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4-Traders Homepage  >  Equities  >  Nyse  >  Tapestry Inc    TPR

TAPESTRY INC (TPR)
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Delayed Quote. Delayed  - 11/17 10:02:08 pm
41.66 USD   +1.61%
11/15 TAPESTRY, INC. : Declares Quarterly Cash Dividend
11/08 TAPESTRY : Appoints Nicola Glass Creative Director of Kate Spade
11/07 COACH : Tapestry reports 1Q loss
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Coach : TAPESTRY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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11/09/2017 | 03:14pm CET
The following discussion of the Company's financial condition and results of
operations should be read together with the Company's condensed consolidated
financial statements and notes to those statements, included elsewhere in this
document. When used herein, the terms "the Company," "Tapestry," "we," "us" and
"our" refer to Tapestry, Inc., including consolidated subsidiaries. References
to "Coach", "Stuart Weitzman" or the "Kate Spade", or "kate spade new york"
refer only to the identified brand.
EXECUTIVE OVERVIEW
Tapestry is a leading New York-based house of modern luxury accessories and
lifestyle brands. The Company and its brands are founded upon a creative and
consumer-led view that stands for inclusivity and approachability. The Coach
brand was established in New York City in 1941 and is a leading design house of
modern luxury accessories and lifestyle collections, with a long-standing
reputation built on quality craftsmanship. The Company acquired Stuart Weitzman,
a leader in women's designer footwear, during the fourth quarter of fiscal 2015.
On July 11, 2017, the Company completed its acquisition of Kate Spade. From
handbags, accessories and ready-to-wear, kate spade new york's products invite
women around the world to live every day uniquely and to the fullest. The
operating results of Kate Spade have been consolidated in the Company's
operating results commencing on July 11, 2017.
Prior to the first quarter of fiscal 2018, the Company had three reportable
segments: North America (Coach brand), International (Coach brand) and Stuart
Weitzman. Beginning in fiscal 2018 and as a result of the Kate Spade
acquisition, the Company aligned its reportable segments with the new structure
of its business. As a result, the Company has three reportable segments:
•     Coach - Includes worldwide sales of Coach brand products to customers

through Coach operated stores, including the Internet, concession

shop-in-shops and sales to wholesale customers and independent third party

distributors.

• Kate Spade - Includes worldwide sales primarily of kate spade new york

brand products to customers through Kate Spade operated stores, including

      the Internet, concession shop-in-shops, independent third party
      distributors and wholesale customers.


•     Stuart Weitzman - Includes worldwide sales of Stuart Weitzman brand

products to customers primarily through wholesale customers, numerous third

party distributors and Stuart Weitzman operated stores, including the

Internet.


 Each of our brands is unique and independent, while sharing a commitment to
innovation and authenticity defined by distinctive products and differentiated
customer experiences across channels and geographies. Our success does not
depend solely on the performance of a single channel, geographic area or brand.
Kate Spade Integration and Acquisition
The Company completed its acquisition of Kate Spade on July 11, 2017. As a
result, the Company incurred charges related to the integration and acquisition
of the business. These charges are primarily associated with purchase price
accounting adjustments, acquisition costs, inventory-related charges,
contractual payments and organization-related expenses. The Company continues to
develop its plans for integration, and currently estimates that it will incur
approximately $80 million in pre-tax charges, of which approximately $35 million
are expected to be non-cash charges, for the remainder of fiscal 2018.
Refer to Note 4, "Integration and Acquisition Costs," and "GAAP to Non-GAAP
Reconciliation" for further information.
Operational Efficiency Plan
During the fourth quarter of fiscal 2016, the Company announced a series of
operational efficiency initiatives focused on creating an agile and scalable
business model (the "Operational Efficiency Plan"). The significant majority of
the charges under this plan were recorded within SG&A expenses, and were
substantially completed by the end of fiscal 2017. These charges are associated
with organizational efficiencies, primarily related to the reduction of
corporate staffing levels globally, as well as accelerated depreciation, mainly
associated with information systems retirement, technology infrastructure
charges related to the initial costs of replacing and updating our core
technology platforms, and international supply chain and office location
optimization. The Company has incurred charges to date of $71.0 million. The
remaining charges under this plan approximate $5-10 million recorded in
Corporate and are expected to be complete by the end of fiscal 2018.
Refer to Note 5, "Restructuring Activities," and "GAAP to Non-GAAP
Reconciliation" for further information.

