Tapestry’s performance is continuing to pick up after the termination of its merger with fellow ‘affordable luxury’ player Capri.
The owner of Coach, Kate Spade and Stuart Weitzman said its second-quarter revenues grew 5 per cent year-on-year to $2.2 billion, outperforming expectations. It now anticipates its full-year revenue to grow 3 per cent (up from initial guidance of 1 to 2 per cent) to $6.85 billion. (Tapestry increased its outlook last quarter as well.)
The growth in Q2 was primarily driven by Coach, whose sales were up 10 per cent year-on-year to $1.7 billion, with increased margins and profitability — driven by handbag and leather goods sales. Sales of the brand’s cult Tabby bag doubled compared with last year, and new releases like the Brooklyn bag have been a top customer recruitment driver. The brand’s bag charms (in particular the viral cherry charm) have also performed well among Gen Z customers.
Tapestry acquired 2.7 million new customers in North America in Q2, it said, over half of which are Gen Z and millennials. “Gen Z consumers at Coach have the highest retention rates of all cohorts, reinforcing the opportunity to build lifetime value with our target customer base,” said Tapestry CEO Joanne Crevoiserat on a call with investors on Thursday afternoon.
Alongside customer acquisition and a focus on consumer insights, Coach CEO Todd Kahn attributed the brand’s success to the company culture. “We’ve materially changed our culture at Coach and Tapestry, which is truly foundational to our success. We have developed an environment where creativity, innovation and informed risk-taking with a true test-and-learn agenda leads, not just the opinion of the most senior person in the room –– even if that’s me,” he said.
Sales at Kate Spade declined 10 per cent year-on-year to $416.4 million. “The takeaway for this work is clear: we need to rebuild the brand with consumers to reignite growth. To do this, we must focus our execution and accelerate our investments with clear priorities distorted to our largest opportunities, developing emotional storytelling to fuel customer acquisition, building handbag icons and driving growth in North America,” said Crevoiserat. In August, the company appointed Eva Erdmann to lead Kate Spade as CEO and brand president. Crevoiserat told investors that Kate Spade’s strategic focuses are to first hone in on top-line growth via new customer acquisition, optimise the handbag offering and reduce discounts across all channels.
Stuart Weitzman sales dropped 16 per cent year-on-year to $69.7 million, which Crevoiserat said was primarily due to declines across Greater China and North America, as well as dips in wholesale.
Tapestry’s gross profit rose 9.4 per cent to $1.63 billion, from $1.49 billion last year. Gross margin improved from 71.6 per cent last year to 74.4 per cent, thanks to operational improvements and lower freight costs.
All markets outperformed Tapestry’s expectations. Europe was the biggest outperformer by a mile, with 42 per cent sales growth driven by increased local consumer spending and new customer acquisition (in particular, Gen Z). “Our business is strong [in Europe] and our runway for growth is significant,” said Crevoiserat. North America was up 4 per cent, led by double-digit growth at Coach. Asia-Pacific sales increased 1 per cent overall. Greater China returned to growth at 2 per cent, thanks to increased traffic in bricks-and-mortar. Japan’s sales dropped 5 per cent on a tough comparison basis, while the rest of Asia grew 11 per cent, led by Australia, New Zealand, South Korea and Malaysia.
For the full year, Tapestry expects 30 per cent growth in Europe, a “slight” revenue increase in North America, low-single-digit growth in Greater China, a low-single-digit decline in Japan and high-single-digit growth in Other Asia.
Direct-to-consumer sales grew 4 per cent, with high-single-digit growth in digital and low-single-digit growth in bricks-and-mortar.
Tapestry’s chief financial and operating officer Scott Roe addressed how Trump’s tariffs could impact the business. Tapestry does not produce in Canada or Mexico, and Roe expects the tariff on Chinese imports to have “an immaterial impact on fiscal 2025 results, given our limited manufacturing exposure to China”. He said the company is closely monitoring the landscape.
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