The first post-rebrand holiday season has been a fruitful one for Tapestry, with its Coach brand driving the company to beat Wall Street estimates in fiscal Q2. Overall revenue for Tapestry, the parent company of Coach, Kate Spade & Co. and Stuart Weitzman, rose to $1.79 billion in the quarter ending Dec. 30, beating the average analyst prediction of $1.77 billion, according to Reuters.
Global same-store sales of the Coach brand rose 3%, while Kate Spade’s same-store sales dropped 7%. On the surface, the Kate Spade dip may appear to be a negative, but Tapestry insists that it is by design. The company said fewer sales of Kate Spade-branded products were made online, as it continues to cut back on wholesale distribution and flash sales of that particular banner.
The Kate Spade pullback is similar to the company’s move to pull Coach products out of select department stores. Both moves contributed to sales hits in the short term, but the idea behind them is to build more brand exclusivity and eliminate reliance on promotions to sell products.
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Tapestry net income fell from $200 million in 2016 ($0.71 per share) to $63 million ($0.22 per share) due to one-time charges related to new tax legislation. But the company continues to expect fiscal 2018 revenue of $5.8 billion to $5.9 billion, up approximately 30% from last year, with the Kate Spade acquisition adding more than $1.2 billion to the total.
Tapestry changed its name from Coach Inc. in October 2017, a few months after its $2.4 billion acquisition of Kate Spade, signaling its reorganization into a multi-brand fashion house on a par with European counterparts LVMH, Kering and Richemont. Coach Inc.’s 2015 purchase of Stuart Weitzman for $574 million was the first move in this corporate transformation.
To move closer to the goal of building a global fashion house, Tapestry also is taking greater control of its international distribution. The company has now taken operational control of the Kate Spade joint ventures in China, Hong Kong, Macau and Taiwan. Additionally, the company acquired the Stuart Weitzman business in Northern China from its distributor, demonstrating that the company wants to maximize opportunities with consumers in the region through all of its brands.
Beyond Southeast Asia, Tapestry seeks further expansion into Australia. The fashion house bought back the Coach business in Australia and New Zealand from its distributor, and will create a Tapestry hub and center of excellence in Sydney.