                                       22
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Current Trends and Outlook
Global consumer retail traffic remains relatively weak and inconsistent, which
has led to a more promotional environment in the fragmented retail industry due
to increased competition and a desire to offset traffic declines with increased
levels of conversion. While certain developed geographic regions are
withstanding these pressures better than others, the level of consumer travel
and spending on discretionary items remains constrained due to the economic
uncertainty. Further declines in traffic could result in store impairment
charges if expected future cash flows of the related asset group do not exceed
the carrying value.
Political and economic instability or changing macroeconomic conditions that
exist or may arise in our major markets may further contribute to this
uncertainty, including the potential impact of (1) new policies that may be
implemented by the U.S. presidential administration and government, particularly
with respect to tax and trade policies, or (2) the United Kingdom ("U.K.")
voting to leave the European Union ("E.U.") in its referendum on June 23, 2016,
commonly known as "Brexit." Although the terms of the U.K.'s future relationship
with the E.U. are still unknown, it is possible that there will be increased
regulatory and legal complexities, including potentially divergent national laws
and regulations between the U.K. and E.U. Brexit may also cause disruption and
create uncertainty surrounding our business, including affecting our
relationship with our existing and future customers, suppliers and employees. On
March 29, 2017, the U.K. triggered Article 50 of the Lisbon Treaty formally
starting negotiations with the E.U. The U.K. has two years to complete these
negotiations.
Additional macroeconomic events including foreign exchange rate volatility in
various parts of the world, recent and evolving impacts of economic and
geopolitical events in Hong Kong, Macau and mainland China ("Greater China"),
the impact of terrorist acts (particularly in Europe), disease epidemics and a
slowdown in emerging market growth (particularly in Asia) have contributed to
this uncertainty. Our results have been impacted by foreign exchange rate
fluctuations, and will continue to fluctuate with future volatility.
Certain limited and recent factors within the U.S., including an improvement in
the labor and housing markets and modest growth in overall consumer spending,
suggest a potential moderate strengthening in the U.S. economic outlook. It is
still, however, too early to understand what kind of sustained impact this will
have on consumer discretionary spending. If the global macroeconomic environment
remains volatile or worsens, the constrained level of worldwide consumer
spending and modified consumption behavior may continue to have a negative
effect on our outlook. Several organizations that monitor the world's economy,
including the International Monetary Fund, are projecting slightly accelerated
economic strengthening with modest overall global growth for calendar 2017 but
caution that there is considerable uncertainty surrounding the underlying
assumptions of the forecast.
We will continue to monitor these trends and evaluate and adjust our operating
strategies and cost management opportunities to mitigate the related impact on
our results of operations, while remaining focused on the long-term growth of
our business and protecting the value of our brands.
For a detailed discussion of significant risk factors that have the potential to
cause our actual results to differ materially from our expectations, see Part I,
Item 1A. "Risk Factors" disclosed in our Annual Report on Form 10-K for the
fiscal year ended July 1, 2017.

                                       23
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FIRST QUARTER FISCAL 2018 COMPARED TO FIRST QUARTER FISCAL 2017
The following table summarizes results of operations for the first quarter of
fiscal 2018 compared to the first quarter of fiscal 2017. All percentages shown
in the table below and the discussion that follows have been calculated using
unrounded numbers.
                                                   Three Months Ended
                       September 30, 2017             October 1, 2016                Variance
                                            (millions, except per share data)

                                      % of                         % of
                      Amount        net sales       Amount      net sales       Amount          %
Net sales          $   1,288.9        100.0  %   $  1,037.6        100.0 %   $    251.3         24.2 %
Gross profit             764.4         59.3           714.7         68.9           49.7          7.0
SG&A expenses            786.2         61.0           548.8         52.9          237.4         43.2
Operating (loss)
income                   (21.8 )       (1.7 )         165.9         16.0         (187.7 )         NM
Interest expense,
net                       20.5          1.6             5.7          0.5           14.8           NM
Provision for
income taxes             (24.6 )       (1.9 )          42.8          4.1          (67.4 )         NM
Net (loss) income        (17.7 )       (1.4 )         117.4         11.3         (135.1 )         NM
Net (loss) income
per share:
Basic              $     (0.06 )$     0.42$    (0.48 )         NM
Diluted            $     (0.06 )$     0.42$    (0.48 )         NM





NM - Not meaningful
GAAP to Non-GAAP Reconciliation
The Company's reported results are presented in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). The
reported results during the first quarter of fiscal 2018 and fiscal 2017 reflect
the impact of the Operational Efficiency Plan and Integration and Acquisition
costs, as noted in the following tables. Refer to page 31 for further discussion
on the Non-GAAP Measures.
First Quarter Fiscal 2018 Items
                                                             Three Months Ended September 30, 2017
                                                                                                               Non-GAAP Basis
                                    GAAP Basis                                            Integration &          (Excluding
                                  (As Reported)       Operational Efficiency Plan          Acquisition             Items)
                                                               (millions, except per share data)
Gross profit                     $       764.4       $                 -              $           (88.4 )      $       852.8
SG&A expenses                            786.2                       3.1                           99.1                684.0
Operating (loss) income                  (21.8 )                    (3.1 )                       (187.5 )              168.8
(Loss) income before provision
for income taxes                         (42.3 )                    (3.1 )                       (187.5 )              148.3
Provision for income taxes               (24.6 )                    (1.0 )                        (52.2 )               28.6
Net (loss) income                        (17.7 )                    (2.1 )                       (135.3 )              119.7
Diluted net (loss) income per
share                                    (0.06 )                   (0.01 )                        (0.47 )               0.42


In the first quarter of fiscal 2018 the Company incurred pre-tax adjustments as
follows:
•      Operational Efficiency Plan - Total charges of $3.1 million primarily

related to technology infrastructure and organizational efficiency costs.

       Refer to the "Executive Overview" herein and Note 5, "Restructuring
       Activities," for further information regarding this plan.



                                       24
--------------------------------------------------------------------------------

• Integration & Acquisition Costs - Total charges of $187.5 million,

primarily attributable to the integration and acquisition of Kate Spade.

