Tapestry executives, speaking to analysts on Thursday, said they will close stores after a review of its global footprint and in some cases negotiations with landlords, and will slash its corporate workforce costs by 20% — part of aggressive expense containment that could yield $200 million in savings in its next fiscal year.
The company also said that fourth quarter revenue fell to $715 million from $1.51 billion in the same quarter a year ago. Gross profit in the quarter reached $499 million, from $999 million last year, as gross margin expanded to 69.8% from 66% a year ago. Inventory was $737 million at the end of quarter, compared to ending inventory of $778 million last year, according to a company press release.
The apparel conglomerate swung to a year-over-year operating loss of about $280 million from operating income of $171 million, contracting to a negative 39.2% operating margin from a positive 11.3% operating margin. Net loss for the quarter was $294 million, compared to $149 million in net income last year.
Analysts cut Tapestry some slack in the quarter, as results beat their expectations as well as the company's own. But with the sudden departure last month of CEO Jide Zeitlin and a pandemic continuing to pressure results, the executives sought to assure them during a conference call that they're speeding up its turnaround and "controlling the controllables."
That entails "aggressive control" of expenses, which includes structural changes like the workforce reduction, the store closures and a streamlining of its supply chain across brands. When questioned about the viability of running three brands as a conglomerate, Interim CEO Joanne Crevoiserat said on a Thursday conference call that the model serves as a competitive advantage and provides opportunities for efficiencies.
When it comes to its physical presence, Tapestry "is reevaluating the role of stores," Crevoiserat said. The company is not just going to work to boost digital sales, but is also raising the profitability threshold that its stores must clear in order to justify their operation, she added.
At Coach, if discussions with landlords don't lead to more favorable terms, stores are destined to close, according to interim brand chief Todd Kahn, who last month took over Zeitlin's work leading that brand. "Stores are commercial ventures," Kahn told analysts. "They are not marketing experiences."
The company's leaders are under a spotlight. Zeitlin himself was quick to explain the reason for his exit, and that eased some concern, but some analysts remain jittery about the high turnover in the company's c-suite.
"Due to the personal reasons given for the departure, we don't think there are any deeper financial/operational issues (beyond the obvious challenges during COVID-19)," Credit Suisse analyst Michael Binetti said in emailed comments. "But Zeitlin's resignation extended a series of executive turnover (with the second CEO departure in two years, and the Coach brand president seat already vacant as of March) during an extremely volatile time for the company as it navigates the COVID-19 lockdown measures and the massive disruption in the wholesale channel with major retailers planning on closing stores."