Tapestry’s Strong Performance Signals Growth Despite Setbacks

Tapestry, the parent company behind renowned brands like Coach, Kate Spade, and Stuart Weitzman, experienced a remarkable surge in its stock price, which climbed by 15% following a strong holiday-quarter performance. The fashion giant not only exceeded sales expectations but also raised its full-year revenue forecast, now expecting to surpass $6.85 billion, a 3% increase compared to last year. The company projected earnings per share (EPS) to range between $4.85 and $4.90, surpassing the previous forecast of $4.50 to $4.55. Wall Street analysts had predicted $6.75 billion in revenue and EPS of $4.55, making Tapestry’s performance a clear positive surprise.

This growth comes on the heels of the company’s recent decision to call off a planned merger with Capri Holdings, a deal blocked by regulators. Had it gone through, the merger would have united two of America’s largest luxury firms, combining Tapestry’s Coach, Kate Spade, and Stuart Weitzman with Capri’s Versace, Jimmy Choo, and Michael Kors. While the merger failed, Tapestry’s financial performance suggests the company is poised for growth on its own.

In contrast, Capri had a challenging holiday season. Both Versace and Michael Kors brands saw double-digit sales declines, which CEO John Idol attributed to recent strategic missteps, such as eliminating lower-priced accessories that had broadened the appeal of the brand to a wider customer base.

For Tapestry’s fiscal second quarter, which ended on December 28, the company reported earnings per share of $2.00, well ahead of the $1.75 analysts had expected. The company’s revenue for the quarter was $2.20 billion, also exceeding the forecasted $2.11 billion. Coach was the standout performer, achieving an 11% year-over-year revenue increase. However, Kate Spade and Stuart Weitzman faced difficulties, with revenues dropping by 10% and 15%, respectively.

Tapestry’s CFO Scott Roe highlighted the impact of new tariffs set to take effect in February, which would affect goods imported from China. However, he reassured investors that the 10% tariff would have minimal impact on Tapestry’s business, noting that less than 10% of the company’s sourcing comes from China.

Looking ahead, Tapestry is concentrating on internal growth, capitalizing on strong consumer demand for its brands. CEO Joanne Crevoiserat shared that Coach’s accessories have been especially popular among younger shoppers. The company added 2.7 million new customers in North America during the quarter, with more than half of them being Gen Z and millennials. One of Coach’s standout products during the holiday season was the Tabby shoulder bag, popular with younger demographics, as well as the Brooklyn and Soft Empire Carryall bags from the New York collection.

North America continues to be Tapestry’s largest market, contributing nearly 70% of its quarterly sales. However, Europe saw a remarkable 45% increase in revenue, while Greater China reported a modest 3% rise. North America grew by 4%, and Japan saw a slight 5% decline in sales.

Crevoiserat noted that Tapestry sees considerable growth potential in Europe, where the brand has a smaller footprint compared to other regions, and it plans to focus on expanding its presence there.

Tapestry is also working on revitalizing the Kate Spade brand. In October, Eva Erdmann, former global president of L’Oréal’s Urban Decay Cosmetics, was appointed as the new CEO of Kate Spade. Tapestry aims to streamline its handbag collection by cutting over 15% of the styles this fall, focusing on building strong collections and reducing reliance on discount-driven sales strategies. As Crevoiserat noted, decreasing promotional activity will be key to positioning the brand for long-term success and scalability.

With a solid growth strategy in place, Tapestry is well-positioned to build on its momentum, particularly in Europe, and attract a younger customer base to drive future success in 2024 and beyond.

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