These charges include:

• Limited life purchase accounting adjustments

• Acquisition costs


• Inventory reserves established primarily for the destruction of inventory


•            Severance and related costs as a result of agreements with certain
             Kate Spade executives

• Organizational costs as a result of integration


Refer to the "Executive Overview" herein and Note 4, "Integration & Acquisition
Costs," for more information.
These actions taken together increased the Company's cost of sales by $88.4
million and SG&A expenses by $102.2 million, negatively impacting net income by
$137.4 million or $0.48 per diluted share.
The following table summarizes the GAAP to Non-GAAP Reconciliation by reportable
segment for the first quarter of fiscal 2018:
                                                        Three Months Ended 

September 30, 2017

                                                                                                                  Non-GAAP Basis
                      GAAP Basis                           Kate                                                     (Excluding
                     (As Reported)        Coach        Spade(1)(2)     

Stuart Weitzman(2) Corporate(2)(3) Items)

                                                                     (millions)
COGS
Integration &
Acquisition                                     -            (88.4 )                  -                     -
Gross profit        $       764.4     $         -     $      (88.4 )   $              -       $             -     $       852.8

SG&A
Integration &
Acquisition                                     -             67.8                  0.9                  30.4
Operational
Efficiency Plan                                 -                -                    -                   3.1
SG&A                $       786.2     $         -     $       67.8     $            0.9       $          33.5     $       684.0

Operating (loss)
income              $       (21.8 )   $         -     $     (156.2 )   $           (0.9 )     $         (33.5 )   $       168.8

(1) On July 11, 2017, the Company completed its acquisition of Kate Spade. The

operating results of the Kate Spade brand have been consolidated in the

Company's operating results commencing on July 11, 2017.

(2) Refer to Note 4, "Integration and Acquisition Costs" and Note 5,

"Restructuring Activities," for further information.

(3) Corporate, which is not a reportable segment, represents certain costs that

are not directly attributable to a brand. These costs primarily represent

     administration and information systems expense.



                                       25
--------------------------------------------------------------------------------

First Quarter Fiscal 2017 Items

                                                                   Three Months Ended October 1, 2016
                                                                                                                Non-GAAP Basis
                                          GAAP Basis                                        Integration &         (Excluding
                                         (As Reported)    Operational Efficiency Plan        Acquisition            Items)
                                                                   (millions, except per share data)
Gross profit                             $     714.7     $                 -             $         (0.4 )       $       715.1
SG&A expenses                                  548.8                     7.1                        3.4                 538.3
Operating income                               165.9                    (7.1 )                     (3.8 )               176.8
Income before provision for income taxes       160.2                    (7.1 )                     (3.8 )               171.1
Provision for income taxes                      42.8                    (1.5 )                     (0.8 )                45.1
Net income                                     117.4                    (5.6 )                     (3.0 )               126.0
Diluted net income per share                    0.42                   (0.02 )                    (0.01 )                0.45


In the first quarter of fiscal 2017, the Company incurred pre-tax adjustments as
follows:
•Operational Efficiency Plan - $7.1 million primarily related to organizational
efficiency costs and, to a lesser extent, network optimization costs.
•Integration & Acquisition Costs - $3.8 million total charges related to the
acquisition of Stuart Weitzman Holdings LLC, of which $3.2 million is primarily
related to charges attributable to contingent payments and integration-related
activities (of which $2.4 million is recorded within Corporate expenses and $0.8
million is recorded within the Stuart Weitzman segment), and $0.6 million
related to the limited life impact of purchase accounting, primarily due to the
amortization of the inventory step-up and distributor relationships, all
recorded within the Stuart Weitzman segment.
These actions taken together increased the Company's SG&A expenses by $10.5
million and cost of sales by $0.4 million, negatively impacting net income by
$8.6 million or $0.03 per diluted share.
The following table summarizes the GAAP to Non-GAAP Reconciliation by reportable
segment for the first quarter of fiscal 2017:
                                                            Three Months 

Ended October 1, 2016

                                                                                                                       Non-GAAP Basis
                        GAAP Basis                                                                                       (Excluding
                       (As Reported)         Coach         Kate Spade       Stuart Weitzman(1)     Corporate(1)(2)         Items)
                                                                        (millions)
COGS
Integration &
Acquisition                                        -                 -                 (0.4 )                  -
Gross profit         $         714.7     $         -     $           -     $           (0.4 )     $            -       $       715.1

SG&A
Integration &
Acquisition                                        -                 -                  1.0                  2.4
Operational
Efficiency Plan                                    -                 -                    -                  7.1
SG&A                 $         548.8     $         -     $           -     $            1.0       $          9.5       $       538.3

Operating income     $         165.9     $         -     $           -     $           (1.4 )     $         (9.5 )     $       176.8

(1) Refer to Note 5, "Restructuring Activities", for more information.

(2) Corporate, which is not a reportable segment, represents certain costs that

are not directly attributable to a brand. These costs primarily represent

     administration and information systems expense.




                                       26
--------------------------------------------------------------------------------


