Tapestry & Ralph Lauren: Analyst gauges luxury retail earnings

Tapestry (TPR) and Ralph Lauren (RL) stocks are on the move, with both designer retail companies beating earnings estimates. Jane Hali & Associates Senior Research Analyst Jessica Ramirez joins Yahoo Finance Live to weigh in on the state of the luxury retail market and leadership strategies.

Ramirez states there are “different parts” driving both Tapestry and Ralph Lauren. “They’re running a much smarter business" that is customer-focused and beneficial, Ramirez explains.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Eyek Ntekim

Video Transcript

JULIE HYMAN: Tapestry and Ralph Lauren's soaring in today's trading. Both companies reporting positive prints earlier today. Ralph Lauren shares hitting a nine-year high on price increases. And revenue also rising led by a strong rebound in China. Tapestry boosted its full-year guidance for adjusted earnings per share with the Coach brand being the main driver behind its sales momentum.

Let's bring in Jessica Ramirez Jane Hali & Associates senior research analyst. Thanks for being here. What is driving the strong performance here? Is it China, is it luxury demand, or are there sort of individual things that each of these companies are doing right?

JESSICA RAMIREZ: Thank you for having me. In terms of what is driving, I think, there is a bit of, as you said, different parts that are driving the business and why we're seeing better results. And ultimately, we are seeing better margins.

If you look to Tapestry, for example, Tapestry, in terms of Coach, they do not run wholesale. And wholesale has been a weakness in North America, which we saw the drag with Ralph Lauren and that becoming their [INAUDIBLE] being flat over the Ralph Lauren story. Now, in terms of Tapestry, they do not have wholesale. They are a digitally-run business. They do focus on DTC.

They innovate their product. They localize their product. So when you speak about the Chinese consumer and localizing in that region, as well as the rest of APAC, that is very much, again, consumer-centric and that will help them.

In terms of Ralph Lauren, I mean AURs are also a great story there. They continue to raise them quarter after quarter. That is a similar story also at Tapestry. So in general, both of these companies, what they do share in common is they're running a much smarter business. They're very nimble and they're very focused on driving what the consumer wants and where they're able to spend that extra bit.

JOSH LIPTON: And Jessica, on Ralph Lauren specifically, interesting to get your take on the CEO there. Just kind of his tactics, his strategy, Jessica, how much of an impact has that made for this brand?

JESSICA RAMIREZ: Yeah, Patrice I think has been running a very smart business and has been very focused in running, again, a very nimble business. So from an operational standpoint, increasing digital, looking towards pushing on its core products, and really heritage. So Ralph Lauren, I think, sits in a nice sweet spot in terms of if the consumer is strapped for cash and is looking to spend, they will spend on a brand that they trust, a brand that has longevity, a brand that has heritage. Ralph Lauren sits under that.

And in terms of the true luxury consumer, I mean the price points go up. And he's talked about the value of his cashmere and the beautiful cashmere that they do carry with very high AUR. So he's able to tap into all of that.

They've brought in the younger consumer, which makes a lot of sense. They're on Roblox there, on all sorts of platforms that that younger consumer is shopping and is being inspired by. So I think his tactic is very smart.

Today, they talked about AI and AI in terms of looking at how to bring in inventory and be smart about inventory, strategy, as well as pricing strategy and stores. So they're testing that. I quite like to hear that. I think AI in terms of retail strategy can be very helpful, especially if you are a data-driven business with which Ralph Lauren has started to really drive in recent years.

JULIE HYMAN: Jessica, there was one more company in this category that reported today on the even higher end. I'm talking about Kering, which owns Gucci. And Gucci didn't do as poorly as estimated, but how should we read that through to the sort of even ultra luxury consumer?

JESSICA RAMIREZ: Yeah, so Kering has been an interesting story. Obviously, with Gucci, we did have some falls last year. Now, part of that has been due to the consumer that shops luxury maybe four times a year started pulling back.

Gucci was very much banked on a lot of local product. And a lot of the local product tends to end on that entry point level. So again, Gucci really had exposed that very largely and we saw some of those faults come through.

Now, once we started seeing that sort of snowball down with Gucci, they did start looking to increase the AURs and focus on that higher spending consumer. Now that makes sense. I think there is time to still catch up with what's going on at Gucci.

And in terms of a lot of their other brands that Kering has that have been very logo driven. Again, in where we are with the spend with luxury and looking towards true luxury spend, it is what everyone has called quiet luxury, a much more subtle luxury. So again, in an example of Ralph Lauren where they're focusing on their core product, that's very subtle. And again, they do tap into that quiet luxury. That's where we see the spend when we compare them to results that we've seen at LVMH or other conglomerates that are luxury specific and have had gains even though they are slowing down.

I think luxury in general is normalizing this year and that's what we're likely to see. But they are tapping into that higher-end spend and again, that's really where we're seeing the spend in luxury rather than at the lower end. I think that will still continue to be volatile with the consumer.

JULIE HYMAN: Jessica Ramirez, thank you so much. Appreciate your insight on luxury and apparel. Thank you.

JESSICA RAMIREZ: Thank you. Have a good one.