Updated 4:35 p.m. ET May 7
Time is moving fast for Tapestry Inc.
The company not only turned in a breakaway fiscal third quarter with continued strength from Coach, but it raised its outlook for the year — putting the premium handbag giant on pace to hit its three-year financial targets after just one year.
“We are just getting started,” crowed Joanne Crevoiserat, chief executive officer of Tapestry, in an interview with WWD. “Our success is by design. We are winning across the world.”
You May Also Like
Related Articles
Coach’s sales increased 29 percent in constant currencies to $1.7 billion for the quarter ended March 28. Kate Spade remains a work in progress with constant currency sales down 11 percent to $219.6 million.
Excluding the Stuart Weitzman business, which was sold to Caleres in August, the company’s total sales rose by 23 percent in constant currencies. By region, those sales were up 20 percent to $1.1 billion in North America, up 55 percent to $432.2 million in Greater China, down 10 percent to $123.9 million in Japan and up 21 percent to $118.6 million in Europe.
Adjusted operating income rose 55 percent to $430.1 million, with an operating margin of 22.4 percent. Net income jumped 69 percent to $343.8 million.
And earnings per share totaled $1.66, with a 1 cent adjustment — well ahead of the $1.29 Wall Street analysts had penciled in, according to Yahoo Finance.
But investor expectations proved to be even higher — or shareholders that have seen the value of the stock double in the past year, decided it was time to sell. Shares of Tapestry fell 12.3 percent to $130.52, leaving the company with a market capitalization of $26.7 billion on Thursday.
Still, taken all together, the quarter represents the kind of growth fashion CEOs talk about and promise to investors, but rarely ever produce in any kind of a sustainable way. Even before the third-quarter report, investors recognized the company’s run, doubling the price of the stock over the past year.
Crevoiserat said it’s all sustainable.
“There are no shortcuts to what we’re doing. We’ve been disciplined in our approach to building this model, which is a very powerful growth engine. We know that we’ve built the capabilities and now it’s time for us to amplify the impact,” she said.
“It starts with our consumer obsession. Our teams are insatiably curious about the consumer and getting closer to them to understand their needs at a deeper level. We take those insights and then bring the magic, building brand desire and building demand, leveraging the insights into innovation that we’re delivering across product, across our marketing and storytelling, and across the experiences we’re delivering.”
Coach, for instance, identified the resurgence in popularity of physical books among young consumers as important and ran with the idea with its “Explore Your Story” campaign featuring Elle Fanning and book-shaped charms.
“That campaign started from an insight with the consumer,” Crevoiserat said. “It didn’t start with a product, but then when we moved to action, the storytelling behind that campaign is powerful and it resonates with our target consumer.”
And when the brand brings the magic, it has a big pocketbook to do so.
“Coach will be closing in on nearly a billion-dollar marketing budget,” the CEO said of this fiscal year.
Executives from the company held a conference call with analysts Thursday morning, with the questions zeroing in on the company’s continued prospects.
“Coach’s growth is obviously exceptional,” said Ike Boruchow, a Wells Fargo analyst, on the call. “How should we be thinking about the expectations for next year at Coach? What kind of visibility do you have as we think about a more normalized growth rate for the brand in ’27 and into the future?”
Scott Roe, Tapestry’s chief financial and operating officer, said the company’s still confident with “midsingle-digit growth at the Tapestry level.”
“That’s our algorithm…and that’s really underpinned by at least midsingle digit at Coach as a floor,” Roe said.
The approach is underpinned by continued growth in average unit retail prices. “We’ve said that we believe that we can sustain over a long period of time, AUR growth of at least inflation plus a point,” he said. “We’re not being too aggressive. We value that $200 to $500 price point. We still have a lot of headroom. If you look at our prices, they’re just about where they were 15 years ago.
“So we’re bringing innovative product, and we’re bringing newness, which commands higher prices,” he said. “By the same token, that doesn’t work unless people know you’re there. So that’s why we are reinvesting in awareness, and that’s helping to drive our AUR.”
Tapestry is going big and it’s working.
Part of it is a change of attitude, said Crevoiserat, who talked in the interview about the company thinking “more boldly about the opportunity we see for our brands.”
The company, for instance, declared its total addressable market not to be women who previously bought one of its bags, but anyone who could buy one.
“If you think about the consumers who can afford to buy one of our handbags, that population set is massive,” Crevoiserat said. “And as we have worked to hone our execution, we’re really focused on…those consumers who are at what we call point of market entry. This young consumer right now, that’s the Gen Z consumer, pretty soon it’ll be Gen Alpha.
“It’s authentic to who we are,” she said. “That’s why we love this position. Capturing them as they’re coming into the luxury bag market creates that moment where we can get brand love for a lifetime.”
Crevoiserat said Coach is growing the premium handbag and small leather goods market, which starts at more than $100 and goes sky-high.
“This is a category that has consistently had durable growth over time,” she said. “And we see the category growing low- to midsingle digits, depending on the part of the world you’re in. Even in China, we saw the category grow this quarter for the third consecutive quarter. That’s good. It shows there’s a resilient consumer out there.…By adding all these consumers at point of market entry, you can see us driving the growth in the category and growing the market.”
For the full year, Tapestry is now looking for revenues of $7.95 billion — adding $200 million from when the forecast was raised in February.
Operating margins are due to expand by 300 basis points to about 23 percent. EPS was forecast for $6.95, up from the prior guidance of $6.40 to $6.45.
In a world of consumer anxiety — from fuel prices to general affordability — those are big growth numbers.
“The most important muscle that we’ve built is this ability to stay close to the consumer,” Crevoiserat said. “All of these challenges will impact consumers around the world in different ways and our ability to take this consumer insight and move to action in our business and have it pay off…keeps us on track for durable growth into the future.”