Tapestry (NYSE: TPR) reported Q2 EPS of $1.08, $0.09 better than the analyst estimate of $0.99. Revenue for the quarter came in at $1.82 billion versus the consensus estimate of $1.81 billion.

Overview of Second Quarter 2020 Tapestry, Inc. Results:

• Net sales totaled $1.82 billion for the fiscal second quarter as compared to $1.80 billion in the prior year, an increase of 1% on a reported and constant currency basis.
• Gross profit totaled $1.21 billion on a reported basis, while gross margin for the quarter was 66.6% compared to $1.20 billion and 66.8%, respectively, in the prior year. On a non-GAAP basis, gross profit totaled $1.21 billion, while gross margin was 66.7% as compared to $1.21 billion and 67.0%, respectively, in the prior year.
• SG&A expenses totaled $847 million on a reported basis and represented 46.6% of sales compared to $827 million and 45.9%, respectively in the year ago quarter. On a non-GAAP basis, SG&A expenses were $838 million and represented 46.1% of sales as compared to $809 million and 44.9%, respectively, in the year-ago period.
• Operating income totaled $363 million on a reported basis, while operating margin was 20.0% versus approximately $376 million and an operating margin of 20.9% in the prior year. On a non-GAAP basis, operating income was $373 million, while operating margin was 20.6% versus $398 million and an operating margin of 22.1% in the prior year.
• Net interest expense was $14 million in the quarter as compared to $13 million in the year ago period.
• Other income was $6 million versus $4 million in the prior year.
• Net income for the quarter was $299 million on a reported basis, with earnings per diluted share of $1.08. This compared to net income of $255 million with earnings per diluted share of $0.88 in the prior year period. The reported tax rate for the quarter of 15.8% compared to the prior year reported rate of 30.7%. On a non-GAAP basis, net income for the quarter totaled approximately $304 million with earnings per diluted share of $1.10. This compared to non-GAAP net income of $310 million with earnings per diluted share of $1.07 in the prior year period. The non-GAAP tax rate for the quarter was 16.9% compared to 20.3% in the prior year.
• Inventory was $748 million at the end of quarter versus ending inventory of $732 million in the year ago period.

Jide Zeitlin, Chairman and Chief Executive Officer of Tapestry, Inc., said, “We are pleased with our overall holiday results, which outperformed plan driven by continued momentum at Coach and a sequential improvement at Kate Spade. In addition, we exited the quarter in a good inventory position.”

“Coach delivered its ninth consecutive quarter of positive comparable store sales growth. North America led the global comp, with notable strength online, and higher average unit retail driving gross margin expansion. In aggregate our international business was even with the prior year with strong comp growth in Other Asia, Europe and Mainland China, offsetting continued weakness in Hong Kong SAR and a slight decline in Japan, reflecting the impact of the consumption tax increase.”

“Kate Spade’s comparable store sales improved sequentially as we further implemented key product and merchandising actions to strengthen the assortment and enhance the brand’s novelty offering, while also moving through excess inventory.”

“Stuart Weitzman sales were impacted by softer demand across channels as we lacked compelling newness in our heritage boot offering. We have built on these learnings and are reinvigorating our footwear icons, while injecting innovation into the overall assortment in keeping with market trends.”

Mr. Zeitlin continued, “At Tapestry, we entered our third fiscal quarter with strong underlying trends, notably at Coach, as sales growth accelerated from the holiday period. Therefore, we had anticipated maintaining our FY20 guidance despite continuing headwinds in Hong Kong SAR and challenges at Stuart Weitzman. However, the escalating coronavirus outbreak is now significantly impacting our business in China, resulting in the closure of the majority of our stores on the Mainland.”

“We now expect that our second half results could be negatively impacted by approximately $200-$250 million in sales and $0.35-$0.45 in earnings per diluted share, given current trends in China. If the situation further deteriorates, or the outbreak affects demand outside of the country, this impact could be worse.”

“We are confident in our ability to effectively navigate through this period of uncertainty. We are managing our response to best protect our people, our brands and every aspect of our business.”

“Our primary concern is the health and well-being of our team, their families and their local communities who are dealing with the daily reality of this situation. We believe in the resilience of the Chinese people and our view that China represents a significant opportunity for our brands is unchanged. Our strong balance sheet, cash position and globally diversified sourcing base and supply chain provide the flexibility to operate our Company for the long term and to emerge stronger, as we have many times in the past.”

GUIDANCE:

Tapestry sees FY2020 EPS of $2.15-$2.25, versus the consensus of $2.52. Tapestry sees FY2020 revenue of $5.9 billion, versus the consensus of $6.1 billion.

• The following outlook is provided on a non-GAAP basis and replaces all previous guidance. Our guidance now includes an estimated negative impact of the coronavirus outbreak in China of approximately $200-$250 million in sales and $0.35-$0.45 in diluted earnings per share. Given the dynamic nature of the situation, the potential financial impact to our business could be materially different.
• Therefore, the Company expects revenues for Fiscal 2020 to approximate $5.9 billion. In addition, the Company now projects earnings per diluted share to be approximately $2.15-$2.25.

For earnings history and earnings-related data on Tapestry (TPR) click here.