Tapestry has reported double-digit sales growth for the second quarter, with Coach’s stellar performance continuing to offset weakness at Kate Spade.
The fashion company lifted its net sales by 14 per cent to $2.5 billion in the quarter ended December 27. Excluding the Stuart Weitzman business, which was sold last year, sales were up 18 per cent.
Neil Saunders, MD of GlobalData, described the numbers as a “stonking set of results” over the holiday period. Even though it was up against a tougher prior year comparative, the firm still managed to beat last quarter’s already high growth rate, he added.
All of the gains, however, continued to be driven by Coach, which delivered revenue growth of 25 per cent off the back of a high comparative prior year.
According to Saunders, the growth is way above the overall market, which underlines the extensive market share gains the brand has made in the accessible luxury segment and in specific categories such as handbags.
“One of the reasons for Coach’s market-beating success is the fact it continues to pull in more consumers – many of whom are in the Gen Z cohort – and has done so without diluting its appeal to existing customers. Sharp marketing certainly played a part in this, with Coach upping its advertising spend over the holiday quarter – and leaning into emotional storytelling which appealed to younger audiences,” he said.
Other important factors, such as innovation across handbag styles, plenty of newness for the holidays, and expansion of assortment in categories like footwear and accessories, also contributed to the success.
At Kate Spade, sales were down 14 per cent. The slump, however, did not drag performance down by too much given it is a relatively small part of the business.
“Some of the sales declines are the result of a deliberate pullback on promotions and deals across the quarter, which are designed to position the brand as a more aspirational and accessible luxury label,” Saunders said. “These moves often cause pain before they show benefits but, as the previous reinvention of Coach showed, they usually pay dividends over the longer term.”
He added that while awareness of and affinity towards the brand have increased among younger shoppers, there is still a long way to go.
On the bottom line, operating margin jumped from 22.4 per cent in the prior year to 28.6 per cent. Net income surged 81 per cent to $561 million.
The company has raised its outlook for the full year, expecting revenue to rise 11 per cent compared to the prior range of 7-8 per cent.
“While it may be hard for Coach to sustain the levels of growth it is currently producing, there is enough headroom from customer acquisition and category and geographical expansion to sustain good numbers,” Saunders commented.
“The real opportunity, however, is in course correcting the Kate Spade brand. If this engine can be restarted, it will give Tapestry even more lift,” he added.
