The logo of U.S. fashion brand Coach is seen in New York on Nov. 19, 2024.
Charly Triballeau | AFP | Getty Images
Shares of Coach parent Tapestry shot up about 12% on Thursday after the company beat holiday-quarter sales expectations and boosted its full-year forecast.
The fashion and accessories company said it now expects full-year revenue of over $6.85 billion, which would be about 3% higher than the prior year. It expects earnings per share of $4.85 to $4.90. It had previously forecasted full-year revenue of over $6.75 billion and full-year earnings per share of between $4.50 and $4.55.
Tapestry’s strong results come less than two months after it called off a merger with Capri, after planning to appeal the blocked deal. The agreement, which companies had fought for in court, would have married America’s two largest luxury houses and put six fashion brands under one company: Tapestry’s Coach, Kate Spade and Stuart Weitzman with Capri’s Versace, Jimmy Choo and Michael Kors.
Tapestry’s results are also in sharp contrast to Capri’s. In Capri’s holiday quarter, which the company reported on Wednesday, sales of Versace and Michael Kors tumbled by double digits. CEO John Idol took some of the blame, saying that the company had made missteps — including cutting lower-priced accessories that helped bring in newer customers.
In a CNBC interview on Thursday, Tapestry CEO Joanne Crevoiserat said consumers are still selective about spending, but Coach has won their business by delivering “innovation, relevance and value.”
“That’s what our brand building principles are focused on,” she said. “We have confidence that these brand-building principles and our ability to connect with consumers, regardless of the environment, remains strong.”
Here is what Tapestry reported for the fiscal second quarter that ended Dec. 28 compared with Wall Street’s estimates, according to a survey of analysts by LSEG:
- Earnings per share: $2.00 adjusted vs. $1.75 expected
- Revenue: $2.20 billion vs. $2.11 billion expected
Coach remained the company’s top performer in the holiday quarter, with revenue up 11% year over year. Kate Spade and Stuart Weitzman put up weaker results, with revenue declines of 10% and 15%, respectively.
On the company’s earnings call on Thursday, Tapestry CFO Scott Roe said the company’s full-year guidance includes the impact an additional 10% tariff on goods imported from China into the U.S. beginning Feb. 4. He said that is not expected to have a material effect on the company’s results, since it has very limited manufacturing in China.
Tapestry does not have any production in Canada or Mexico, he said. Roe had said on Tapestry’s early November earnings call that less than 10% of the company’s sourcing comes from China.
Growing on its own
Tapestry is looking inside of the company to drive growth. In a CNBC interview, Crevoiserat said that Tapestry will hold off on mergers and acquisitions until it makes sure Coach’s can maintain growth and Kate Spade returns to sustainable growth, too.
“It’s hard to put a timeline on it, but not in the near term,” she said of when the company would consider another deal.
Tapestry plans to rev up popular styles at Coach, invest in Kate Spade’s turnaround efforts and focus on customer acquisition in underpenetrated markets, such as Europe and China.
Tapestry’s largest market is North America, with nearly 70% of its quarterly sales coming from the region in the holiday quarter. Yet Europe stood out with its gains in the holiday quarter. Revenue in the quarter rose 45% in Europe, 3% in Greater China, and 4% in North America compared with the year-ago period. Sales in Japan, on the other hand, declined by 5% year over year in the quarter.
Crevoiserat said on the company’s earnings call Tapestry’s “runway for growth is significant” in Europe, since it has lower sales and fewer customers there.
New and younger shoppers have also lifted Tapestry’s sales. Crevoiserat said on the company’s earnings call that Tapestry attracted about 2.7 million new customers in North America in the quarter and over half of those customers were Gen Z and millennials, she said.
One of the company’s best sellers in the quarter, particularly with newer and younger shoppers, was the Tabby, a shoulder bag that Coach had made in different colors and materials, she said. Its newer New York collection of bags has proven popular, too — including the Brooklyn, a shoulder bag that sells for $295, and the Soft Empire Carryall Bag 40, which sells for $695.
Tapestry has ramped up its focus on Kate Spade, a brand that it’s trying to revive. Eva Erdmann, previously global president of L’Oréal’s Urban Decay Cosmetics, started as Kate Spade’s new CEO in October.
On the earnings call, Crevoiserat said Tapestry will slash the number of Kate Spade’s handbag styles by more than 15% this fall and “work to build blockbuster handbag families.” She said it’s also focused on using new, compelling items, not discounts, to drive Kate Spade’s sales.
“Decreasing our level of promotional activity will be a key building block of solidifying our brand and positioning it to scale in a healthy way globally over the long term,” she said.
