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

TAPESTRY INC (TPR)
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TAPESTRY : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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02/07/2018 | 12:31pm CEST
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," "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 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.
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 $30-40 million in pre-tax charges, of which approximately $5-10
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 $74.5 million. The
remaining charges under this plan are expected to approximate $5-10 million and
will be recorded within Corporate. The plan is 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.
Tax Legislation
On December 22, 2017, H.R.1, formerly known as the Tax Cuts and Jobs Act (the
"Tax Legislation") was enacted. The Tax Legislation, significantly revises the
U.S. tax code by (i) lowering the U.S federal statutory income tax rate from 35%
to 21%, (ii) implementing a territorial tax system, (iii) imposing a one-time
transition tax on deemed repatriated earnings of foreign

                                       26
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subsidiaries ("Transition Tax"), (iv) requiring current inclusion of global
intangible low taxed income ("GILTI") of certain earnings of controlled foreign
corporations in U.S. federal taxable income, (v) creating the base erosion
anti-abuse tax ("BEAT"), (vi) implementing bonus depreciation that will allow
for full expensing of qualified property, and (vii) limiting deductibility of
interest and executive compensation expense, among other changes. Notable
changes include the following:
•      The Company expects to receive the full benefit of the rate reduction in

fiscal 2019, as compared with the partial rate reduction it will receive

in fiscal 2018 based on the pro-rated number of days the new rate applies

to the current fiscal year. In the current year, the U.S federal statutory

income tax rate will be approximately 28%, which will further decline to

21% in fiscal 2019.

• Foreign earnings that may exist after December 31, 2017 will generally be

eligible for a 100% dividends received exemption, however companies may be

subject to the alternative BEAT and GILTI tax regimes which would increase

       the U.S federal statutory income tax rate above 21%. With limited
       exception, these tax regimes do not impact the Company until fiscal year
       2019. Based on current facts and circumstances the Company believes that
       GILTI is the tax regime most likely to apply. Under the GILTI regime a

portion of the Company's foreign earnings that may exist will be subject

to U.S. taxation. To the extent a company's foreign operations are subject

to GILTI and there is an existing outside basis difference in the

Company's foreign investments that exists within the reporting period, the

       Company may need to record a deferred tax liability for some portion of
       the anticipated additional tax resulting from future GILTI
       inclusions. Outside-basis difference is generally defined as the

difference between an entity's financial statement carrying amount and the

tax basis of the parent's investment in that entity's stock. Outside basis

differences typically arise from things such as the entity earning income,

post-acquisition, that has yet to be distributed to the parent company, or

purchase accounting adjustments recorded on acquisition that increase or

decrease the entity's book value on the face of its financial statements,

       but do not provide any additional tax basis as the adjustments must be
       ignored for tax purposes. For companies subject to GILTI, the FASB has
       indicated that companies are allowed to choose to record a deferred tax
       liability related to the outside basis difference in the fiscal year of

enactment or to record the future tax associated with GILTI as a period

cost in the period those foreign earnings are included on the U.S. tax

return. Given that the Company is still evaluating whether an outside

       basis difference in foreign investments exists and to what extent it will
       be subject to GILTI, the Company has recorded no additional deferred tax
       liability as of the quarter ended December 30, 2017.


•      The Tax Legislation includes what many believe is an unintended
       consequence that results in certain Qualified Improvement Property

("QIP"), which includes much of the Company's leasehold improvements,

being ineligible for bonus depreciation. The Company has estimated fiscal

year 2018 depreciation expense based on how the law was drafted, with no

       consideration of the perceived legislative intent.  The Company has
       estimated its capital expenditures by class to estimate depreciation
       expense for purposes of forecasting the rate change adjustment of our
       deferred tax balance.  If Tax Legislation for QIP is adjusted, it will
       impact the rate change adjustment amount, which in turn will impact the
       Company's estimated annual effective tax rate for fiscal 2018.

• At this time, it is unknown whether the states in which the Company

operates will conform to the Tax Legislation or adopt an alternative

regime. The Company continues to monitor developments; at this time all

aspects of its provision for income tax for the quarter ended December 30,

2017 are recorded based on its historical approach to state tax expense.

• Other provisions of the new legislation that are not applicable to the

Company until fiscal 2019 include, but are not limited to, the provisions

limiting deductibility of interest and executive compensation expense.

Based on current facts and circumstances, we do not anticipate the impact

of these provisions to be material to the overall financial statements.


The Company expects further impact in the remainder of fiscal 2018 and in fiscal
2019 as it finalizes the calculations to determine the proper inclusion of the
Transition Tax and to re-measure its deferred tax balance. Based on currently
available information, it is impossible to predict the amount of anticipated
adjustment and whether this adjustment will be beneficial or detrimental to our
effective tax rate. Additional analysis required to complete the Transition Tax
calculation includes, but is not limited to, (i) completing a foreign earnings
and profit study to determine the Company's deferred foreign income since 1986,
including all acquisitions; (ii) determining foreign taxes paid against deferred
foreign income; and (iii) determining whether the Company has an Overall Foreign
Loss. The Company's estimated adjustment may also be affected by other analysis
related to the Tax Legislation, including, but not limited to, the calculation
of deemed repatriation of deferred foreign income and the state tax effect of
adjustments made to federal temporary differences, such as the full expensing of
qualified property which may not be allowed from a state tax perspective.




                                       27
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Current Trends and Outlook
Global consumer retail traffic remains relatively inconsistent across channels
and geographies, which has led to a more promotional environment in the
fragmented retail industry due to increased competition and a desire to offset
traffic softness 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.
After stronger than expected economic performance in calendar 2017, including
improvements in the labor and housing market as well as modest growth in overall
consumer spending, the U.S. economic outlook has improved and moderate economic
growth is expected to continue in calendar 2018. Several organizations that
monitor the world's economy, including the International Monetary Fund, observed
economic strengthening across the majority of the globe in 2017 and are
projecting broad-based accelerated economic strengthening for 2018, but
anticipate that the current growth rates are unlikely to persist in the long
term. It is still, however, too early to understand what kind of sustained
impact these trends or changes in tax legislation will have on consumer
discretionary spending.
Risk of volatility or a worsening of the macroeconomic environment remains due
to political uncertainty and potential changes to international trade
agreements. Political and economic instability or changing macroeconomic
conditions that exist or may arise in our major markets may contribute to the
uncertainty as to whether current positive trends will be sustained, including
but not limited to the impact of the United Kingdom ("U.K.") voting to leave the
European Union ("E.U.") in its referendum on June 23, 2016, commonly known as
"Brexit." 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.
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 and Part II, Item 1A."Risk Factors" of this Form
10-Q.



