Tapestry growth continues to be boosted by the inclusion of Kate Spade.
The US apparel retailer has reported fourth-quarter revenue of US$1.48 billion and a net income of $211.7 million. A 31 per cent uplift in sales is the result of the acquisition of the Kate Spade business subsequent to the fourth quarter of the previous financial year.
However, this is the final quarter during which the sales line will be flattered by this anomaly, which means the next fiscal year will present a much truer picture of underlying growth.
For this quarter, the results are generally good – but mostly thanks to Coach which has driven the whole business forward. The numbers from Stuart Weitzman and Kate Spade are less impressive. The latter is understandable given that the brand remains in transition, but the former is somewhat disappointing as it is the result of operational missteps.
Looking at Coach in more detail, total revenue increased by a solid 5.1 per cent, with a supporting rise of 3 per cent on a comparable basis. This is a very respectable result which, once again, underlines the return to full health of a brand that once suffered from ubiquity and excessive discounting. The performance in the US was particularly strong, aided in large part by the more robust consumer economy which has spurred spending on luxury products. However, Coach deserves credit for securing a slice of this growth – something that not all higher-end brands have been able to accomplish.
Within Coach, the Signature line has been a particular success and has helped to drive both sales and interest in the brand. The development of smaller leather goods in this range has helped to expand the number of products consumers can buy and has created some good gifting options which should help the company in the all-important holiday quarter. We are encouraged by this development as it suggests that Coach has now found a sweet spot in terms of balancing a premium positioning with accessible products that help maximise sales.
Another win for the company is the men’s range, where an expanded offer has helped to boost sales. While men’s remains a small component of the sales mix, we are heartened by a good performance over Father’s Day and a growing awareness of this part of the assortment. In our view, this part of the business has good potential and will likely be a driver of future growth.
Kate Spade rebuilding
Kate Spade has now been part of Tapestry for a year. Over that time the group has taken a disciplined approach to rebuild brand equity, including pulling back on excessive promotional activity and reducing exposure to unfavourable wholesale channels. This effort is now almost complete and while global comparable sales were down 3 per cent, margins are strengthening and top-line revenue is starting to look more favorable. The brand is now in a better position and should start making a solid top and bottom line contribution over the next fiscal year.
Stuart Weitzman continued its run of poor performance with a slip in sales and margin. Most of the issues at Stuart Weitzman still stem from production problems, which delayed key seasonal styles. Not only did this reduce sales of those products, it also weakened overall interest in the brand which meant core products had to be discounted to stimulate demand. Unfortunately, these second-half issues undid most of the advancement during the first quarter.
Looking ahead, we believe Tapestry is in good shape. It should have a successful holiday quarter which will boost the first-half of its new fiscal year. And now that Kate Spade is in order, we do not preclude further acquisitions in the year ahead.