Tapestry, Inc. Summary - First Quarter of Fiscal 2018
Currency Fluctuation Effects
The change in net sales for the first quarter of fiscal 2018 compared to fiscal
2017 has been presented both including and excluding currency fluctuation
effects.
Net Sales
Net sales in the first quarter of fiscal 2018 increased 24.2% to $1.29 billion,
primarily due to the Kate Spade acquisition. Excluding the results of Kate
Spade, net sales decreased by 1.7% to $1.02 billion, due to decreased revenues
from Coach partially offset by increased revenues from Stuart Weitzman.
Excluding the effects of foreign currency, net sales increased 25.2% or $261.8
million.
Gross Profit
Gross profit increased 7.0% or $49.7 million to $764.4 million in the first
quarter of fiscal 2018 from $714.7 million in the first quarter of fiscal 2017.
Gross margin for the first quarter of fiscal 2018 was 59.3% as compared to 68.9%
in the first quarter of fiscal 2017. Excluding Non-GAAP charges, gross profit
increased 19.3% or $137.7 million to $852.8 million in the first quarter of
fiscal 2018 from $715.1 million in the first quarter of fiscal 2017. Excluding
the results of Kate Spade, gross profit decreased by 3.7% to $688.1 million.
Selling, General and Administrative Expenses
The Company includes inbound product-related transportation costs from our
service providers within cost of sales. The Company, similar to some companies,
includes certain transportation-related costs related to our distribution
network in SG&A expenses rather than in cost of sales; for this reason, our
gross margins may not be comparable to that of entities that include all costs
related to their distribution network in cost of sales.
SG&A expenses increased 43.2% or $237.4 million to $786.2 million in the first
quarter of fiscal 2018 as compared to $548.8 million in the first quarter of
fiscal 2017. As a percentage of net sales, SG&A expenses increased to 61.0%
during the first quarter of fiscal 2018 as compared to 52.9% during the first
quarter of fiscal 2017. This increase is primarily due to the acquisition of
Kate Spade and an increase in Tapestry corporate SG&A expenses. Excluding
non-GAAP adjustments of $102.2 million and $10.5 million in the first quarter of
fiscal 2018 and fiscal 2017, SG&A expenses increased $145.7 million from the
first quarter of fiscal 2017; and SG&A expenses as a percentage of net sales
increased, to 53.0% in the first quarter of fiscal 2018 from 51.9% in the first
quarter of fiscal 2017. The increase is primarily due to SG&A expenses incurred
by Kate Spade.
Corporate expenses, which are not directly attributable to a reportable segment,
increased 33.1% or $23.3 million to $93.6 million in the first quarter of fiscal
2018. Excluding non-GAAP adjustments of $33.5 million and $9.5 million in the
first quarter of fiscal 2018 and fiscal 2017, respectively, as discussed in the
"GAAP to Non-GAAP Reconciliation" herein, SG&A expenses remained fairly
consistent with a slight decrease of $0.7 million in the first quarter of fiscal
2018 as compared to the first quarter of fiscal 2017.
Operating (Loss) Income
Operating income decreased $187.7 million to an operating loss of $21.8 million
in the first quarter of fiscal 2018 as compared to operating income of $165.9
million in the first quarter of fiscal 2017. Operating margin was (1.7)% in the
first quarter of fiscal 2018 as compared to 16.0% in the first quarter of fiscal
2017. Excluding non-GAAP adjustments of $190.6 million in the first quarter of
fiscal 2018 and $10.9 million in the first quarter of fiscal 2017, as discussed
in the "GAAP to Non-GAAP Reconciliation" herein, operating income decreased 4.5%
or $8.0 million to $168.8 million from $176.8 million in the first quarter of
fiscal 2017; and operating margin was 13.1% in the first quarter of fiscal 2018
as compared to 17.0% in the first quarter of fiscal 2017.
Interest Expense, net
Interest expense, net totaled $20.5 million in the first quarter of fiscal 2018
as compared to $5.7 million in the first quarter of fiscal 2017 due to the debt
borrowings that occurred to fund the Kate Spade acquisition.
Provision for Income Taxes
The effective tax rate was 58.1% in the first quarter of fiscal 2018 as compared
to 26.7% in the first quarter of fiscal 2017. Excluding non-GAAP adjustments,
the effective tax rate was 19.3% in the first quarter of 2018 as compared to
26.3% in the first quarter of fiscal 2017. The change in our effective tax rate
was primarily attributable to the excess tax benefits recognized due to the
adoption of ASU No. 2016-09 and the geographic mix of earnings.
Net (Loss) Income
Net income decreased $135.1 million to a net loss of $17.7 million in the first
quarter of fiscal 2018 as compared to net income of $117.4 million in the first
quarter of fiscal 2017. Excluding non-GAAP adjustments, net income decreased
5.0% or $6.3 million

                                       27
--------------------------------------------------------------------------------


to $119.7 million in the first quarter of fiscal 2018. This decrease was
primarily due to lower operating income, partially offset by a decrease in
provision for income taxes.
Net (Loss) Income per Share
Net income per diluted share decreased to net loss per diluted share of $0.06 in
the first quarter of fiscal 2018 as compared to net income per diluted share of
$0.42 in the first quarter of fiscal 2017. Excluding non-GAAP adjustments, net
income per diluted share decreased 6.6% to $0.42 in the first quarter of fiscal
2018 from $0.45 in the first quarter of fiscal 2017, primarily due to lower net
income, partially offset by higher number of shares outstanding.
Segment Performance - First Quarter of Fiscal 2018
The following table summarizes results of operations by reportable segment for
the first quarter of fiscal 2018 compared to the first quarter of fiscal 2017.
All percentages shown in the table below and the discussion that follows have
been calculated using unrounded numbers.
Coach
                                               Three Months Ended
                      September 30, 2017             October 1, 2016             Variance
                                                   (millions)
                                       % of                      % of
                      Amount        net sales      Amount     net sales     Amount        %
Net sales        $    923.7            100.0 %   $   950.1       100.0 %   $ (26.4 )    (2.8 )%
Gross profit          632.1             68.4         663.6        69.8       (31.5 )    (4.7 )
SG&A expenses         433.8             47.0         431.3        45.4         2.5       0.6
Operating income      198.3             21.5         232.3        24.4       (34.0 )   (14.6 )


