Tapestry Inc. continues to make gains in the post-pandemic fashion landscape.
The fashion group — parent to the Coach, Kate Spade and Stuart Weitzman brands — reported quarterly earnings Thursday before the market opened, improving on the top and bottom lines thanks to strength in North America, China and online. The company raised its full-year guidance as a result, causing shares to close up 8.38 percent to $46.18 apiece Thursday.
“We delivered another quarter of solid performance, reflecting strong customer engagement and increased demand for our brands,” Joanne Crevoiserat, chief executive officer of Tapestry, said in a statement. “Importantly, revenue trends accelerated compared to pre-pandemic levels driven by North America, as well as continued growth in digital and China — two key drivers of long-term opportunity. Tapestry’s standout results highlight our teams’ extraordinary execution and the foundational changes we’ve made to transform into a more consumer-centric, data-driven and responsive organization through the pillars of our Acceleration Program.
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“Overall, this performance reaffirms our conviction in our ability to fuel continued revenue and profit gains,” she continued. “While supply chain challenges persist due to the global pandemic, we’re remaining agile and taking deliberate actions to meet growing consumer demand. The incremental share repurchase program announced today further underscores our confidence in the strength of our brands and our ability to drive sustainable growth. Taken together, we are increasing our revenue and [earnings-per-share] outlook for the fiscal year, reflecting our first-quarter performance and strong underlying business trends. We remain sharply focused on accelerating growth and profitability and are committed to creating value for all stakeholders.”
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For the three-month period ending Oct. 2, Tapestry’s total revenues increased 26 percent to $1.48 billion, up from $1.17 billion the same time last year.
At Coach, the company’s largest brand, total sales were more than $1.1 billion for the quarter, up from $875 million the same time last year. Kate Spade had $299 million in sales, compared with $240 million last year, while Stuart Weitzman registered $66.5 million in revenues, compared with $56.4 million in revenues during last year’s first quarter.
Tapestry’s sales in North America grew more than 40 percent during the quarter, compared with a year earlier. In mainland China, revenues increased 25 percent during the same time period.
“We’re encouraged by the recovery that we’re seeing,” Crevoiserat told WWD. “Our strength has been driven by strength in North America, which continues to be our strongest performance, as well as China. We did see and experience pockets of COVID-19-related disruption, but still delivered growth.
“Our brands target the middle class consumer in the market,” she added. “So we are well positioned and feel that we have tremendous runway ahead in China. But it’s nice to see things reopening in Japan and reopening across Europe as well, starting to see recovery in those markets that still have a little way to go before they’re back to what I would call a more normalized level.”
The firm also had continued strength in its digital channels, with revenue growth of nearly 50 percent, compared to the same time last year, and up 275 percent compared with pre-pandemic levels.
Tapestry logged nearly $227 million in profits as a result, compared with about $232 million a year earlier.
Crevoiserat credited much of the growth to higher AURs, or higher average selling prices, and fewer promotions throughout the quarter.
“Across all of our categories, we see the opportunity to take price [up],” the CEO told analysts on Thursday morning’s conference call. “And we, as brands in the portfolio, are gaining pricing power. We’re understanding what our consumers are looking for and expecting from our brands. And we’re getting better and better at leveraging that data to tailor our assortments appropriately, tailor our messaging and evaluate pricing across.”
Todd Kahn, Coach chief executive officer and brand president, added: “One of the things we’ve done differently now is, when we design a bag, we actually think about the market where that bag will do the best and we price accordingly. So in the past, we might have priced at the lowest common denominator. Now we price at the highest common denominator.”
Other tailwinds included Stuart Weitzman’s North American wholesale business, which grew in the high teens during the quarter, and Coach’s handbag and men’s wear businesses, both of which gained share in the most recent quarter.
In the men’s wear business, Coach has previously set its sights on reaching the $1 billion annual revenue mark in men’s wear, which represents approximately 18 percent of the total Coach brand, over the next three years.
“I’m optimistic that we’ll get there as quickly as possible,” Kahn told WWD. “We’re really happy with our men’s business. Some of our highest AURs are in our men’s, or what we would sometimes refer to as all-gender product.”
Tapestry increased its full fiscal 2022 outlook as a result. The retailer now expects total company revenues for the full year to be about $6.6 billion, up from the previous outlook of $6.4 billion, and earnings-per-diluted share in the range of $3.45 and $3.50 a share, up from its prior guidance between $3.30 and $3.35 a share.
Still, the company isn’t immune to challenges either. Headwinds include labor shortages and continued pressures on the supply chain, such as rising freight costs and delays in reopening production facilities in Vietnam.
“We’ve seen elevated input costs; that’s not really a new dynamic for us,” Scott Roe, Tapestry’s chief financial officer, said on the call. “The result of that is the exceptional air freight that we have used to bridge that gap and meet this really strong consumer demand that we see. That’s starting to moderate as you get into the back half of the year. [But] you’re going to see elevated air freight in the second quarter and third quarter. Historically, we’ve seen about a 90-10 split, ocean [freight] versus air freight — or expedited freight. And obviously, we’re at an elevated level at this point.
“But remember, in the second half, we start to see the increase in prices, making a meaningful impact,” Roe continued. “So that’s one of the reasons we speak with confidence about our ability to maintain operating margins over time…even in the face of elevated costs that we see being with us for some period of time. [And] we now see that we’re approaching normalized level of production. We see goods flowing. We have much better visibility than we did [last quarter], even at the sku level. So we can merchandise against the product flow that we see.”
The news helped tame investor fears in a volatile retail environment. Shares of Tapestry are up about 82.6 percent, year-over-year.
“While there had been some growing concerns over the past month or so, (Vietnam and China concerns), following [Capri Holdings] recent results — a robust beat and raise last week — the bar on [Tapestry] had clearly moved higher…and we think they cleared it,” Ike Boruchow, senior retail analyst at Wells Fargo wrote in a note. “Despite a material increase in costs…[Tapestry] is raising its [full-year] by more than the first-quarter beat.
“We remain upbeat on the story here and don’t see any real holes to poke at — outside of macro pressures around [the] supply chain,” he continued, rating the stock as “overweight” and setting a price target of $58 a share. “This stock remains too cheap for what it is and we continue to find the structural changes taking place — digital, [average unit retail] — very compelling and worthy of higher multiples.”
Tapestry ended the quarter with $1.65 billion in cash, cash equivalents and short-term investments, as well as $1.19 billion in long-term debt. The retailer has more than 1,400 brick-and-mortar stores across its three brands around the world.