Updated 4:48 p.m. ET Aug. 14
Coach continued to carry Tapestry Inc. higher in the fourth quarter — now Kate Spade just has to pull its weight as the company enters into a new fiscal year with a little more caution than expected.
Sales of the powerhouse Coach handbag brand shot up 14 percent to $1.4 billion in the quarter, giving a little accessible luxury luster to the company.
But Kate Spade continued to be a drag on the top line with business down 13 percent to $252.6 million in the quarter. The quirky handbag brand has been a trouble spot for Tapestry for some time and led to $855 million in asset and goodwill impairment charges in the quarter.
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Those charges, which are dictated by accounting rules and have no practical impact on operations, write down a good deal of the $2.4 billion the company paid to buy Kate Spade in 2017 and pushed Tapestry to a net loss of $517 million in the fourth quarter.
Adjusted earnings tallied $223 million, or $1.04 a share — 2 cents ahead of the $1.02 analysts forecast, according to Yahoo Finance.
For the full year, Tapestry’s sales rose 5 percent to $7 billion as the company paid $300 million in dividends, bought back $2 billion in stock and posted adjusted earnings of $1.13 billion, or $5.10 a share.
That delivered on a promise Tapestry made three years ago to hit adjusted earnings of $5 a share.
“The environment has been challenging over the last three years, but we delivered on the earnings targets that we set back then,” said Joanne Crevoiserat, chief executive officer, in an interview with WWD.
As usual, though, Wall Street was focused on the future and pushed shares of the company down 15.7 percent to $95.69 on Thursday as investors worried over an annual forecast calling for low-single digit sales growth.
Tapestry is looking for sales to approach $7.2 billion this year with earnings of $5.30 to $5.45 a share — including a 60 cent, or $160 million, hit from trade war tariffs.
Todd Kahn, CEO and brand president for Coach, told analysts on conference that his brand is “constantly looking at our product offering, focusing and focusing. One of the things about telling deeper and richer stories is doing it on fewer big ideas. And that’s what’s cutting through. Our guidance for the year has most of our growth coming through [average unit retail price] growth. We believe units will continue to grow as well. So it’s very powerful for us. I am not interested in churn. We are interested in building long-term sustainable growth over the many years to come, and that’s how we’re doing it. And we’re going to continue to do it that way.”
It took time to really get the Coach brand ticking along — and Tapestry has been more than a little busy over the past few years, putting together and then fighting for and ultimately losing its mega deal to buy Capri Holdings, offloading Stuart Weitzman, dealing with tariffs and the rest of it.
But Crevoiserat put the emphasis on the work at Tapestry’s main brand.
“It really is a story about Coach outperformance,” the CEO said in the interview. “That outperformance continues. We achieved double-digit revenue growth for the quarter and for the year well ahead of the industry and, importantly, at exceptional margins. We’re building this brand. It is an 85-year-old storied brand with modern relevance. This brand is relevant with a new generation of consumers around the world. We see a lot of opportunity in the future for growth.”
And the CEO continues to believe in Kate Spade.
“The work to reset the Kate Spade brand is underway,” Crevoiserat said. “We’re confident in the path forward. We have a lot of learnings from Coach that we’re applying and, importantly, our strategies are clear. We’re working with both urgency and discipline. We are disciplined operators and we’re applying that discipline to Kate and we’re also investing to reignite that growth. We see Kate as another growth factor for Tapestry.”
While the fashion industry is still trying to get its collective head around tariffs, Crevoiserat is focused more on what helped revitalize Coach and is pushing the brand ahead.
“The tariffs coming in changed the cost structure,” she said. “What they haven’t done is changed our focus on our positioning in the market. We are maniacally focused on the impact on the consumer, staying close to the consumer and delivering value that they recognize in the market.
“We’ve done intentional work to build this brand heat. We love where we play, and this global scale is important because we deliver compelling value into the marketplace. The innovation that we’re delivering, the quality that we’re delivering to the consumer is, I think it’s stronger than it ever has been. At a time where the consumer’s being choiceful and may be pressured with inflation and tariffs and other things on their mind, this is a great position to be in, and we’re continuing to invest. We’re playing offense.”
Neil Saunders, managing director of GlobalData, said Tapestry’s results had the company ending the year “in style” and marked it out as “one of the clear winners in the luxury and premium arena.”
Saunders attributed Coach’s growth to the fact that it is “not in the super-premium part of the market where prices have risen unreasonably, squeezing out many middle-income consumers. This trend at the top end has been helpful to Coach as consumers that have defected from higher-priced brands have looked at Coach as an alternative.”
And he said the brand further capitalized on the dynamic by using a “more fashion-forward approach” that “simulates a greater buying frequency among customers of all ages.”