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SECOND QUARTER FISCAL 2018 COMPARED TO SECOND QUARTER FISCAL 2017
The following table summarizes results of operations for the second quarter of
fiscal 2018 compared to the second 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
                       December 30, 2017            December 31, 2016                 Variance
                                            (millions, except per share data)

                                      % of                         % of
                      Amount       net sales       Amount       net sales       Amount           %
Net sales          $   1,785.0        100.0 %   $   1,321.7        100.0 %   $    463.3         35.1  %
Gross profit           1,177.4         66.0           906.2         68.6          271.2         29.9
SG&A expenses            831.0         46.6           628.8         47.6          202.2         32.1
Operating income         346.4         19.4           277.4         21.0           69.0         24.9
Interest expense,
net                       22.2          1.2             5.1          0.4           17.1           NM
Provision for
income taxes             261.0         14.6            72.6          5.5          188.4           NM
Net income                63.2          3.5           199.7         15.1         (136.5 )      (68.3 )
Net income per
share:
Basic              $      0.22$      0.71$    (0.49 )      (68.8 )%
Diluted            $      0.22$      0.71$    (0.49 )      (68.8 )%





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 second quarter of fiscal 2018 and fiscal 2017
reflect the impact of the Operational Efficiency Plan and Integration and
Acquisition costs, as well as the impact of the new tax legislation in the
second quarter of fiscal 2018, as noted in the following tables. Refer to
"Non-GAAP Measures" herein for further discussion on the Non-GAAP Measures.
Second Quarter Fiscal 2018 Items
                                                                  Three 

Months Ended December 30, 2017

                                                                                                                                Non-GAAP Basis
                           GAAP Basis                                        Integration &                                        (Excluding
                          (As Reported)     Operational Efficiency Plan       Acquisition         Impact of Tax Legislation         Items)
                                                                   (millions, except per share data)
Gross profit             $   1,177.4       $                 -             $       (18.4 )      $                 -             $     1,195.8
SG&A expenses                  831.0                       3.5                      43.0                          -                     784.5
Operating income               346.4                      (3.5 )                   (61.4 )                        -                     411.3
Income before provision
for income taxes               324.2                      (3.5 )                   (61.4 )                        -                     389.1
Provision for income
taxes                          261.0                      (1.1 )                   (15.0 )                    194.2                      82.9
Net income                      63.2                      (2.4 )                   (46.4 )                   (194.2 )                   306.2
Diluted net income per
share                           0.22                     (0.01 )                   (0.16 )                    (0.68 )                    1.07

In the second quarter of fiscal 2018 the Company incurred adjustments as follows: • Operational Efficiency Plan - Total charges of $3.5 million primarily

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



                                       29
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• Integration & Acquisition Costs - Total charges of $61.4 million,

primarily attributable to the integration and acquisition of Kate Spade.

These charges include:

• Limited life purchase accounting adjustments


•            Severance and related costs as a result of contractual 

agreements

             with certain Kate Spade executives


• Organizational costs as a result of integration

• Professional Fees


Refer to the "Executive Overview" herein and Note 4, "Integration & Acquisition
Costs," for more information.
•      Impact of Tax Legislation - Total charges of $194.2 million primarily

related to the net impact of the transition tax and re-measurement of

deferred tax balances. Refer to the "Executive Overview" herein and Note

14, "Income Taxes," for further information.


These actions taken together increased the Company's provision for income taxes
by $178.1 million, SG&A expenses by $46.5 million and cost of sales by $18.4
million, negatively impacting net income by $243.0 million or $0.85 per diluted
share.
The following table summarizes the GAAP to Non-GAAP Reconciliation by reportable
segment through operating income for the second quarter of fiscal 2018:
                                                       Three Months Ended 

December 30, 2017

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

Stuart Weitzman(1) Corporate(1) Items)

                                                                    (millions)
COGS
Integration &
Acquisition                                       -           (17.0 )               (1.4 )                -
Gross profit        $       1,177.4     $         -     $     (17.0 )   $           (1.4 )     $          -     $     1,195.8

SG&A
Integration &
Acquisition                                       -            29.7                  0.9               12.4
Operational
Efficiency Plan                                   -               -                    -                3.5
SG&A                $         831.0     $         -     $      29.7     $            0.9       $       15.9$       784.5

Operating income    $         346.4     $         -     $     (46.7 )   $           (2.3 )     $      (15.9 )$       411.3




(1)  Refer to Note 4, "Integration and Acquisition Costs" and Note 5,
     "Restructuring Activities," for further information.



                                       30
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Second Quarter Fiscal 2017 Items

                                                                  Three 

Months Ended December 31, 2016

                                                                                                                Non-GAAP Basis
                                          GAAP Basis                                        Integration &         (Excluding
                                         (As Reported)    Operational Efficiency Plan        Acquisition            Items)
                                                                   (millions, except per share data)
Gross profit                             $     906.2     $                 -             $         (0.2 )       $       906.4
SG&A expenses                                  628.8                     3.7                       13.0                 612.1
Operating income                               277.4                    (3.7 )                    (13.2 )               294.3
Income before provision for income taxes       272.3                    (3.7 )                    (13.2 )               289.2
Provision for income taxes                      72.6                    (1.2 )                     (4.2 )                78.0
Net income                                     199.7                    (2.5 )                     (9.0 )               211.2
Diluted net income per share                    0.71                   (0.01 )                    (0.03 )                0.75


In the second quarter of fiscal 2017, the Company incurred adjustments as follows: • Operational Efficiency Plan - $3.7 million primarily related to technology

infrastructure and organizational efficiency costs.

• Integration & Acquisition Costs - $13.2 million total charges related to

the acquisition of Stuart Weitzman Holdings LLC, of which $13.0 million is

       primarily related to charges attributable to integration-related
       activities and contingent payments and $0.2 million is related to the
       limited life impact of purchase accounting, primarily due to the
       amortization of the inventory step-up.


These actions taken together increased the Company's SG&A expenses by $16.7
million and cost of sales by $0.2 million, negatively impacting net income by
$11.5 million or $0.04 per diluted share.
The following table summarizes the GAAP to Non-GAAP Reconciliation by reportable
segment through operating income for the second quarter of fiscal 2017:
                                                          Three Months 

Ended December 31, 2016

                                                                                                                    Non-GAAP Basis
                        GAAP Basis                                                                                    (Excluding
                       (As Reported)         Coach         Kate Spade       Stuart Weitzman(1)      Corporate(1)        Items)
                                                                       (millions)
COGS
Integration &
Acquisition                                        -                 -                  (0.2 )               -
Gross profit         $         906.2     $         -     $           -     $            (0.2 )     $         -      $       906.4

SG&A
Integration &
Acquisition                                        -                 -                  10.0               3.0
Operational
Efficiency Plan                                    -                 -                     -               3.7
SG&A                 $         628.8     $         -     $           -     $            10.0       $       6.7$       612.1

Operating income     $         277.4     $         -     $           -     $           (10.2 )     $      (6.7 )$       294.3





(1)  Refer to Note 4, "Integration and Acquisition Costs," and Note 5,
     "Restructuring Activities," for further information.







