Tapestry has reported a double-digit sales growth in the first quarter, as Coach continued to power the gains while Kate Spade underperformed.
The luxury retailer delivered revenue of $1.7 billion for the quarter ended September 27, up 13 per cent year-on-year on a reported basis and 12 per cent on a constant currency basis.
Although the numbers come off the back of a period of softer trading in the prior year, they are nonetheless exceptional, said GlobalData MD Neil Saunders.
This is also the best performance in a long while, especially when it no longer includes the sales contribution from the Stuart Weitzman business, Saunders added.
On the bottom line, net income grew by 47.2 per cent to $275 million, thanks to operational improvements and the removal of the lower margin contribution from Stuart Weitzman.
“While the overall numbers are fantastic, they are driven by a very lopsided performance,” the analyst continued, pointing out the big gap between Coach’s 22 per cent revenue growth and Kate Spade’s 8 per cent contraction.
“From a financial perspective, this doesn’t matter too much as Coach represents the bulk of the business. However, it underlines that Tapestry is not so much a house of brands as the owner of one very powerful brand,” he said.
Coach’s successful playbook
According to Saunders, while the overall market for handbags and luxury goods picked up a little during the quarter, consumer spending remains sluggish and is still being held back by various degrees of caution. Coach managed to circumvent this thanks to a long-standing strategy that has come together well.
“The mainstay of this is that Coach has added a significant number of new customers to its roster – some 2.2 million over the past year, to be precise. Around 35 per cent of these come from the increasingly lucrative Gen Z segment. Naturally, new customers boost spending and allow Coach to take market share,” he said.
The analyst also highlighted Coach’s talent at brand building, storytelling through marketing, creating engaging stores and pop-ups, and being culturally relevant.
Product architecture is very sound and includes a lot of designs that are focused on younger consumers and current trends, he said, adding that the diversification beyond handbags is paying real dividends as more consumers buy into the Coach lifestyle through things like sneakers and apparel.
Meanwhile, Kate Spade remains behind the curve during the quarter. Saunders believes that Tapestry was trying to use Coach’s successful playbook on Kate Spade, coming through edited assortments and some more impactful marketing.
“However, it will take time for this to embed itself with consumers, so we see the year ahead as one of rebuilding for Kate Spade,” he said.
FY26 outlook
Tapestry has raised its outlook for the full fiscal year, expecting revenue to increase 4-5 per cent on a reported basis to approximately $7.3 billion.
Excluding Stuart Weitzman, pro forma revenue is expected to grow 7-8 per cent, compared to prior guidance of a mid-single-digit growth.
Operating margin is forecast to expand by 50 basis points, reflecting roughly 280 basis points of underlying margin expansion and a negative tariff and duty impact of approximately 230 basis points.