Coach Net Sales decreased 2.8% or $26.4 million to $923.7 million in the first
quarter of fiscal 2018. Excluding the unfavorable impact of foreign currency,
net sales decreased 1.8% or $17.0 million. Comparable store sales for Coach
decreased $18.7 million or 2.4% when comparing to the first quarter of fiscal
2017. Excluding the impact of the Internet, comparable store sales decreased
3.2%. The decrease in comparable store sales is primarily due to declines in
North America and Asia, primarily due to traffic and inventory challenges which
were a detriment to conversion, which were partially due to the natural
disasters as well as the holiday calendar shift for the Mid-Autumn Festival in
Southeast Asia. Wholesale shipments decreased by $8.4 million, excluding the net
benefit of the expiration of the footwear license at the end of fiscal 2017 and
bringing this business in-house, due to the timing of international shipments.
These decreases were offset by an increase in non-comparable stores of $11.5
million, primarily driven by new stores in Greater China and Europe.
Coach Gross Profit decreased 4.7% or $31.5 million to $632.1 million in the
first quarter of fiscal 2018. Gross margin decreased 140 basis points to 68.4%
in the first quarter of fiscal 2018 from 69.8% in the first quarter of fiscal
2017. Gross margin in the first quarter of fiscal 2018 was negatively impacted
by foreign currency by approximately 70 basis points. The remaining decrease in
gross margin was primarily due to promotional activity, partially offset by
favorable average unit cost and product mix.
Coach SG&A expenses increased 0.6% or $2.5 million to $433.8 million compared to
$431.3 million in the first quarter of fiscal 2017. As a percentage of net
sales, SG&A expenses increased to 47.0% during the first quarter of fiscal 2018
as compared to 45.4% during the first quarter of fiscal 2017. The $2.5 million
increase is due to higher store-related costs in Europe associated with the new
store openings partially offset by decreases in North America due to
employee-related costs.
Coach Operating Income decreased 14.6% or $34.0 million to $198.3 million in the
first quarter of fiscal 2018 reflecting the decrease in gross profit of $31.5
million, as well as higher SG&A expenses of $2.5 million. Operating margin
decreased 290 basis points to 21.5% in the first quarter of fiscal 2018 from
24.4% during the same period in the prior year.

                                       28
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Kate Spade
                                           Three Months Ended
                  September 30, 2017(1)             October 1, 2016            Variance
                                               (millions)
                                   % of                            % of
                  Amount        net sales         Amount         net sales    Amount   %
Net sales      $    268.8         100.0  %      -                   - %           NM   NM
Gross profit         76.3          28.4         -                   -             NM   NM
SG&A expenses       211.2          78.6         -                   -             NM   NM
Operating loss     (134.9 )       (50.2 )       -                   -             NM   NM




NM - Not meaningful (1) On July 11, 2017, the Company completed its acquisition of Kate Spade. The

operating results of the Kate Spade brand have been consolidated in the

Company's operating results commencing on July 11, 2017.


Kate Spade Net Sales totaled $268.8 million in the first quarter of fiscal 2018,
which includes the strategic pullback in wholesale disposition and Internet
flash sales. Comparable store sales for the period declined 9.4%. Excluding the
impact of the Internet business, comparable store sales declined 3.0%.
Kate Spade Gross Profit totaled $76.3 million in the first quarter of fiscal
2018, resulting in a gross margin of 28.4%. Excluding non-GAAP adjustments
including the limited life impact of purchase accounting adjustments and one
time charges of $88.4 million as discussed in the "GAAP to Non-GAAP
Reconciliation herein", gross profit totaled $164.7 million, resulting in a
gross margin of 61.3%.
Kate Spade SG&A expenses were $211.2 million in the first quarter of fiscal
2018. As a percentage of net sales, SG&A expenses were 78.6% during the first
quarter of fiscal 2018. Excluding non-GAAP adjustments including severance and
related costs as a result of agreements with certain Kate Spade executives,
acquisition costs, organization costs, professional fees and purchase accounting
adjustments of $67.8 million as discussed in the "GAAP to Non-GAAP
Reconciliation" herein, SG&A expenses were $143.4 million.
Kate Spade Operating Loss totaled $134.9 million in the first quarter of fiscal
2018, resulting in an operating margin of (50.2)%. Excluding Non-GAAP
adjustments, Kate Spade operating income totaled $21.3 million, resulting in an
operating margin of 8.0%.
Stuart Weitzman
                                               Three Months Ended
                      September 30, 2017              October 1, 2016             Variance
                                                   (millions)
                                       % of                        % of
                      Amount        net sales       Amount      net sales     Amount       %
Net sales        $    96.4             100.0 %   $   87.5          100.0 %   $    8.9    10.1 %
Gross profit          56.0              58.1         51.1           58.4          4.9     9.6
SG&A expenses         47.6              49.4         47.2           54.0          0.4     0.8
Operating income       8.4               8.7          3.9            4.4          4.5      NM





NM - Not meaningful
Stuart Weitzman Net Sales increased 10.1% or $8.9 million to $96.4 million in
the first quarter of fiscal 2018, which was not materially impacted by changes
in foreign currency. Stuart Weitzman had a $7.7 million increase in wholesale
sales primarily due to timing of shipments.
Stuart Weitzman Gross Profit increased 9.6% or $4.9 million to $56.0 million
during the first quarter of fiscal 2018. Gross margin decreased 30 basis points
to 58.1% in the first quarter of fiscal 2018 from 58.4% in the first quarter of
fiscal 2017. Excluding non-GAAP adjustments, Stuart Weitzman gross profit
totaled $56.0 million and $51.5 million in the first quarter of fiscal 2018