                                       31
--------------------------------------------------------------------------------


Tapestry, Inc. Summary - Second Quarter of Fiscal 2018
Currency Fluctuation Effects
The change in net sales for the second quarter of fiscal 2018 compared to fiscal
2017 has been presented both including and excluding currency fluctuation
effects.
Net Sales
Net sales in the second quarter of fiscal 2018 increased 35.1% or $463.3 million
to $1.79 billion, primarily due to the Kate Spade acquisition and due to
increased revenues from Coach and Stuart Weitzman. Excluding the favorable
effects of foreign currency, net sales increased by 34.6% or $457.2 million.
Gross Profit
Gross profit increased 29.9% or $271.2 million to $1.18 billion in the second
quarter of fiscal 2018 from $906.2 million in the second quarter of fiscal 2017.
Gross margin for the second quarter of fiscal 2018 was 66.0% as compared to
68.6% in the second quarter of fiscal 2017. Excluding Non-GAAP charges of $18.4
million and $0.2 million in the second quarter of fiscal 2018 and fiscal 2017,
respectively, as discussed in the "GAAP to Non-GAAP Reconciliation" herein gross
profit increased 31.9% or $289.4 million to $1.2 billion in the second quarter
of fiscal 2018 from $906.4 million in the second quarter of fiscal 2017. The
increase in gross profit is primarily driven by the acquisition of Kate Spade of
$275.0 million and increases in Coach of $15.8 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 32.1% or $202.2 million to $831.0 million in the second
quarter of fiscal 2018 as compared to $628.8 million in the second quarter of
fiscal 2017. As a percentage of net sales, SG&A expenses decreased to 46.6%
during the second quarter of fiscal 2018 as compared to 47.6% during the second
quarter of fiscal 2017. Excluding non-GAAP adjustments of $46.5 million and
$16.7 million in the second quarter of fiscal 2018 and fiscal 2017,
respectively, SG&A expenses increased $172.4 million from the second quarter of
fiscal 2017; and SG&A expenses as a percentage of net sales decreased, to 44.0%
in the second quarter of fiscal 2018 from 46.3% in the second quarter of fiscal
2017. The increase is primarily due to the acquisition of Kate Spade of $183.0
million, partially offset by decreases in Coach of $6.7 million.
Corporate expenses, which are included within SG&A expenses discussed above but
are not directly attributable to a reportable segment, increased 11.1% or $8.1
million to $81.4 million in the second quarter of fiscal 2018. Excluding
non-GAAP adjustments of $15.9 million and $6.7 million in the second 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 $1.1 million in the second quarter of fiscal 2018 as compared to the
second quarter of fiscal 2017.
Operating Income
Operating income increased $69.0 million to $346.4 million in the second quarter
of fiscal 2018 as compared to $277.4 million in the second quarter of fiscal
2017. Operating margin was 19.4% in the second quarter of fiscal 2018 as
compared to 21.0% in the second quarter of fiscal 2017. Excluding non-GAAP
adjustments of $64.9 million in the second quarter of fiscal 2018 and $16.9
million in the second quarter of fiscal 2017, as discussed in the "GAAP to
Non-GAAP Reconciliation" herein, operating income increased 39.7% or $117.0
million to $411.3 million from $294.3 million in the second quarter of fiscal
2017; and operating margin was 23.0% in the second quarter of fiscal 2018 as
compared to 22.3% in the second quarter of fiscal 2017. The increase in
operating income is primarily driven by the acquisition of Kate Spade of $92.0
million and growth in Coach of $22.5 million.
Interest Expense, net
Interest expense, net totaled $22.2 million in the second quarter of fiscal 2018
as compared to $5.1 million in the second quarter of fiscal 2017 due to the debt
borrowings that occurred to finance the Kate Spade acquisition.
Provision for Income Taxes
The effective tax rate was 80.5% in the second quarter of fiscal 2018 as
compared to 26.6% in the second quarter of fiscal 2017. Excluding non-GAAP
adjustments, the effective tax rate was 21.3% in the second quarter of 2018 as
compared to 27.0% in the second quarter of fiscal 2017. The decrease in our
effective tax rate was primarily attributable to the Tax Legislation which
lowered the U.S federal statutory income tax and to a lesser extent the
geographic mix of earnings.


                                       32
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Net Income
Net income decreased $136.5 million to $63.2 million in the second quarter of
fiscal 2018 as compared to $199.7 million in the second quarter of fiscal 2017.
Excluding non-GAAP adjustments, net income increased 45.1% or $95.0 million to
$306.2 million in the second quarter of fiscal 2018. This increase was primarily
due to an increase in gross profit, partially offset by an increase in SG&A
expenses.
Net Income per Share
Net income per diluted share decreased 68.8% to $0.22 in the second quarter of
fiscal 2018 as compared to $0.71 in the second quarter of fiscal 2017. Excluding
non-GAAP adjustments, net income per diluted share increased 42.7% to $1.07 in
the second quarter of fiscal 2018 from $0.75 in the second quarter of fiscal
2017, primarily due to higher net income.
Segment Performance - Second Quarter of Fiscal 2018
The following tables summarize results of operations by reportable segment for
the second quarter of fiscal 2018 compared to the second quarter of fiscal 2017.
All percentages shown in the tables below and the discussion that follows have
been calculated using unrounded numbers.
Coach
                                             Three Months Ended
                     December 30, 2017           December 31, 2016            Variance
                                                 (millions)
                                   % of                        % of
                    Amount      net sales       Amount      net sales     Amount       %
Net sales        $   1,229.6       100.0 %   $   1,203.4       100.0 %   $ 26.2      2.2  %
Gross profit           846.0        68.8           830.2        69.0       15.8      1.9
SG&A expenses          484.8        39.4           491.5        40.9       (6.7 )   (1.4 )
Operating income       361.2        29.4           338.7        28.1       22.5      6.6


