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Tapestry Q3 profit tops estimates; announces $1 billion buyback program

Tapestry, parent of Coach and Kate Spade, announced its biggest buyback plan in nearly seven years amid third-quarter earnings that beat the Street.

The company plans to buy back $1 billion in stock in a move that it said demonstrates its confidence in driving long-term, sustainable growth and value.

“Through this program we will optimize our capital deployment and enhance shareholder return, while maintaining our financial and strategic flexibility,” said Tapestry CEO Victor Luis. “Importantly, we remain committed to our longstanding capital allocation priorities supported by our strong balance sheet and free cash flow: investing in our brands and business, pursuing strategic acquisitions on an opportunistic basis and maintaining our dividend.”

Tapestry’s net income fell to $117.4 million, or 40 cents a share, for the quarter ended March 30, down from $140.3 million, or 48 cents a share in the year-ago period. Adjusted earnings came in at 42 cents, just beating analysts’ estimates of 41 cents.

Net sales inched up 1% to $1.33 billion, just missing Street estimates of $1.34 billion. By brand, Coach’s net sales fell 0.4% to $965 million, missing estimates; same-store sales increased 1%, more than expected. Kate Spade’s net sales rose 4.5% to $281 million, also below expectations; same-store sales fell 3%, beating expectations of a 3.8% drop. Stuart Weitzman net sales rose to $85.3 million from $83.8 million.

Kate Spade sales have been challenged in recent years by a lack of fresh designs and heavy discounting. Michael Kors veteran Nicola Glass came on board as creative director of Kate Spade and her designs have resonated with shoppers, according to Luis.

“We are pleased with our third quarter performance, highlighted by increases in sales and gross margin on a constant currency basis in each of our three brands,” said Tapestry CEO Victor Luis. “Most notably, we again drove positive comps at Coach and generated a significant sequential comp improvement at Kate Spade with Nicola Glass’s [creative director of the brand] new collection resonating with consumers globally.’

Luis was confident about Tapestry’s future performance. The company expects full-year per-share earnings in the range of $2.55 to $2.60, reflecting $100 million to $115 million in cost-saving benefits resulting from its Kate Spade acquisition. The consensus estimate of analysts polled by FactSet is currently $2.58 a share.

“As we look ahead, we are committed to executing our strategic plan and achieving our near-term and long-range financial targets,” Luis said. “This includes our expectation of delivering positive comps at both Coach and Kate Spade along with profitability improvements at Stuart Weitzman, both in the fourth fiscal quarter and in the years ahead. We are confident in the clarity of our vision, the strength of our team and the benefits of our global, multibrand platform.”
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