                                       29
--------------------------------------------------------------------------------


and fiscal 2017, respectively, resulting in a gross margin of 58.1% and 58.9%,
respectively. The year over year change in gross margin as a result of foreign
currency rates was unfavorable by 120 basis points, primarily due to the Euro.
Excluding the impact of foreign currency, there was an increase in gross margin
of 40 basis points due to the improvement in gross margin related to wholesale
sales, partially offset by channel mix.
Stuart Weitzman SG&A expenses increased 0.8% or $0.4 million to $47.6 million in
the first quarter of fiscal 2018 as compared to $47.2 million in the first
quarter of fiscal 2017. As a percentage of net sales, SG&A expenses decreased to
49.4% during the first quarter of fiscal 2018 as compared to 54.0% during the
first quarter of fiscal 2017. Selling costs also increased in the Stuart
Weitzman brand segment as a result of investments made to support the growth of
the business.
Stuart Weitzman Operating Income increased $4.5 million to $8.4 million in the
first quarter of fiscal 2018, resulting in an operating margin of 8.7%, compared
to $3.9 million and 4.4%, respectively, in fiscal 2017. Excluding non-GAAP
adjustments, Stuart Weitzman operating income totaled $9.3 million in the first
quarter of fiscal 2018, resulting in an operating margin of 9.6%, as compared to
$5.3 million and 6.0%, respectively, in fiscal 2017.



                                       30
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NON-GAAP MEASURES
The Company's reported results are presented in accordance with GAAP. The
reported gross profit, SG&A expenses, operating income, provision for income
taxes, net income and earnings per diluted share in the first quarter of fiscal
2018 and fiscal 2017 reflect certain items, including the impact of the
Integration and Acquisition for Tapestry and the Operational Efficiency Plan. As
a supplement to the Company's reported results, these metrics are also reported
on a non-GAAP basis to exclude the impact of these items, along with a
reconciliation to the most directly comparable GAAP measures.
Comparable store sales, which is a non-GAAP measure, reflects sales performance
at stores that have been open for at least 12 months, and includes sales from
the Internet. In certain instances, orders placed via the Internet are fulfilled
by a physical store; such sales are recorded by the physical store. The Company
excludes new locations from the comparable store base for the first twelve
months of operation. Comparable store sales have not been adjusted for store
expansions. Kate Spade comparable store sales have been calculated using this
methodology by comparing current period sales to sales during the equivalent
pre-acquisition period.
These non-GAAP performance measures were used by management to conduct and
evaluate its business during its regular review of operating results for the
periods affected. Management and the Company's Board utilized these non-GAAP
measures to make decisions about the uses of Company resources, analyze
performance between periods, develop internal projections and measure management
performance. The Company's internal management reporting excluded these items.
In addition, the human resources committee of the Company's Board uses these
non-GAAP measures when setting and assessing achievement of incentive
compensation goals.
The Company operates on a global basis and reports financial results in U.S.
dollars in accordance with GAAP. Fluctuations in foreign currency exchange rates
can affect the amounts reported by the Company in U.S. dollars with respect to
its foreign revenues and profit. Accordingly, certain material increases and
decreases in operating results have been presented both including and excluding
currency fluctuation effects from translating foreign-denominated amounts into
U.S. dollars as compared to the same period in the prior fiscal year. Constant
currency information compares results between periods as if exchange rates had
remained constant period-over-period. The Company calculates constant currency
revenue results by translating current period revenue in local currency using
the prior year period's monthly average currency conversion rate.
We believe these non-GAAP measures are useful to investors and others in
evaluating the Company's ongoing operating and financial results in a manner
that is consistent with management's evaluation of business performance and
understanding how such results compare with the Company's historical
performance. Additionally, we believe presenting certain increases and decreases
in constant currency provides a framework for assessing the performance of the
Company's business outside the United States and helps investors and analysts
understand the effect of significant year-over-year currency fluctuations. We
believe excluding these items assists investors and others in developing
expectations of future performance.
By providing the non-GAAP measures, as a supplement to GAAP information, we
believe we are enhancing investors' understanding of our business and our
results of operations. The non-GAAP financial measures are limited in their
usefulness and should be considered in addition to, and not in lieu of, U.S.
GAAP financial measures. Further, these non-GAAP measures may be unique to the
Company, as they may be different from non-GAAP measures used by other
companies.
For a detailed discussion on these non-GAAP measures, see Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of Operations."


                                       31
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LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
                                                                Three Months Ended
                                                   September 30,      October 1,
                                                        2017             2016           Change
                                                                    (millions)

Net cash used in operating activities             $       (103.8 )$     (38.1 )$    (65.7 )
Net cash (used in) provided by investing
activities                                              (2,221.6 )         555.6       (2,777.2 )
Net cash provided by (used in) financing
activities                                               1,022.4          (377.4 )      1,399.8
Effect of exchange rate changes on cash and
cash equivalents                                             3.4             0.9            2.5
Net (decrease) increase in cash and cash
equivalents                                       $     (1,299.6 )   $     

141.0 $ (1,440.6 )