Coach Net Sales increased 2.2% or $26.2 million to $1.23 billion in the second
quarter of fiscal 2018. Excluding the favorable impact of foreign currency, net
sales increased 1.8% or $21.2 million. Comparable store sales for Coach
increased $33.2 million or 3.2% when comparing to the second quarter of fiscal
2017. Excluding the impact of the Internet, comparable store sales increased
2.2%. In the second quarter of fiscal 2017, comparable store sales for the
bricks and mortar business were favorably impacted by an increase in Internet
orders fulfilled by bricks and mortar locations. The increase in comparable
store sales is primarily due to increases in North America, primarily due to
improved traffic, partially offset by decreases in Asia. Non-comparable store
sales increased by $3.4 million primarily due to new stores in Europe and Asia,
partially offset by store closures in North America. These increases were
partially offset by wholesale which decreased by $9.9 million primarily due to
lower International wholesale sales, excluding the net benefit of the expiration
of the footwear license at the end of fiscal 2017 and bringing this business
in-house.
Coach Gross Profit increased 1.9% or $15.8 million to $846.0 million in the
second quarter of fiscal 2018. Gross margin decreased 20 basis points, inclusive
of a 30 basis points negative impact due to the expiration of the footwear
license, to 68.8% in the second quarter of fiscal 2018 from 69.0% in the second
quarter of fiscal 2017. Gross margin in the second quarter of fiscal 2018 was
not materially impacted by foreign currency.
Coach SG&A Expenses decreased 1.4% or $6.7 million to $484.8 million as compared
to $491.5 million in the second quarter of fiscal 2017. As a percentage of net
sales, SG&A expenses decreased to 39.4% during the second quarter of fiscal 2018
as compared to 40.9% during the second quarter of fiscal 2017. The $6.7 million
decrease is due to lower expenses in Japan and lower global marketing expenses,
partially offset by higher store related costs in Europe due to new store
openings.
Coach Operating Income increased 6.6% or $22.5 million to $361.2 million in the
second quarter of fiscal 2018 reflecting the increase in gross profit of $15.8
million, as well as lower SG&A expenses of $6.7 million. Operating margin
increased 130 basis points to 29.4% in the second quarter of fiscal 2018 from
28.1% during the same period in the prior year.

                                       33
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Kate Spade

                                               Three Months Ended
                      December 30, 2017                 December 31, 2016            Variance
                                                   (millions)
                                      % of                               % of
                     Amount        net sales          Amount           net sales    Amount   %
Net sales        $    434.7           100.0 %       -                     - %           NM   NM
Gross profit          258.0            59.4         -                     -             NM   NM
SG&A expenses         212.7            48.9         -                     -             NM   NM
Operating income       45.3            10.5         -                     -             NM   NM





NM - Not meaningful
Kate Spade Net Sales totaled $434.7 million in the second quarter of fiscal
2018. Comparable store sales for the period declined 7.3% primarily due to the
strategic pullback in Internet flash sales. Excluding the impact of the Internet
business, comparable store sales declined 2.8%.
Kate Spade Gross Profit totaled $258.0 million in the second quarter of fiscal
2018, resulting in a gross margin of 59.4%. Excluding non-GAAP adjustments of
$17.0 million as discussed in the "GAAP to Non-GAAP Reconciliation" herein,
gross profit totaled $275.0 million, resulting in a gross margin of 63.3%.
Kate Spade SG&A Expenses were $212.7 million in the second quarter of fiscal
2018. As a percentage of net sales, SG&A expenses were 48.9% during the second
quarter of fiscal 2018. Excluding non-GAAP adjustments of $29.7 million as
discussed in the "GAAP to Non-GAAP Reconciliation" herein, SG&A expenses were
$183.0 million or 42.1% of sales.
Kate Spade Operating Income totaled $45.3 million in the second quarter of
fiscal 2018, resulting in an operating margin of 10.5%. Excluding non-GAAP
adjustments, Kate Spade operating income totaled $92.0 million, resulting in an
operating margin of 21.2%.
Stuart Weitzman
                                                Three Months Ended
                      December 30, 2017              December 31, 2016              Variance
                                                    (millions)
                                      % of                           % of
                     Amount        net sales        Amount        net sales     Amount       %
Net sales        $    120.7           100.0 %   $    118.3           100.0 %   $  2.4       2.1  %
Gross profit           73.4            60.8           76.0            64.3       (2.6 )    (3.4 )
SG&A expenses          52.1            43.1           64.0            54.1      (11.9 )   (18.6 )
Operating income       21.3            17.6           12.0            10.2        9.3      77.3





NM - Not meaningful
Stuart Weitzman Net Sales increased 2.1% or $2.4 million to $120.7 million in
the second quarter of fiscal 2018, which was not materially impacted by changes
in foreign currency. This increase was primarily due to higher sales in the
retail business of $3.5 million, primarily due to higher comparable store sales
and the impact of net store openings, partially offset by a $1.8 million
decrease in wholesale sales primarily due to timing of shipments.
Stuart Weitzman Gross Profit decreased 3.4% or $2.6 million to $73.4 million
during the second quarter of fiscal 2018. Gross margin decreased 350 basis
points to 60.8% in the second quarter of fiscal 2018 from 64.3% in the second
quarter of fiscal 2017. Excluding non-GAAP adjustments, Stuart Weitzman gross
profit totaled $74.8 million and $76.2 million in the second quarter of fiscal
2018 and fiscal 2017, respectively, resulting in a gross margin of 61.9% and
64.4%, respectively. The year over year change in gross margin was negatively
impacted by foreign currency by 170 basis points, primarily due to the Euro.
Excluding the impact of foreign currency, there was a decrease in gross margin
of 80 basis points primarily due to the impact of promotional activity partially
offset by the impact of product costing, as well as favorable channel mix.

                                       34
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Stuart Weitzman SG&A Expenses decreased 18.6% or $11.9 million to $52.1 million
in the second quarter of fiscal 2018 as compared to $64.0 million in the second
quarter of fiscal 2017. As a percentage of net sales, SG&A expenses decreased to
43.1% during the second quarter of fiscal 2018 as compared to 54.1% during the
second quarter of fiscal 2017. Excluding non-GAAP adjustments of $0.9 million
and $10.0 million in the second quarter of fiscal 2018 and 2017, respectively,
as discussed in the "GAAP to Non-GAAP Reconciliation" herein, SG&A expenses
decreased 5.2% or $2.8 million to $51.2 million during the second quarter of
fiscal 2018; and SG&A expenses as a percentage of net sales decreased, to 42.4%
in the second quarter of fiscal 2018 from 45.6% in the second quarter of fiscal
2017. This decrease is primarily due to lower global marketing costs.
Stuart Weitzman Operating Income increased 77.3% or $9.3 million to $21.3
million in the second quarter of fiscal 2018, resulting in an operating margin
of 17.6%, as compared to $12.0 million and 10.2%, respectively, in fiscal 2017.
Excluding non-GAAP adjustments, Stuart Weitzman operating income increased 6.6%
or $1.4 million to $23.6 million from $22.2 million in the second quarter of
fiscal 2017; and operating margin was 19.6% in the second quarter of fiscal 2018
as compared to 18.8% in the second quarter of fiscal 2017.



