Tapestry on Tuesday reported that fiscal 2019 first quarter net sales rose 7% to $1.38 billion, up from $1.29 billion in the prior year, as net income in the quarter reached $122 million, according to a company press release.
By brand in the quarter: Coach net sales rose 4% to $961 million and global comparable store sales rose 4%, including some 50 basis points thanks to online sales growth; Kate Spade net sales rose 21% to $325 million as global comparable store sales fell 5%, including some 300 basis points from e-commerce; Stuart Weitzman net sales fell 1% to $95 million.
Gross profit in the quarter rose to $935 million from $763 million a year ago, while gross margin rose to 67.7%, up from 59.2%, last year. On a non-GAAP basis, gross profit totaled $936 million, while gross margin rose to 67.8% from last year's 66.1%.
Tapestry is transforming its businesses into lifestyle brands even more than handbag or apparel brands, led by Coach and spurred by real progress at Kate Spade.
Coach is beginning to see a turnaround in its women's business, and it recently tapped movie star Michael B. Jordan to rep its men's business. That now represents 20% of its total and is on pace to hit "$1 billion and beyond," Coach CEO and president Joshua Schulman told analysts on Tuesday, according to a transcript from Motley Fool.
Financially, thanks to a pivot to a more upscale customer base and healthy consumer confidence, the company has expanded its margins, several analysts noted in comments emailed to Retail Dive. "Most pleasing is the rebuilding of gross margins," GlobalData Retail Managing Director Neil Saunders said in a Tuesday note, adding that more operational efficiencies could be "eked out" in coming quarters to boost that further. "These, along with synergistic savings from the integration of Kate Spade, have helped Tapestry to a healthy net income of $122.3 million — a vast improvement on last year's net loss of $17.7 million."
Executives shrugged off recent tariffs, saying Tuesday that the impact was included in the company's guidance but that it is minimal. "[I]t is having a little bit of a headwind for us, but as we indicated in our comments, the good news is, the production out of China is less than 5% on handbags and small leather goods," CFO Kevin Wills said.
Overall, the company in the quarter added 24 net new stores across brands, mostly in international markets, bringing its directly operated store total to 1,456, according to Tapestry CEO Victor Luis.
While Kate Spade's comps declined, that served as a sign for many analysts that the brand, like Coach, will soon enjoy more robust margins. The decline "is largely a function of reduced volume as Tapestry has cut back on promotions and discounts," Saunders noted, adding that the brand is developing a "much clearer identity" under U.K. designer Nicola Glass. "While the measures have caused some sales pain, they have resulted in a good uplift in gross margins and underlying profit. We are also pleased with e-commerce performance which is showing signs of growth."
In fact, Luis expressed confidence in the brand, projecting "a year of double digit revenue growth driven by new distribution, acquisitions and consolidations of distributor businesses and positive second half comps" and said that "over our three year planning horizon, we continue to believe that Kate Spade can approach $2 billion in sales as significantly higher operating margins."
In separate notes emailed to Retail Dive, Saunders and William Blair analyst Dylan Carden said they see the company being able to correct declines at its Stuart Weitzman brand. Both also said Tapestry is likely to make yet another acquisition.