Updated May 8 4:32 p.m. ET
Tapestry Inc. — having turned the page after its Capri Holdings acquisition fell through — isn’t letting any trade war or economic worries trip it up now.
The Coach and Kate Spade parent beat fiscal third-quarter earnings and sales estimates and raised its outlook for the rest of its year, which ends in two months.
Investors liked what they saw and sent shares of the company up 3.7 percent to $77.54 on Thursday.
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“This is a team that has had a bias for action, and you can see that in our results,” said Joanne Crevoiserat, chief executive officer of Tapestry, in an interview. “We delivered a record-breaking quarter. We accelerated our growth on top and bottom line, led by Coach, which helped us raise our outlook for the year in an environment that is very dynamic.”
Tapestry’s third-quarter net income increased 45.8 percent to $203.3 million, or 95 cents a share, from $139.4 million, or 60 cents, a year earlier.
Adjusted earnings per share tallied $1.03 — 15 cents ahead of the 88 cents analysts forecast, according to Yahoo Finance.
Sales for the quarter ended March 29 grew by 7 percent to $1.58 billion, better than the $1.53 billion analysts projected.
Coach drove that gain, rising 13 percent to $1.29 billion, while Kate Spade fell 13 percent to $244.9 million and the soon-to-be divested Stuart Weitzman sank 18 percent to $46.2 million.
Crevoiserat zeroed in on the company’s ability to bring in fresh faces and pointed to the more than 1.2 million new customers it attracted in North America during the quarter.
Two-thirds of those shoppers were Gen Zers and Millennials.
“We’ve been very intentional about what I will just characterize as brand building, and everything we do starts with who our target customer is,” she said.
Since before the pandemic, Tapestry has gone from devoting 3 to 4 percent of its sales to marketing, to spending more than 10 percent. At the same time, operating margins have expanded by 400 basis points. “So the business model itself has gotten much more efficient,” she said.
It’s only becoming harder to run an international fashion business efficiently in the midst of a trade war. But Scott Roe, chief operating and chief financial officer, said the company is in a pretty good spot.
China, which has been hit with 145 percent tariffs by U.S. President Donald Trump, accounts for less than 10 percent of production. Vietnam, Cambodia and the Philippines — which are currently subject to a 10 percent tariff — account for about 70 percent of goods.
To work around that, Roe said, “We’re bringing goods in earlier, we’re looking at optimizing across the supply chain and looking to partner with our suppliers where we have scale and we have long standing strategic relationships.”
About $900 million of Tapestry’s annual cost of good sold is related to U.S. imports, according to Roe. Going forward that puts the incremental tariff cost from those three countries excluding China at something like $90 million, before the company’s tariff mitigation efforts.
“We’ve made real progress,” Roe said. “We stand ready, we’ve prepared for this moment, we’ve taken actions over the last five years really through the acceleration program to prepare for this moment. So our supply chain is agile and becoming more agile. Our entire business model is more variable in nature.”
Tapestry now expects sales to increase 4 percent to about $6.95 billion, better than the 3 percent step up the company previously forecast. Adjusted earnings per share are slated to hit $5 this fiscal year, up from the $4.85 to $4.90 projected earlier.
That’s something of an earnings milestone as the company set a $5 EPS target at its analyst day three years ago.
“There are a lot of things that have happened in the environment that have been challenging, that have changed,” Crevoiserat said. “This is a team that has delivered and has been agile and has been taking action to make sure that we continue to deliver for our consumers and that we hit the commitments we made.
“We’re controlling what we can control, but I think it shows the durability and resilience of our business and we have fundamental strengths in our business,” she said.