                                       35
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FIRST SIX MONTHS FISCAL 2018 COMPARED TO FIRST SIX MONTHS FISCAL 2017
The following table summarizes results of operations for the first six months of
fiscal 2018 compared to the first six months of fiscal 2017. All percentages
shown in the table below and the discussion that follows have been calculated
using unrounded numbers.
                                                     Six Months Ended
                       December 30, 2017            December 31, 2016                 Variance
                                            (millions, except per share data)

                                      % of                         % of
                      Amount       net sales       Amount       net sales       Amount           %
Net sales          $   3,073.9        100.0 %   $   2,359.3        100.0 %   $    714.6         30.3  %
Gross profit           1,941.8         63.2         1,620.9         68.7          320.9         19.8
SG&A expenses          1,617.2         52.6         1,177.6         49.9          439.6         37.3
Operating income         324.6         10.6           443.3         18.8         (118.7 )      (26.8 )
Interest expense,
net                       42.7          1.4            10.8          0.5           31.9           NM
Provision for
income taxes             236.4          7.7           115.4          4.9          121.0           NM
Net income                45.5          1.5           317.1         13.4         (271.6 )      (85.6 )
Net income per
share:
   Basic           $      0.16$      1.13$    (0.97 )      (85.8 )%
   Diluted         $      0.16$      1.13$    (0.97 )      (85.9 )%





NM - Not meaningful
GAAP to Non-GAAP Reconciliation
The Company's reported results are presented in accordance with GAAP. The
reported results during the first six months of fiscal 2018 and fiscal 2017
reflect the impact of the Operational Efficiency Plan and Integration and
Acquisition costs, as well as the impact of the new tax legislation in the first
six months of fiscal 2018, as noted in the following tables. Refer to "Non-GAAP
Measures" herein for further discussion on the Non-GAAP Measures.
First Six Months of Fiscal 2018 Items
                                                                    Six 

Months Ended December 30, 2017

                                                                                                                                   Non-GAAP Basis
                            GAAP Basis                                          Integration &                                        (Excluding
                           (As Reported)      Operational Efficiency Plan        Acquisition         Impact of Tax Legislation         Items)
                                                                     (millions, except per share data)
Gross profit             $       1,941.8     $                 -             $       (106.8 )      $                 -             $     2,048.6
SG&A expenses                    1,617.2                     6.6                      142.1                          -                   1,468.5
Operating income                   324.6                    (6.6 )                   (248.9 )                        -                     580.1
Income before provision
for income taxes                   281.9                    (6.6 )                   (248.9 )                        -                     537.4
Provision for income
taxes                              236.4                    (2.1 )                    (67.2 )                    194.2                     111.5
Net income                          45.5                    (4.5 )                   (181.7 )                   (194.2 )                   425.9
Diluted net income per
share                               0.16                   (0.02 )                    (0.63 )                    (0.68 )                    1.49

In the first six months of fiscal 2018 the Company incurred adjustments as follows: • Operational Efficiency Plan - Total charges of $6.6 million primarily

related to technology infrastructure costs and organizational efficiency

costs. Refer to the "Executive Overview" herein and Note 5, "Restructuring

       Activities," for further information regarding this plan.


•      Integration & Acquisition Costs - Total charges of $248.9 million,

primarily attributable to the integration and acquisition of Kate Spade.

These charges include:

• Limited life purchase accounting adjustments

                                       36
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• Professional Fees

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

• Inventory reserves established primarily for the destruction of inventory

• Organizational costs as a result of integration


Refer to the "Executive Overview" herein and Note 4, "Integration & Acquisition
Costs," for more information.
•      Impact of Tax Legislation - Total charges of $194.2 million primarily

related to the net impact of the transition tax and re-measurement of

deferred tax balances. Refer to the "Executive Overview" herein and Note

14, "Income Taxes," for further information.


These actions taken together increased the Company's provision for income taxes
by $124.9 million, SG&A expenses by $148.7 million and cost of sales by $106.8
million, negatively impacting net income by $380.4 million, or $1.33 per diluted
share.
The following table summarizes the GAAP to Non-GAAP Reconciliation by reportable
segment through operating income for the first six months of fiscal 2018:
                                                         Six Months Ended December 30, 2017
                                                                                                                 Non-GAAP Basis
                       GAAP Basis                            Kate                                                  (Excluding
                      (As Reported)         Coach        Spade(1)(2)      Stuart Weitzman(2)     Corporate(2)        Items)
                                                                     (millions)
COGS
Integration &
Acquisition                                       -           (105.4 )               (1.4 )                -
Gross profit        $       1,941.8     $         -     $     (105.4 )   $           (1.4 )     $          -     $     2,048.6

SG&A
Integration &
Acquisition                                       -             97.5                  1.8               42.8
Operational
Efficiency Plan                                   -                -                    -                6.6
SG&A                $       1,617.2     $         -     $       97.5     $            1.8       $       49.4$     1,468.5

Operating income    $         324.6     $         -     $     (202.9 )   $           (3.2 )     $      (49.4 )$       580.1





(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.



                                       37
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First Six Months of Fiscal 2017 Items

                                                              Six Months Ended December 31, 2016
                                                                                                               Non-GAAP Basis
                                     GAAP Basis                                            Integration &         (Excluding
                                    (As Reported)       Operational Efficiency Plan         Acquisition            Items)
                                                               (millions, except per share data)
Gross profit                     $    1,620.9          $                 -             $          (0.6 )       $     1,621.5
SG&A expenses                         1,177.6                         10.8                        16.4               1,150.4
Operating income                        443.3                        (10.8 )                     (17.0 )               471.1
Income before provision for
income taxes                            432.5                        (10.8 )                     (17.0 )               460.3
Provision for income taxes              115.4                         (2.7 )                      (5.0 )               123.1
Net income                              317.1                         (8.1 )                     (12.0 )               337.2
Diluted net income per share             1.13                        (0.03 )                     (0.04 )                1.20

In the first six months of fiscal 2017, the Company incurred adjustments as follows: • Operational Efficiency Plan - $10.8 million primarily related to

organizational efficiency costs, technology infrastructure costs and, to a

lesser extent, network optimization costs.

• Integration & Acquisition Costs - $17.0 million total charges related to

the acquisition of Stuart Weitzman Holdings LLC, of which $16.2 million is

       primarily related to charges attributable to integration-related
       activities and contingent payments and $0.8 million is related to the
       limited life impact of purchase accounting, primarily due to the
       amortization of the inventory step-up and distributor relationships.


