Tapestry tops estimates in strong quarter; raises full-year outlook
Tapestry Inc. continues to maintain momentum amid an uncertain backdrop, fueled by another strong performance at Coach.
The luxury retailer, whose portfolio also includes Kate Space and the soon to be divested Stuart Weitzman, reported that its third-quarter income rose 45.8% to $203.3 million, or $0.95 a share, for the period ended March 29, up from $139.4 million, or $0.60 a share, in the year-ago quarter. Adjusted earnings per share were $1.03, topping the $0.88 per share analysts expected.
Total revenue increased 7% to $1.58 billion, better than the $1.53 billion analysts project. The increase was driven by Coach, where sales jumped 13% to $1.29 billion. Kate Spade sales fell 13% to $244.9 million. Sales at Stuart Weitzman, which is the process of being acquired by footwear giant Caleres, plunged 18% to $46.2 million.
Direct-to-consumer revenue rose 9%, which included a mid-teens percentage increase in digital revenue and a mid-single digit gain in global brick and mortar sales.
“Our third quarter outperformance reinforces our position of strength, said Joanne Crevoiserat, CEO of Tapestry. “We accelerated top and bottom-line growth and raised our outlook for the fiscal year, demonstrating the power of brand building and our connections with consumers around the world. Importantly, while the external backdrop is complex, our vision remains clear. We maintain a bias for action and will harness our competitive advantages, including our global scale, compelling value, and strong fundamentals, to adapt and win in any environment.”
Tapestry acquired over 1.2 million new customers in North America during the quarter, an increase versus prior year, driven by a growing number of Gen Z and millennial consumers, which represented approximately two-thirds of its new customers.
“We are capturing consumers who are entering the category for the first time, which is instrumental to fueling enduring relationships, customer lifetime value and sustainable growth,” Crevoiserat told analysts on the company’s earnings call.
Tariffs
Tapestry expects minimal impact from potential tariffs. Its products are primarily manufactured in Vietnam, Cambodia, and The Philippines, which taken together represent 70% of its production. Less than 10% of Tapestry’s products are manufactured in China.
During the earnings call, Tapestry CFO and COO Scott Rowe said the company has already taken a number of actions to mitigate the impact of tariffs, including pulling forward inventory receipts and leveraging its agile supply chain to optimize its global manufacturing footprint.
“We have scale and long standing relationships with our service providers and we’re actively working together to unlock efficiencies,” he told analysts. “And most importantly, I want to thank our supply chain organization. Their deep global trade expertise, operational excellence, and culture of continuous improvement allowed us to take swift action in the face of this uncertainty. We’re not immune to external factors, we’re in a position of strength with structural advantages.”
Outlook
Tapestry now expects adjusted earnings per share of $5 for its current fiscal year, up from its previous forecast of $4.85 to $4.90. Sales are expected increase 4% to about $6.95 billion, up from the company’s previous forecast of 3%.
As of March 29, Tapestry operated 324 Coach stores in North America and 599 international locations; 192 Kate Spade stores in North America and 175 international locations; and 29 Stuart Weitzman stores.
