Digital Gains Help Tapestry Post Record Sales in Quarter, Year
Tapestry leaned into digital and managed to shake off the challenging macro economy to buck the recent downward trend among public fashion companies, posting a record $1.6 billion in revenue — up 7 percent over 2019 — on slightly lower net income in the fourth quarter. For the quarter, operating income was $249 million, down from $260 million in the prior-year period.
For the quarter ended July 2, the parent of Coach, Kate Spade and Stuart Weitzman reported double-digit sales increases across North America, Japan, other Asian countries and Europe that offset a low-30 percent decrease in Greater China due to COVID-19-related closures. Digital revenue was particularly robust in the period, hitting $2 billion in sales for the year, which is more than triple 2019 levels.
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By region, sales in North America rose 12 percent in the fourth quarter, 65 percent in Europe and 25 percent in Japan but were down 32 percent in China.
As a result, earnings per share in the quarter increased 8 percent and non-GAAP EPS jumped 20 percent from 2021 and 29 percent ahead of the pre-pandemic period in 2019.
For the year, the company hit $6.7 billion, another record, an increase of 16 percent over the prior year’s $5.75 billion and 11 percent above 2019. Digital sales in the year hit $2 billion, more than triple fiscal year 2019 and now represent 30 percent of the company’s total revenue. Net income was $856 million, up from $834 million a year ago.
EPS was 8 percent compared to 2021 while non-GAAP EPS increased 20 percent over last year and more than 35 percent over 2019.
In the fiscal year, the company gained 7.7 million new customers in North America, an increase of 10 percent over the prior year and the average spend per customer was higher.
In an interview with WWD, Joanne Crevoiserat, chief executive officer, said the company managed to achieve double-digit growth in each of its brands, which “reinforced the transformation we’ve been on.” In addition to acquiring 15 million new customers in North America alone over the last year, the strength of the company’s digital efforts was particularly impactful.
She said that even before the pandemic, Tapestry had seen the customer moving toward digital and as a result, this became a cornerstone of the company’s ongoing transformation, or Acceleration Program. “We rolled it out in the beginning of the pandemic and then accelerated it,” she said. About three years ago, the company instituted its Acceleration Program, a strategic growth plan designed to place more emphasis on digital, acquire new customers and better connect with existing customers.
Looking ahead to fiscal 2023, Tapestry is projecting sales of $6.9 billion, an increase of 3 to 4 percent and EPS of $3.80 to $3.90, which would represent double-digit growth compared to the prior year.
“We see continued growth despite a challenging environment,” Crevoiserat continued. “We have proven our ability to react and respond and that’s what drove our growth. And while we’re taking a prudent approach to 2023, there are pluses and minuses. We see our consumer still spending and we’re positioned to capitalize on the relationships we’re building. So although there will be some modifications, we see growth in regions and brands.”
Coach, the company’s largest brand with sales of $4.9 billion last year, posted a sales increase of 18 percent in the year, up 15 percent over 2019 with an operating margin of 30 percent — and counted over 4 million new customers in North America, she said, with a high percentage of Millennial and Gen Z shoppers. E-commerce now accounts for 30 percent of Coach’s sales, a high-single-digit gain from pre-pandemic levels.
Core products such as the Tabby, Willow, Rogue and Field bags, which she described as “pillars of our assortment,” did well in the period, fueled by a classic top handle Rogue model as well as seasonal offerings. The Tabby collection continued to outperform expectations in women’s and recently expanded into men’s with the soft messenger bag “gaining momentum.”
The men’s assortment as a whole — specifically footwear — “delivered outsized gains” in the period and going forward “these will be important growth vehicles for Coach by increasing brand heat and top-line momentum to drive customer recruitment, purchase frequency and overall basket size.”
Todd Kahn, president of Coach, pointed to the strength of the apparel business since creative director Stuart Vevers joined the company in 2013 and has created a full lifestyle brand. And although it’s more challenging to sell ready-to-wear online than a handbag, he said the brand offers technology online to help with sizing. “We love to bring customers into the stores, but we also know the journey to purchasing begins digitally,” he said.
Looking ahead to fiscal 2023, Crevoiserat said the Coach brand will continue to recruit customers, with a focus on younger people, and work to increase purchase frequency and retention rates. Core leather goods will remain the focus but men’s and lifestyle categories, particularly footwear and rtw, are expected to continue to gain in importance. Investing in digital and the Chinese market are also key growth opportunities for Coach in the future, she said.
At Kate Spade, sales grew 22 percent to $1.4 billion in the year driven by strength in key handbag silhouettes including the crossbody, which debuted in the last quarter, as well as the Manhattan tote and the top-handle Merang. A cabana capsule launched with a series of pop-ups in New York, London and Kuala Lumpur, where over 50 percent of purchases were made by new customers.
In addition to bags, the brand posted double-digit growth in rtw, footwear and jewelry in the period, she said, and digital now represents one-third of overall sales, up from 20 percent three years ago.
For fiscal 2023, she said the goal is to “deliver a distinctive leather goods offering, capitalizing on the brand’s unique positioning within the market and continue to drive higher AUR [average unit retail], accelerate lifestyle focusing on jewelry, footwear and ready-to-wear, drive customer lifetime value by continuing to reactivate, engage existing customers while recruiting younger, more diverse customers, and fuel the emotional power of the Kate Spade brand and community through marketing that amplifies its unique positioning and universally relevant purpose.”
Turning to Stuart Weitzman, the brand managed to return to profitability in the year with growth in North America, which offset declines in China. The Nudist collection was a particular strong performer and accounted for five of the brand’s top 10 styles, and the Stuart pump got a boost from the return-to-work and will be featured prominently in fiscal 2023 marketing.
For this brand, digital now represents 20 percent of revenue, an increase of nearly 20 percent, and represents a “significant opportunity” for the future.
Because the company operates in “high-margin categories,” overall business has been “durable and resilient,” said Scott Roe, chief financial officer and chief operating officer, despite “soft consumer sentiment compared to historical averages in the U.S. and ongoing cost inflation and supply chain disruptions.”
But the company is optimistic nonetheless.
“As we embark on a new fiscal year, the environment remains challenging and continues to rapidly evolve,” Crevoiserat said. “However, the foundation we’ve built positions us to be nimble and responsive to change, balancing near-term headwinds with our long-term ambition.”
As a result of the strong results, Zachary Warring, an analyst from CFRA Research, maintained his strong buy recommendation on Tapestry’s stock and said he expects the company to “outperform other retailers in a weakening macroeconomic environment.”
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