These actions taken together increased the Company's SG&A expenses by $27.2
million and cost of sales by $0.6 million, negatively impacting net income by
$20.1 million, or $0.07 per diluted share.
The following table summarizes the GAAP to Non-GAAP Reconciliation by reportable
segment through operating income for the first six months of fiscal 2017:
                                                         Six Months Ended 

December 31, 2016

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

Stuart Weitzman(1) Corporate(1) Items)

                                                                     (millions)
COGS
Integration &
Acquisition                                      -                  -                  (0.6 )                -
Gross profit       $       1,620.9     $         -     $            -     $            (0.6 )     $          -     $     1,621.5

SG&A
Integration &
Acquisition                                      -                  -                  11.0                5.4
Operational
Efficiency Plan                                  -                  -                     -               10.8
SG&A               $       1,177.6     $         -     $            -     $            11.0       $       16.2$     1,150.4

Operating income   $         443.3     $         -     $            -     $           (11.6 )     $      (16.2 )$       471.1





(1)  Refer to Note 4, "Integration and Acquisition Costs," and Note 5,
     "Restructuring Activities," for further information.







                                       38
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Tapestry, Inc. Summary - First Six Months of Fiscal 2018
Currency Fluctuation Effects
The change in net sales for the first six months of fiscal 2018 compared to
fiscal 2017 has been presented both including and excluding currency fluctuation
effects.
Net Sales
Net sales in the first six months of fiscal 2018 increased 30.3% or $714.6
million to $3.07 billion, primarily due to the Kate Spade acquisition and due to
increased revenues from Stuart Weitzman. Excluding the effects of foreign
currency, net sales increased by 30.5% or $719.0 million.
Gross Profit
Gross profit increased 19.8% to $1.94 billion during the first six months of
fiscal 2018 from $1.62 billion in the first six months of fiscal 2017. Gross
margin for the first six months of fiscal 2018 was 63.2% as compared to 68.7% in
the first six months of fiscal 2017. Excluding Non-GAAP charges of $106.8
million and $0.6 million in the first six months of fiscal 2018 and 2017,
respectively, gross profit increased 26.3% or $427.1 million to $2.05 billion
from $1.62 billion in the first six months of fiscal 2017. The increase in gross
profit is primarily driven by the acquisition of Kate Spade of $439.7 million,
partially offset by decreases in Coach of $15.7 million.
Selling, General and Administrative Expenses
SG&A expenses increased 37.3% or $439.6 million to $1.62 billion in the first
six months of fiscal 2018 as compared to $1.18 billion in the first six months
of fiscal 2017. As a percentage of net sales, SG&A expenses increased to 52.6%
during the first six months of fiscal 2018 as compared to 49.9% during the first
six months of fiscal 2017. Excluding non-GAAP adjustments of $148.7 million and
$27.2 million in the first six months of fiscal 2018 and 2017, respectively,
SG&A expenses increased $318.1 million from the first six months of fiscal 2017;
and SG&A expenses as a percentage of net sales decreased to 47.8% in the first
six months of fiscal 2018 from 48.8% in the first six months of fiscal 2017. The
increase is primarily due to the acquisition of Kate Spade of $326.4 million,
partially offset by decreases in Coach of $4.2 million.
Corporate expenses, which are included within SG&A expenses discussed above but
are not directly attributable to a reportable segment, increased 21.9% or $31.4
million to $175.0 million in the first six months of fiscal 2018. Excluding
non-GAAP adjustments of $49.4 million and $16.2 million in the first six months
of fiscal 2018 and 2017, respectively, as discussed in the "GAAP to Non-GAAP
Reconciliation" herein, SG&A expenses remained fairly consistent with a slight
decrease of $1.8 million in the first six months of fiscal 2018 as compared to
the first six months of fiscal 2017.
Operating Income
Operating income decreased $118.7 million to $324.6 million in the first six
months of fiscal 2018 as compared to $443.3 million in the first six months of
fiscal 2017. Operating margin was 10.6% in the first six months of fiscal 2018
as compared to 18.8% in the first six months of fiscal 2017. Excluding non-GAAP
adjustments of $255.5 million in the first six months of fiscal 2018 and $27.8
million in the first six months of fiscal 2017, as discussed in the "GAAP to
Non-GAAP Reconciliation" herein, operating income increased 23.2% or $109.0
million to $580.1 million from $471.1 million in the first six months of fiscal
2017; and operating margin was 18.9% in the first six months of fiscal 2018 as
compared to 20.0% in the first six months of fiscal 2017. The increase in
operating income is primarily driven by the acquisition of Kate Spade of $113.3
million, partially offset by decreases in Coach of $11.5 million.
Interest Expense, net
Interest expense, net totaled $42.7 million in the first six months of fiscal
2018 as compared to $10.8 million in the first six months of fiscal 2017 due to
the debt borrowings that occurred to finance the Kate Spade acquisition.
Provision for Income Taxes
The effective tax rate was 83.8% in the first six months of fiscal 2018 as
compared to 26.7% in the first six months of fiscal 2017. Excluding non-GAAP
adjustments, the effective tax rate was 20.7% in the first six months of fiscal
2018 as compared to 26.7% in the first six months of fiscal 2017. The decrease
in our effective tax rate was primarily attributable to the Tax Legislation
which lowered the U.S federal statutory income tax and to a lesser extent the
adoption of ASU No. 2016-09.
Net Income
Net income decreased $271.6 million to $45.5 million in the first six months of
fiscal 2018 as compared to $317.1 million in the first six months of fiscal
2017. Excluding non-GAAP adjustments, net income increased 26.4% or $88.7
million to $425.9 million in the first six months of fiscal 2018. This increase
was primarily due to higher operating income, as well as a decrease in the
provision for income taxes.