The Company's cash and cash equivalents decreased by $1,299.6 million in the
first quarter of fiscal 2018 as compared to an increase of $141.0 million in the
first quarter of fiscal 2017, as discussed below.
Net cash used in operating activities
Net cash used in operating activities increased $65.7 million due to the change
from net income to net loss of $135.1 million and changes in operating assets
and liabilities of $5.1 million, partially offset by higher non-cash charges of
$74.5 million.
The $5.1 million decline in changes in operating asset and liability balances
was primarily driven by changes in inventories and other liabilities, partially
offset by changes in accrued liabilities and accounts receivable. Inventories
were a use of cash of $156.0 million in the first quarter of fiscal 2018 as
compared to a use of cash of $86.1 million in the first quarter of fiscal 2017,
primarily driven by increased inventory purchases, particularly in the Kate
Spade segment for the holiday season, coupled with lower sales in Coach. Other
liabilities were a use of cash of $38.9 million in the first quarter of fiscal
2018 compared to a use of cash of $13.9 million in the first quarter of fiscal
2017, primarily related to an increase in the Company's long-term deferred rent
balances in the prior year. Accrued liabilities were a use of cash of $45.7
million in the first quarter of fiscal 2018 as compared to a use of cash of
$114.3 million in the first quarter of fiscal 2017, primarily driven by the
timing of tax payments. Accounts receivable was a source of cash of $31.6
million in the first quarter of fiscal 2018 as compared to a source of cash of
$0.6 million in the first quarter of fiscal 2017, primarily driven by a smaller
build in receivables compared to prior year due to lower Coach wholesale sales.
Net cash (used in) provided by investing activities
Net cash used in investing activities in the first quarter of fiscal 2018 was
$2.22 billion, as compared to a source of cash of $555.6 million in the first
quarter of fiscal 2017. The $2.78 billion increase in net cash used in investing
activities is primarily due to the purchase of Kate Spade, net of cash acquired,
of $2.32 billion in the first quarter of fiscal 2018, as well as the prior year
proceeds from the sale of the Company's investment in Hudson Yards of $680.6
million in the first quarter of fiscal 2017. This was partially offset by the
impact of net cash proceeds from maturities and sales of investments of $147.5
million in the first quarter of fiscal 2018, compared to net purchases of
investments of $50.6 million in the first quarter of fiscal 2017, as well as
decreased capital expenditures in the first quarter of fiscal 2018.
Net cash provided by (used in) financing activities
Net cash provided by financing activities was $1.02 billion in the first quarter
of fiscal 2018, as compared to a use of cash of $377.4 million in the first
quarter of fiscal 2017. The $1.40 billion increase was primarily due to the
proceeds from the issuance of debt of $1.10 billion during the first quarter of
fiscal 2018 as well as the repayment of long-term debt of $285.0 million during
the first quarter of fiscal 2017.

                                       32
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Working Capital and Capital Expenditures
As of September 30, 2017, in addition to our cash flows from operations, our
sources of liquidity and capital resources were comprised of the following:
                                              Sources of         Outstanding       Total Available
                                               Liquidity        Indebtedness         Liquidity(1)
                                                                   (millions)
Cash and cash equivalents(1)                $     1,373.3     $             -     $        1,373.3
Short-term investments(1)                           297.6                   -                297.6
Long-term investments                                70.0                   -                 70.0
Revolving Credit Facility(2)(3)                     900.0                   -                900.0
Term Loans(2)                                     1,100.0             1,100.0                    -
3.000% Senior Notes due 2022(4)                     400.0               400.0                    -
4.250% Senior Notes due 2025(4)                     600.0               600.0                    -
4.125% Senior Notes due 2027(4)                     600.0               600.0                    -
Total                                       $     5,340.9$       2,700.0$        2,640.9





(1)  As of September 30, 2017, approximately 76% of our cash and short-term

investments were held outside the U.S. in jurisdictions where we intend to

permanently reinvest our undistributed earnings to support our continued

     growth. We are not dependent on foreign cash to fund our domestic
     operations. If we choose to repatriate any funds to the U.S., we would be
     subject to applicable U.S. and foreign taxes.

(2) In May 2017, the Company entered into a definitive credit agreement whereby

Bank of America, N.A., as administrative agent, the other agents party

thereto, and a syndicate of banks and financial institutions have (i)

committed to lend to the Company, subject to the satisfaction or waiver of

the conditions set forth in the agreement, an $800.0 million term loan

facility maturing six months after the term loans thereunder are borrowed

(the "Six-Month Term Loan Facility"), and a $300.0 million term loan

facility maturing three years after the term loans thereunder are borrowed

(collectively with the Six-Month Term Loan Facility, the "Term Loan

Facilities") and (ii) made available to the Company a $900.0 million

revolving credit facility, including sub-facilities for letters of credit,

with a maturity date of May 30, 2022 (the "Revolving Credit Facility" and

collectively with the Term Loan Facilities, the "Facility"). During the

first quarter of fiscal 2018, in connection with the acquisition of Kate

Spade, the Company borrowed $800.0 million under the six-month term loan

credit facility and $300.0 million under the three-year term loan credit

facility for a total of $1.1 billion.

(3) In May 2017, the Revolving Credit Facility replaced the Company's previously

existing revolving credit facility agreement under the Amendment and

Restatement Agreement, dated as of March 18, 2015, by and between the

Company, certain lenders and JPMorgan Chase Bank, N.A., as administrative

agent. Borrowings under the Facility bear interest at a rate per annum equal

to, at the Borrowers' option, either (a) an alternate base rate (which is a

rate equal to the greatest of (i) the Prime Rate in effect on such day, (ii)

the Federal Funds Effective Rate in effect on such day plus ½ of 1% or (iii)

the Adjusted LIBO Rate for a one month Interest Period on such day plus 1%)

or (b) a rate based on the rates applicable for deposits in the interbank 47

market for U.S. Dollars or the applicable currency in which the loans are

made plus, in each case, an applicable margin. The applicable margin will be

determined by reference to a grid, defined in the Credit Agreement, based on

the ratio of (a) consolidated debt plus 600% of consolidated lease expense

to (b) consolidated EBITDAR. Additionally, the Company pays a commitment fee

at a rate determined by the reference to the aforementioned pricing grid.

