Digital, China Drive Strong Earnings at Tapestry in Q4, Year
Digital was a billion-dollar baby for Tapestry Inc. last year as the parent company of Coach, Kate Spade and Stuart Weitzman added $1 billion in sales online in fiscal year 2021.
Joanne Crevoiserat, chief executive officer, said Tapestry is “a fundamentally different company today than we were just one year ago” as it “clarified the unique positioning of each of our brands” and shined a spotlight on its global e-commerce channel, which “hit $1.6 billion in revenue last year, nearly double that of the prior year and over $1 billion ahead of pre-pandemic levels.”
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Overall, digital sales increased more than 35 percent in 2020 and more than 200 percent over pre-pandemic levels.
Although she didn’t provide a projection on how much larger the digital number could be, she said: “The way we look at it, digital is an ‘and,’ not an ‘or.’ We see continued strength and it enables us to meet our customers where they are.”
China was also a major bright spot for the company, with volume growing some 60 percent last year compared to fiscal-year 2020 and over 40 percent versus pre-pandemic levels. Overall sales in China hit $1.1 billion, spurred by over 60 percent growth on the mainland and high-single digits elsewhere, Crevoiserat said.
But North American sales were also stellar, jumping 165 percent over last year and in the high teens versus fiscal-year 2019.
While digital may have been the star, the company’s stores also managed to hold their own, posting operating margins above those before the pandemic, she said.
“We still think the store is important to our customers and we’ll continue to invest in them” through offering the right experience and “physical touch points” to customers.
Many of those new customers are younger today, she continued. In North America alone, the company acquired 4 million new customers, including a growing number of Millennial and Gen Z consumers.
Internally, she said Tapestry is now a leaner company, which resulted in $200 million in gross expense savings in fiscal 2021, funds it could invest in digital and marketing initiatives and to further its “purpose-led initiatives.”
Turning to the individual brands, Crevoiserat said Coach, its largest business, posted a revenue gain of 117 percent in the fourth quarter, outpacing pre-pandemic level sales by 2 percent. For the year, operating income at Coach increased 67 percent versus fiscal 2020 and 14 percent over fiscal 2019.
Bestselling items included the Tabby, a women’s handbag collection launched in June 2019, and its Pillow Tabby, which has grown to become the brand’s top seller, according to Coach CEO Todd Kahn.
Looking ahead to fiscal 2022, Crevoiserat said the goal is to increase market share in handbags and small leather goods at Coach and expand the men’s offering by presenting more of a lifestyle approach and increasing its reach in Asia. The goal, they said, was to hit $1 billion in revenues in men’s, up from $750 million, or 18 percent of Coach’s $4.2 billion in sales last year.
Kahn said the plan for men’s is to increase the offering in outerwear and cut-and-sewn products, which are “really resonating with our customer,” as well as a marketing push for “all gender” products such as tote bags.
He said that like Tapestry as a whole, Coach also managed to acquire 2.5 million new customers last year, half of which were Gen Z and Millennials. And these and other shoppers are also “repurchasing at a higher frequently” and buying higher-priced merchandise.
For Kate Spade, Crevoiserat said by returning to its roots of a brand centered around optimism and color, the brand reactivated 550,000 customers in North America, an increase of 35 percent over the prior year. She pointed in particular to the “Happy Dance” campaign on TikTok, which has already amassed more than 11 billion views.
Kate Spade also “reenergized” its core handbag assortment and is seeing success in leather, particularly with The Knot, which has already grown to about 20 percent of the assortment, she noted. Long-term, she believes this can be a $2 billion brand with a heightened international presence.
And digital was a bright spot here as well with growth of 35 percent over last year. Digital now represents 35 percent of total sales for the brand as well, she said.
At Stuart Weitzman, Crevoiserat said the company is projecting that the brand will return to profitability in fiscal 2022. Last year, she said, dressy styles drove sales in the fourth quarter, as people began to attend events. The brand also exited unprofitable markets around the world and “rightsized” its store fleet in North America. In China, revenue on the mainland rose more than 35 percent over last year and nearly 50 percent over two years ago, she said, and continues to be viewed as an important area for long-term growth.
Overall, Tapestry Inc. posted operating income of $259.7 million in the fourth quarter ended July 3, against a loss of $280 million in the same period of last year.
Net sales more than doubled, hitting $1.62 billion in the fourth quarter compared to $715 million in the prior year, a 126 percent increase.
For the year, operating income was $968 million versus an operating loss of $551 million in the prior year on a 16 percent increase in sales to $5.75 billion, up from $4.96 billion in the prior year.
As a result, the company reinstated its dividend program and aims to repay $400 million in bonds due in July 2022 by the end of this year.
Looking ahead to fiscal 2022, Scott Roe, chief financial officer, said operating income is expected to increase in the midteens, “modestly ahead” of last year and more than 300 basis points over 2019, and earnings per share are expected to be in the range of $3.30 to $3.85. Revenue is also expected to increase in the midteens to reach $6.4 billion, which would mark a record for the company, he said. This anticipates continued strong growth in digital and in China, he said, as well as improving sales in stores around the world, although they are still planned to remain below pre-pandemic levels.
Crevoiserat said Tapestry is “focused on driving our next phase of growth. We are in a position of strength, supported by our clear strategy, compelling brands and differentiated platform. We believe these competitive advantages will enable us to win with consumers and capture market share. Our conviction is underscored by the plans announced today to return over $750 million to shareholders in fiscal 2022 alone. Overall, we remain confident in our ability to accelerate growth and profitability across our portfolio long-term, enhancing value for all stakeholders.”
Despite the strong showing, Tapestry’s stock closed down 3.1 percent to close at $40.17 on the New York Stock Exchange Thursday.
