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Tapestry reported net sales of $6.66 billion in 2023, down slightly from $6.68 billion in 2022, as international growth failed to fully offset a dip in the US, its biggest market.
All eyes are on 2024, when Tapestry’s acquisition of Capri is expected to close. While Tapestry referenced the acquisition of Capri, it did not update its outlook based on the valuation or combined revenues of the two companies. The new conglomerate is projected to have combined annual revenues of more than $12 billion; Tapestry said it expects to achieve $6.9 billion in revenue in 2024, a 3 to 4 per cent increase, as it maintains its goal of $8 billion in revenue by 2025.
Tapestry is acquiring the parent company of Michael Kors, Versace and Jimmy Choo, in a bid to create a ‘new powerful global luxury house’.
Gross profit reached $4.71 billion in 2023, up from $4.65 billion in 2022, and gross margin was 70.8 per cent, up from 69.9 per cent in 2022. The company expanded its gross margins and reached record earnings per share (EPS) growth this year, which is a marker of profitability. In the fourth quarter, net sales were in line with the previous year, at $1.62 billion, missing analyst expectations slightly per Bernstein.
“Over the next few quarters, investor focus is likely to centre on greater clarity to the timing of the acquisition closing as well as any additional details [or] plans for the combined business,” said Dana Telsey, analyst and CEO and chief research officer of Telsey Advisory Group, in a note. “While we continue to believe the increased leverage and integration risk pose challenges, we see the Tapestry management team as well-suited to successfully combine the businesses and drive synergies, with the ability to deliver double-digit earnings upside over the next several years from the acquisition”
Tapestry CEO Joanne Crevoiserat told analysts in the earnings call that the key strategic priorities for 2024 are increasing marketing and relevance to engage with its target consumer base; driving growth in core categories while deepening underpenetrated categories that have potential for growth (including sneakers and ballet flats); accelerating growth in China; and fuelling its digital platforms.
The company gained ground in China in 2023 but faced challenges in the US. In Greater China, revenue increased 5 per cent, Japan was up 15 per cent, and the rest of Asia grew 36 per cent, partly due to Chinese consumers travelling. In the fourth quarter of this year, Greater China was up 50 per cent, indicating a recovery in the region and demand from younger consumers. Comparatively, in the third quarter, Greater China revenues rose 20 per cent.
“We’re seeing tremendous opportunity in Other Asia and Japan [which are] now almost equal to China in terms of size and are growing fast,” said Crevoiserat in the earnings call.
Revenue decreased 2 per cent in North America in fiscal year 2023, and 8 per cent in the fourth quarter due to weaker consumer demand, though the company said it has seen some improvements in the first quarter of fiscal 2024 so far.
“We entered the quarter with our eyes open to some of the challenges in North America, with an intention of continuing to drive our business in a healthy way,” said Crevoiserat. “We’re seeing with this more considered purchase that innovation is driving engagement.”
She added that with the shift in focus on direct-to-consumer sales, the company has leveraged its supply chain to accelerate newness in its product assortment, responding to performance. Direct-to-consumer revenue increased 3 per cent this year, led by an increase in in-store sales. Digital represented nearly 30 per cent of revenue in 2023, roughly tripling pre-pandemic levels.
By brand, Coach grew 5 per cent in the fourth quarter, while Kate Spade sales fell 9 per cent and Stuart Weitzman was down 11 per cent, the latter two missing analyst expectations. Coach has been repositioned from accessible luxury to as “expressive luxury”, a term that points to its championing of self-expression, inclusivity and sustainability to tap Gen Z.
“Over the last couple of years, consumers are coming into [Coach] at higher price points. We’re extraordinarily focused on that $300 to $500 price range, and that has created even greater white space between us and European luxury,” said Coach CEO Todd Kahn. “For us, the desire for our products, the innovation we’re bringing, the storytelling around it, all under the umbrella of expressive luxury, is working and will continue to work.”
Crevoiserat called out the success of Coachtopia, a sub-brand targeting Gen Z with bags made from material waste, and added that the company is expecting a strong performance during the holiday season. “Coachtopia is off to a strong start, garnering significant consumer attention. While still a small portion of the assortment, it’s tracking a year ahead of our original projections,” she said.
The two groups have merged, forging a singular American accessible luxury conglomerate to rival the European giants. Will it work?
The company’s inventory management plan has been working: Tapestry ended this year with inventory levels 8 per cent below the previous year. Experts said at the time of the announcement that they hope Tapestry will apply its inventory management strategy to Capri, which has been struggling in this area.
Crevoiserat concluded the call by saying Tapestry is confident in its ability to complete the transaction to acquire Capri. “The portfolio at Capri including Michael Kors are strong brands, they’re well positioned and attractive market segments,” she said. “We’re excited about the opportunity that we see working together, putting these brands on our platform. [The acquisition] allows us to take these iconic brands with heritage and put them on our consumer engagement platform to drive more innovation, connectivity and relevance for the consumer.”
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