                                       39
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Net Income per Share
Net income per diluted share decreased 85.9% to $0.16 in the first six months of
fiscal 2018 as compared to $1.13 in the first six months of fiscal 2017.
Excluding non-GAAP adjustments, net income per diluted share increased 24.4% to
$1.49 in the first six months of fiscal 2018 from $1.20 in the first six months
of fiscal 2017, primarily due to higher net income.
Segment Performance - First Six Months of Fiscal 2018
The following tables summarize results of operations by reportable segment for
the first six months of fiscal 2018 compared to the first six months of fiscal
2017. All percentages shown in the table below and the discussion that follows
have been calculated using unrounded numbers.
Coach
                                              Six Months Ended
                     December 30, 2017           December 31, 2016            Variance
                                                 (millions)
                                   % of                        % of
                    Amount      net sales       Amount      net sales     Amount       %
Net sales        $   2,153.3       100.0 %   $   2,153.5       100.0 %   $ (0.2 )      -  %
Gross profit         1,478.1        68.6         1,493.8        69.4      (15.7 )   (1.1 )
SG&A expenses          918.6        42.7           922.8        42.9       (4.2 )   (0.5 )
Operating income       559.5        26.0           571.0        26.5      (11.5 )   (2.0 )


Coach Net Sales remained flat at $2.15 billion in the first six months of fiscal
2018. Excluding the unfavorable impact of foreign currency, net sales increased
0.2% or $4.3 million. Comparable store sales for Coach increased $14.2 million
or 0.8% when comparing to the first six months of fiscal 2017. Excluding the
impact of the Internet, comparable store sales decreased 0.2%. The increase in
comparable store sales is primarily due to increases in North America and Japan
primarily due to improved traffic, partially offset by declines in Asia.
Non-comparable stores increased by $14.9 million, primarily driven by new stores
in Greater China, Europe and Asia partially offset by store closures in North
America. These increases were partially offset by a decrease in wholesale of
$18.5 million, primarily due to lower International wholesale sales, excluding
the net benefit of the expiration of the footwear license at the end of fiscal
2017 and bringing this business in-house.
Coach Gross Profit decreased 1.1% or $15.7 million to $1.5 billion in the first
six months of fiscal 2018. Gross margin decreased 80 basis points, inclusive of
a 30 basis points negative impact due to the expiration of the footwear license,
to 68.6% in the first six months of fiscal 2018 from 69.4% in the first six
months of fiscal 2017. Gross margin in the first six months of fiscal 2018 was
negatively impacted by foreign currency by approximately 40 basis points.
Excluding the impact of foreign currency in both periods, gross margin decreased
60 basis points. The decrease in gross margin was primarily due to promotional
activity, partially offset by favorable average unit cost and product mix.
Coach SG&A Expenses decreased 0.5% or $4.2 million to $918.6 million as compared
to $922.8 million in the first six months of fiscal 2017. As a percentage of net
sales, SG&A expenses decreased to 42.7% during the first six months of fiscal
2018 as compared to 42.9% during the first six months of fiscal 2017. The $4.2
million decrease is primarily due to lower costs in Coach Japan as well as lower
global marketing expenses, partially offset by higher store-related costs in
Europe associated with new store openings.
Coach Operating Income decreased 2.0% or $11.5 million to $559.5 million in the
first six months of fiscal 2018 reflecting the decrease in gross profit of $15.7
million, partially offset by lower SG&A expenses of $4.2 million. Operating
margin decreased 50 basis points to 26.0% in the first six months of fiscal 2018
from 26.5% during the same period in the prior year.

                                       40
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Kate Spade

                                               Six Months Ended
                  December 30, 2017(1)                December 31, 2016              Variance
                                                  (millions)
                                   % of                                  % of
                  Amount        net sales            Amount            net sales    Amount   %
Net sales      $    703.5         100.0  %   $       -                    - %           NM   NM
Gross profit        334.3          47.5              -                    -             NM   NM
SG&A expenses       423.9          60.2              -                    -             NM   NM
Operating loss      (89.6 )       (12.7 )            -                    -             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 $703.5 million in the first six months of fiscal
2018. Comparable store sales for the period declined 6.9% primarily due to the
strategic pullback in Internet flash sales. Excluding the impact of the Internet
business, comparable store sales declined 2.4%.
Kate Spade Gross Profit totaled $334.3 million in the first six months of fiscal
2018, resulting in a gross margin of 47.5%. Excluding non-GAAP adjustments of
$105.4 million as discussed in the "GAAP to Non-GAAP Reconciliation" herein,
gross profit totaled $439.7 million, resulting in a gross margin of 62.5%.
Kate Spade SG&A Expenses were $423.9 million in the first six months of fiscal
2018. As a percentage of net sales, SG&A expenses were 60.2% during the first
six months of fiscal 2018. Excluding non-GAAP adjustments of $97.5 million as
discussed in the "GAAP to Non-GAAP Reconciliation" herein, SG&A expenses were
$326.4 million.
Kate Spade Operating Loss totaled $89.6 million in the first six months of
fiscal 2018, resulting in an operating margin of (12.7)%. Excluding non-GAAP
adjustments, Kate Spade operating income totaled $113.3 million, resulting in an
operating margin of 16.1%.
Stuart Weitzman
                                                 Six Months Ended
                      December 30, 2017              December 31, 2016              Variance
                                                    (millions)
                                      % of                           % of
                     Amount        net sales        Amount        net sales     Amount       %
Net sales        $    217.1           100.0 %   $    205.8           100.0 %   $ 11.3       5.5  %
Gross profit          129.4            59.6          127.1            61.8        2.3       1.8
SG&A expenses          99.7            45.9          111.2            54.0      (11.5 )   (10.4 )
Operating income       29.7            13.7           15.9             7.7       13.8      87.1





NM - Not meaningful
Stuart Weitzman Net Sales increased 5.5% or $11.3 million to $217.1 million in
the first six months of fiscal 2018, which was not materially impacted by
changes in foreign currency. This increase is primarily due to a $6.0 million
increase in wholesale sales primarily due to timing of shipments, as well as
higher sales in the retail business of $4.8 million primarily due to the impact
of net store openings.
Stuart Weitzman Gross Profit increased 1.8% or $2.3 million to $129.4 million
during the first six months of fiscal 2018. Gross margin decreased 220 basis
points to 59.6% in the first six months of fiscal 2018 from 61.8% in the first
six months of fiscal 2017. Excluding non-GAAP adjustments, Stuart Weitzman gross
profit totaled $130.8 million and $127.7 million in the first six months of
fiscal 2018 and fiscal 2017, respectively, resulting in a gross margin of 60.2%
and 62.0%, respectively. The year over year change in gross margin was
negatively impacted by foreign currency rates by 120 basis points, primarily due
to the Euro.

