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Kate Spade ‘delivered a record holiday quarter,’ Tapestry CEO says

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Tapestry CEO Joanne Crevoiserat joins Yahoo Finance Live to discuss the luxury brand's latest earnings, digital commerce strategies, and retail trends.

Video Transcript

- Tapestry's better than expected holiday quarter perhaps got overlooked in Thursday's market round, but there was much to like. From the retailer's earnings release, sales at Coach and Kate Spade were up nicely. Exec said Kate Spade has hit an inflection point in its turnaround. And Tapestry also lifted its full-year sales and earnings outlooks.

Joining us now for a Yahoo Finance exclusive is Tapestry CEO Joanne Crevoiserat. Joanne, nice to see you again. Appreciate you taking the time on this busy Friday morning. Now, you came in a couple years ago now to turn this company around. Is the turnaround over, and you can say that, hey, we're back in growth mode?

JOANNE CREVOISERAT: Well, good morning, Brian. Great to see you again. And it is clear that the transformation efforts that we've undertaken are delivering. We delivered a record holiday quarter. We did see, as you mentioned, a significant inflection at Kate Spade, and also continued outperformance at Coach and strong growth and a return to pre-pandemic levels of Stuart Weitzman. So a lot going well right now. Our transformation is delivering. We delivered revenue growth for the quarter, the holiday quarter 27%. That's 18% ahead of pre-pandemic levels.

And you know, to your point, this transformed business model, we're focused on getting closer to our customer, leaning into digital and moving with speed. And we saw strength in digital this quarter, increased customer acquisition and pricing power across all brands. So a lot to like, as you said, in the quarter.

- I'm guilty, Joanne, of spending, I think, too much time looking at what you are doing and have done over at the Coach brand. It is 75% of your revenue, so I understand. But I think it was a very important point you mentioned that Kate Spade is at an inflection point. Why is that the case? And do you think some of the margin gains you have had in that brand are sustainable?

JOANNE CREVOISERAT: Absolutely. Standout results in the quarter and a significant inflection point, but this is driven by, first, product, people, and our focus on the consumer. And it's an inflection that's been building over a number of quarters. The second quarter results have really strengthened our confidence in our long-term opportunity at Kate Spade to build a $2 billion brand in our future.

And I do want to recognize the team for the results they've delivered. As I said, this has been building over a number of quarters. The team really leaned into the Tapestry platform and in our acceleration program to rebuild the foundation of the brand and return Kate Spade to the brand our customers really love.

You know, Q2 highlights, I'll just touch on a few, but we saw a tremendous topline growth, 33% on the top line. Kate Spade performing 16% above pre-pandemic levels. So really strong inflection in the quarter. Continued strength in digital, acquisition of new customers. And importantly, we're reactivating lapsed customers. So customers are coming back to the brand at increasing rates.

And we saw a low double-digit increase in handbag AUR over the quarter, which is indicating pricing power. So the product work that the teams are doing, introducing and developing these platforms, new platforms, both the strong core offering that we've been building, as well as new, all performing, selling more at regular price. And our brand awareness is growing in the marketplace. So a lot of good things happening at Kate Spade, but still a lot of runway ahead.

- Joanne, it's Julie here. I want to ask about the various selling channels because we've been showing some stats, and you mentioned the enormous growth that you guys have seen in the digital channel. I'm just curious what the sort of cadence looks like currently, sort of coming off of the omicron wave, in terms of your own store traffic, but also through, say, department store channels, for example. How are you thinking about that strategy going forward?

JOANNE CREVOISERAT: Well, we're a 90% direct to consumer business, over 90% direct to consumer. And you know, one of the things we saw happening even pre-pandemic was that customer shopping behavior was changing. And we leaned into our capabilities in digital. And certainly, coming through the pandemic, shopping behaviors and those digital trends have only accelerated. And we're finding a tremendous amount of success in building and connecting with consumers where they are. We are putting our brands in front of consumers and engaging them where they are. And that's increasingly in digital channels.

We showed strength in digital this quarter, with strong double-digit growth on top of strong double-digit growth last year. And we continue to see that growth even as brick and mortar trends improve. So the digital engagement is here to stay. The way consumers are shopping and where they're discovering brands is changing. And we're continuing to innovate in this space so that we can put our brands and engage consumers where they are.

And I think it's important to know we expect our digital business, we're achieving scale here. We expect it to grow to be about $2 billion this year. And our digital business has margins, carrying margins that are accretive to total Tapestry. So at $2 billion, it's a big business, but only a third or less of our total business. So we see more opportunity to grow in the digital space. And you know, as-- and we expect that to be a tailwind to operating margins as we go forward, as well.

- And Joanne, you have been a big proponent of using data to inform what bags and products you put out into the marketplace. What are you seeing in terms of new consumer use cases? And I'll use me as an example. I needed a briefcase on the run for an actual in-person meeting. That hasn't been the case for the norm. Went to your outlet, picked up a bag, and I was out at my meeting. You know, what are you seeing from consumers here?

JOANNE CREVOISERAT: Yeah, exactly that. We've seen consumers very excited to be out and about again. And we're seeing actual trends across the spectrum. Hands-free, crossbody bags have been performing, and the hands-free trend that we've been seeing in the market continues. So that business continues to be strong. But the return to work and our totes business, backpacks, totes, briefcases are also performing. So we do see a consumer who is excited to be out engaging in the real world again.

And Julie, you know, the excitement-- I know you were talking about travel in your last segment-- you know, the excitement to be out and engaging with people in the real world, our occasions businesses is working. And Stuart Weitzman, the bridal business, has been good. So we are seeing an optimistic consumer who's excited to be back out, and our brands are positioned perfectly to help and support those customers.

- I am all about the hands-free. I'll tell you that, Joanne. I migrated away from the carrier bag, I guess, a while ago. I am curious otherwise, are there any product lines that you're particularly excited about or any coming trends that you think consumers are going to be really excited about when it comes to your various lines?

JOANNE CREVOISERAT: Yeah, we have seen a lot of traction. We're rebuilding the core, so one of the things we're really excited about is that our core product is performing, which is very important and will sustain our business. At Coach, we're leaning into the icons, but we're also amplifying those icons every year with newness. And I'll use our Tabby bag as an example, where Tabby is a loved brand. It's becoming a new icon in the business. But we've amplified that with a pillow Tabby, which registers fashion on top of that and breathes new life into the product, but also carries us forward.

As I said, you know, the return to work and occasion is performing. Bridal is something that we see consumers and occasionwear, both at Stuart Weitzman, but also at Kate Spade. And we haven't talked as much about Kate Spade, but the brand continues to perform, again, with the core offerings, but the novelty performance in that brand also carrying both tremendous emotional value with consumers-- we're seeing traction in the product we talked about on our call, the sequined slice pizza bag, which was a top performer through holiday, you know, that consumers carried to their holiday party. And who doesn't want a slice of pizza after a holiday party?

But it was a hit. Sold out at regular price, over $300 for that product, and was a hit across our social media platforms. So we're continuing to get close to our consumers, build the core offering that we see them coming back to again and again, and then delivering the fashion that registers emotionally with our consumers as we move forward.

- Hey, full disclosure, Joanne, I was emotionally happy after I got my new briefcase a couple of weeks ago. I took photos of myself, and frankly, I looked great. But always great to see you--


--Joanne Crevoiserat, good to see you. Have a great weekend. We'll talk to you soon.