The Company had no outstanding borrowings under the Revolving Credit

Facility as of September 30, 2017. Refer to Note 11, "Debt," for further

information on our existing debt instruments.


(4) In March 2015, the Company issued $600.0 million aggregate principal amount
of 4.250% senior unsecured notes due April 1, 2025 at 99.445% of par (the "2025
Senior Notes"). Furthermore, on June 20, 2017, the Company issued $400.0 million
aggregate principal amount of 3.000% senior unsecured notes due July 15, 2022 at
99.505% of par (the "2022 Senior Notes"), and $600.0 million aggregate principal
amount of 4.125% senior unsecured notes due July 15, 2027 at 99.858% of par (the
"2027 Senior Notes"). Furthermore, the indenture for the 2025 Senior Notes, 2022
Senior Notes and 2027 Senior Notes contain certain covenants limiting the
Company's ability to: (i) create certain liens, (ii) enter into certain sale and
leaseback transactions and (iii) merge, or consolidate or transfer, sell or
lease all or substantially all of the Company's assets. As of September 30,
2017, no known events of default have occurred. Refer to Note 11, "Debt," for
further information on our existing debt instruments.

                                       33
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We believe that our Revolving Credit Facility and Term Loans are adequately
diversified with no undue concentrations in any one financial institution. As of
September 30, 2017, there were 13 financial institutions participating in the
Revolving Credit Facility and Term Loans, with no one participant maintaining a
maximum commitment percentage in excess of 13%. We have no reason at this time
to believe that the participating institutions will be unable to fulfill their
obligations to provide financing in accordance with the terms of the facility in
the event we elect to draw funds in the foreseeable future.
We have the ability to draw on our credit facilities or access other sources of
financing options available to us in the credit and capital markets for, among
other things, our restructuring initiatives, acquisition or integration-related
costs, settlement of a material contingency, or a material adverse business or
macroeconomic development, as well as for other general corporate business
purposes.
Management believes that cash flows from operations, access to the credit and
capital markets and our credit lines, on-hand cash and cash equivalents and our
investments will provide adequate funds to support our operating, capital, and
debt service requirements for the foreseeable future, our plans for
acquisitions, further business expansion and restructuring-related initiatives.
Future events, such as acquisitions or joint ventures, and other similar
transactions may require additional capital. There can be no assurance that any
such capital will be available to the Company on acceptable terms or at all. Our
ability to fund working capital needs, planned capital expenditures, dividend
payments and scheduled debt payments, as well as to comply with all of the
financial covenants under our debt agreements, depends on future operating
performance and cash flow, which in turn are subject to prevailing economic
conditions and to financial, business and other factors, some of which are
beyond the Company's control.
Reference should be made to our most recent Annual Report on Form 10-K for
additional information regarding liquidity and capital resources. The Company
expects total fiscal 2018 capital expenditures to be approximately $325 million.
Kate Spade & Company Acquisition
On July 11, 2017, the Company completed its acquisition of Kate Spade & Company
for $18.50 per share in cash for a total of approximately $2.4 billion. As a
result, Kate Spade has become a wholly owned subsidiary. The combination of the
Company and Kate Spade & Company creates a leading luxury lifestyle company with
a more diverse multi-brand portfolio supported by significant expertise in
handbag design, merchandising, supply chain and retail operations.
Seasonality
The Company's results are typically affected by seasonal trends. During the
first fiscal quarter, we build inventory for the holiday selling season. In the
second fiscal quarter, working capital requirements are reduced substantially as
we generate higher net sales and operating income, especially during the holiday
months of November and December. Accordingly, the Company's net sales, operating
income and operating cash flows for the three months ended September 30, 2017
are not necessarily indicative of that expected for the full fiscal 2018.
However, fluctuations in net sales, operating income and operating cash flows of
the Company in any fiscal quarter may be affected by the timing of wholesale
shipments and other events affecting retail sales, including adverse weather
conditions or other macroeconomic events.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in Note 2 to the audited
consolidated financial statements in our fiscal 2017 10-K. Our discussion of
results of operations and financial condition relies on our condensed
consolidated financial statements that are prepared based on certain critical
accounting policies that require management to make judgments and estimates
which are subject to varying degrees of uncertainty. While we believe that these
accounting policies are based on sound measurement criteria, actual future
events can and often do result in outcomes that can be materially different from
these estimates or forecasts.
For a complete discussion of our critical accounting policies and estimates, see
the "Critical Accounting Policies and Estimates" section of the MD&A in our
fiscal 2017 10-K. As of September 30, 2017, there have been no material changes
to any of the critical accounting policies.
As disclosed in our fiscal 2017 10-K, the Company performs its annual impairment
assessment of goodwill, including trademarks and trade names, during the fourth
quarter of each fiscal year. Furthermore, as previously disclosed, given the
recency of our Stuart Weitzman acquisition, the fair values of the Stuart
Weitzman brand reporting unit and indefinite-lived trademarks and trade names
exceeded the respective carrying values by approximately 20%. Several factors
could impact the brand's ability to achieve future cash flows, including
optimization of the store fleet productivity, the impact of promotional activity
in department stores, the consolidation or take-back of certain distributor
relationships, the simplification of certain corporate overhead structures and
other initiatives aimed at expanding certain higher performing categories of the
business. While there was no impairment recorded in the three-month period ended
September 30, 2017, given the relatively small excess of fair value over
carrying value as noted above, if profitability trends decline during fiscal
2018 from those that are expected, it is possible that an interim test or our
annual impairment test could result in an impairment of these assets.

                                       34

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