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Tapestry eases concerns of Coach handbag shortages, raises annual estimates

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Handbags are pictured through a window of a Coach store in Pasadena
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By Uday Sampath Kumar and Aditi Sebastian

(Reuters) -Tapestry Inc expects to have plenty of its luxury Coach handbags on store shelves during the holiday season despite supply chain snags, allowing it to boost its annual sales and profit forecasts.

Shares of the New York-based fashion house rose 10% on Thursday as the company also announced a $1 billion share buyback program.

The luxury goods industry has bounced back sharply this year from pandemic-driven weakness in 2020, as the revival of social events, parties and office work spur consumers to splurge on their wardrobes.

Tapestry's U.S. peers Ralph Lauren Corp and Michael Kors Owner Capri Holdings Ltd have also lifted their annual sales forecasts.

While sales have now surpassed pre-pandemic levels, analysts had concerns that factory closures in Vietnam, where Tapestry sources about 40% of its products from, would lead to shortages of handbags during the holiday season.

About 10% of Coach and Kate Spade's annual handbag production, worth $1.1 billion in sales, has been lost due to months-long factory closures that started in July, according to an estimate from BTIG.

But with factories now reopening, Tapestry said it had pulled forward shipping timelines and will spend about $70 million on airfreight in the second quarter to get products in stores in time for Christmas shopping.

"We're taking deliberate steps to accelerate inventory growth, and we feel comfortable in our inventory positioning to meet demand," Tapestry Chief Financial Officer Scott Roe said.

Tapestry raised its fiscal 2022 revenue forecast to nearly $6.6 billion from a previous forecast of $6.4 billion, and adjusted earnings per share range to $3.45 to $3.50 from $3.30 to $3.35.

Net sales rose 26% to $1.48 billion in the first quarter ended Oct. 2, beating analysts' average estimate of $1.44 billion, according to IBES data from Refinitiv.

(Reporting by Aditi Sebastian and Uday Sampath in Bengaluru; Editing by Shinjini Ganguli)