Tapestry on Tuesday said that third quarter net sales rose 33% (30% in constant currency) to $1.32 billion from $995 million in the prior year, driven by both its acquisition of Kate Spade and organic growth.
Gross profit for the quarter was $909 million on a reported basis while gross margin was 68.7% on a reported basis compared to 70.9% in the prior year.
By brand in the quarter: Coach net sales rose 6% (3% in constant currency) to $969 million, as global same-store sales rose 3%. Kate Spade net sales were $269 million, reflecting a strategic pullback in wholesale and online flash sales, while global same-store sales fell 9%. Stuart Weitzman net sales rose 5% to $84 million from $80 million in the prior year.
Kate Spade appears to be adding heft to Tapestry’s sales, but even without, its "underlying performance remains strong," according to GlobalData Retail Managing Director Neil Saunders.
Coach, a brand that was sent on a downward trajectory years ago by a dependence on discounts and outlet sales, is proving a success story. Under CEO Victor Luis, Coach has decidedly been revived by ditching department stores and outlet stores, and now fetches premium prices. Perhaps at least as important is that Coach’s style revamp is appealing to younger shoppers, Saunders said in an email to Retail Dive.
"From our own brand tracking, we are particularly encouraged to see growing interest among younger consumers — something that is helping to fuel strong numbers in the e-commerce division," he said, adding that Coach’s "above average" growth is getting a boost by tax refunds at the moment. "Although these dynamics provide an environment in which it should be easy to prosper, Coach deserves credit for having a product lineup and marketing efforts that persuaded people to spend some of their windfalls with the brand."
The current range, including Coach's Signature collection relaunch and its Charlie Carryall tote, is compelling, with another potential boost coming in the fall thanks to Coach's partnership with Selena Gomez, according to GlobalData's research. "In our opinion, the popularity of the iconic 'C' signature design shows how much the brand image of Coach has strengthened over the past year or so," Saunders noted.
However, Stuart Weitzman, which was previously a boon to the company’s sales, is a different story this quarter and Luis said Tuesday that production delays and lower sales of older styles hurt. Those issues may continue into the fall/winter season, he said, but emphasized that long term the brand is in good hands with the recent appointments of CEO and Brand President Eraldo Poletto and Creative Director Giovanni Morelli. But those issues are undermining interest in the brand, Saunders warned. "Ultimately, this put pressure on margins and the bottom line," he said. "Looking ahead, we are concerned that production missteps will continue to affect the brand into the fourth quarter."
What doesn’t concern GlobalData Retail analysts are the declines at Kate Spade, considering that Tapestry is early in the same process it applied to Coach’s revival. Tapestry acquired the brand in March 2017 for $2.4 billion and like Coach before it, is now pulling back on Kate Spade's wholesale distribution and reducing flash sales. Revenue is bound to suffer, Saunders noted, but the overall strategic direction is solid and makes that a necessary investment.
"The next step in the evolution of Kate Spade is to rebuild the brand with a much more distinct image and to ensure that collections align with this," Saunders said, adding that the project is in good hands with the appointments of Anna Bakst as brand CEO and president and Nicola Glass as creative director. "However, we believe that brand reinvention is a slow process, so do not expect any significant results for at least the rest of this calendar year."
In all, Tapestry’s "mixed bag of businesses" are headed in the right direction and the umbrella company is on its way to "becoming a strong luxury lifestyle company," according to Saunders.