growth in digital and creating a more streamlined and data-driven organization.
Looking ahead: No guidance for now
Tapestry declined to provide guidance to investors for the current quarter, citing ongoing uncertainties amid the pandemic. It said that it will report its fiscal fourth-quarter and full-year results on August 13.
