Tapestry Inc. wanted to supersize its business through acquisition — but staying focused and letting Coach drive results is working out just fine.
Excluding the recently sold Stuart Weitzman business, Tapestry’s fiscal first-quarter sales shot up 16 percent to $1.7 billion. That included a 22 percent jump at Coach, to $1.4 billion. Kate Spade, where the turnaround is still a work in progress, slipped 8 percent to $260.2 million.
“Fundamentally what’s driving our growth is new customer acquisition and this young consumer acquisition is the fuel for our business,” said Joanne Crevoiserat, chief executive officer of Tapestry, in an interview with WWD.
The company had looked to build sales by buying Michael Kors parent Capri Holdings, but was tripped up by antitrust concerns late last year. Even so, Tapestry is going from strength to strength.
Adjusted operating income jumped 24.2 percent to $354 million in the quarter with margins of 20.9 percent, up from 18.9 percent a year earlier. Just over half of the improvement in operating margins was attributed to the sale of the Weitzman business.
Net profits tallied $274.8 million and adjusted earnings per share came in at $1.38 — 12 cents ahead the $1.26 analysts forecast, according to Yahoo Finance.
Tapestry laid out its new strategic vision in September, aiming to build Coach to a $10 billion business by widening the definition of its target audience and essentially going after everybody who might conceivably buy a handbag, not just the people who bought one last year.
The first quarter was a good start.
Joanne C. Crevoiserat
Justin Kaneps/WWD
Crevoiserat pointed to 26 percent growth in North America and crowed: “I don’t see many brands putting up those kinds of numbers. That’s being fueled by Gen Z acquisition, fueled by the innovation that we’re delivering in the marketplace at compelling value.”
Tapestry said it brought in 2.2 million new shoppers over the three months ended Sept. 27, with Gen Z shoppers representing about 35 percent of those gains.
“This is momentum that has been building in our business precisely because we are focused on our consumer,” the CEO said. “I wouldn’t say we’re concerned about the consumer, but we care about how all the different macro impacts are impacting our consumers around the world. And it’s different in different places around the world.
“That is what we’ve systemically embedded in our business, the ability to understand our consumer at a deeper level and then meet them where they are, whether that’s in how their behaviors are changing and where they shop or how they discover brands or the things they value in a product and the stories we tell behind our product and our brand.“
And now that the company knows its consumer so well, it’s more comfortable putting big marketing dollars down to bring them in.
Tapestry devoted the equivalent of 11 percent of sales to marketing in the first quarter, up from 4 percent during fiscal 2019.
“We have worked a lot of years to prepare for this moment,” said Scott Roe, chief financial and operating officer, said. “We’re ready for this moment because we’ve remade the business model, we’ve remade the P&L and that [marketing] investment getting to north of 11 percent in the quarter and for the year is also with taking up our full-year guidance on operating margin. That’s because of the quality of the sales that we’re driving. We’re not just chasing dollars, we’re getting the gross margins, we’re getting the efficiency. And that’s translating into not just profit, but cash flow.”
Tapestry’s sales are slated to rise 7 to 8 percent this fiscal year to $7.3 billion, excluding Stuart Weitzman. And Tapestry is now guiding toward annual earnings per share of $5.45 to $5.60, a boost from the $5.30 to $5.45 previously expected.
The company also said it plans to buy back $1 billion in common stock this fiscal year, up from the previous forecast of $800 million.