                                       41
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Excluding the impact of foreign currency, there was a decrease in gross margin
of 60 basis points primarily due to the impact of promotional activity partially
offset by the impact of product costing.
Stuart Weitzman SG&A Expenses decreased 10.4% or $11.5 million to $99.7 million
in the first six months of fiscal 2018 as compared to $111.2 million in the
first six months of fiscal 2017. As a percentage of net sales, SG&A expenses
decreased to 45.9% during the first six months of fiscal 2018 as compared to
54.0% during the first six months of fiscal 2017. Excluding non-GAAP adjustments
of $1.8 million and $11.0 million in the first six months of fiscal 2018 and
2017, respectively, as discussed in the "GAAP to Non-GAAP Reconciliation"
herein, SG&A expenses decreased 2.3% or $2.3 million to $97.9 million in the
first six months of fiscal 2018; and SG&A expenses as a percentage of net sales
decreased, to 45.1% in the first six months of fiscal 2018 from 48.7% in the
first six months of fiscal 2017. This decrease is primarily due to lower global
marketing costs.
Stuart Weitzman Operating Income increased 87.1% or $13.8 million to $29.7
million in the first six months of fiscal 2018, resulting in an operating margin
of 13.7%, as compared to $15.9 million and 7.7%, respectively in fiscal 2017.
Excluding non-GAAP adjustments, Stuart Weitzman operating income increased 19.8%
or $5.4 million to $32.9 million from $27.5 million in the first six months of
fiscal 2017; and operating margin was 15.1% in the first six months of fiscal
2018 as compared to 13.3% in the first six months of fiscal 2017.

                                       42
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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 second quarter and first
six months of fiscal 2018 and fiscal 2017 reflect certain items, including the
impact of the Integration and Acquisition for Tapestry, the Operational
Efficiency Plan and the impact of the new tax legislation in the second quarter
of fiscal 2018. 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."


                                       43
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LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
                                                                 Six Months Ended
                                                   December 30,     December 31,
                                                       2017             2016           Change
                                                                    (millions)

Net cash provided by operating activities         $      431.0$      328.1$    102.9
Net cash (used in) provided by investing
activities                                            (1,988.5 )          599.8       (2,588.3 )
Net cash provided by (used in) financing
activities                                               940.0           (467.0 )      1,407.0
Effect of exchange rate changes on cash and
cash equivalents                                           9.6            (10.2 )         19.8
Net (decrease) increase in cash and cash
equivalents                                       $     (607.9 )   $      

450.7 $ (1,058.6 )


The Company's cash and cash equivalents decreased by $607.9 million in the first
six months of fiscal 2018 as compared to an increase of $450.7 million in the
first six months of fiscal 2017, as discussed below.
Net cash provided by operating activities
Net cash provided by operating activities increased $102.9 million due changes
in operating assets and liabilities of $357.7 million and higher non-cash
charges of $16.8 million, partially offset by lower net income of $271.6
million.
The $357.7 million increase in changes in operating asset and liability balances
was primarily driven by changes in other liabilities, accrued liabilities,
accounts receivable, other assets and inventories, partially offset by changes
in accounts payable. Other liabilities were a source of cash of $233.4 million
in the first six months of fiscal 2018 compared to a source of cash of $3.0
million in the first six months of fiscal 2017, primarily related to an increase
in the Company's long-term income tax payable as a result of the Transition Tax.
Accrued liabilities were a source of cash of $4.9 million in the first six
months of fiscal 2018 as compared to a use of cash of $49.3 million in the first
six months of fiscal 2017, primarily driven by the timing of interest payments.
Accounts receivable was a source of cash of $14.0 million in the first six
months of fiscal 2018 as compared to a use of cash of $35.1 million in the first
six months of fiscal 2017, primarily driven by a smaller build in receivables
compared to prior year due to lower Coach wholesale sales and lower licensing
royalties as a result of bringing the footwear business in-house. Other assets
were a source of cash of $28.4 million in the first six months of fiscal 2018 as
compared to a use of cash of $20.6 million in the first six months of fiscal
2017, primarily driven by timing of income tax payments. Inventories were a
source of cash of $12.5 million in the first six months of fiscal 2018 as
compared to a use of cash of $26.9 million in the first six months of fiscal
2017, primarily driven by Kate Spade inventory balances as a result of
seasonality. Accounts payable was a use of cash of $92.0 million in the first
six months of fiscal 2018 as compared to a use of cash of $27.6 million in the
first six months of fiscal 2017, primarily driven by the timing of Kate Spade
inventory payments.
Net cash (used in) provided by investing activities
Net cash used in investing activities in the first six months of fiscal 2018 was
$1.99 billion as compared to a source of cash of $599.8 million in the first six
months of fiscal 2017. The $2.59 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 six months 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 and the sale of our prior headquarters of $126.0 million in the
first six months of fiscal 2017. This was partially offset by the impact of net
cash proceeds from maturities and sales of investments of $458.2 million in the
first six months of fiscal 2018, compared to net purchases of investments of
$80.9 million in the first six months of fiscal 2017.
Net cash provided by (used in) financing activities
Net cash provided by financing activities was $940.0 million in the first six
months of fiscal 2018 as compared to a use of cash of $467.0 million in the
first six months of fiscal 2017. The $1.41 billion increase was primarily due to
the proceeds from the issuance of debt of $1.10 billion during the first six
months of fiscal 2018 as well as the repayment of long-term debt of $285.0
million during the first six months of fiscal 2017.

                                       44
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Working Capital and Capital Expenditures As of December 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)                $     2,065.0     $             -     $        2,065.0
Short-term investments(1)                            26.8                   -                 26.8
Long-term investments                                27.3                   -                 27.3
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                                       $     5,719.1$       2,700.0$        3,019.1





(1)  As of December 30, 2017, approximately 65% of our cash and short-term
     investments were held outside the U.S. in jurisdictions. Prior to the
     reporting period in which the Tax Legislation was enacted, the Company did
     not recognize a deferred tax liability related to unremitted foreign

earnings because it overcame the presumption of the repatriation of foreign

earnings. As a result of the enactment of the Tax Legislation, the Company

has recorded a provisional Transition Tax related to all post-1986 earnings

of its non-U.S. subsidiaries. The Company is still evaluating whether those

earnings will be repatriated to the U.S. and if there are any additional tax

     consequences resulting from the repatriation. Due to the complexity
     surrounding the application of new Tax Legislation, the Company will
     continue to evaluate outside basis differences and any related impact.

(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 $1.10 billion. On January 10, 2018, the Company

repaid the $800.0 million Six-Month Term Loan, in accordance with the terms

of the agreement. On January 24, 2018, the Company repaid the $300.0 million

Three-Year Term Loan, earlier than the terms in the agreement. Refer to Note

18, "Subsequent Events." The Revolving Credit Facility under the Facility

will continue to remain in effect.

(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 December 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

                                       45
--------------------------------------------------------------------------------


"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 December 30, 2017,
no known events of default have occurred. Refer to Note 11, "Debt," for further
information on our existing debt instruments.
We believe that our Revolving Credit Facility and Term Loans are adequately
diversified with no undue concentrations in any one financial institution. As of
December 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 and other
filings with the SEC 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 December 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 December 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

                                       46
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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 and six-month periods ended
December 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.

                                       47

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