TAPESTRY, FORMERLY KNOWN AS COACH, SEES BOOST FROM KATE SPADE DEAL DESPITE LOWER EARNINGS
New York-based lifestyle company Tapestry, Inc., formerly known as Coach, is finally getting a payoff from its Kate Spade deal.
Net sales for Kate Spade totaled $269 million, reflecting, in part, the strategic pullback in wholesale disposition and online flash. Global comparable store sales declined 9 percent, including the negative impact of approximately 600 basis points basis points from a decline in global e-commerce, as projected.
The company’s legacy brand, Coach didn’t fare as well. Net sales for Coach totaled $924 million for the first fiscal quarter as compared to $950 million in the prior year, a decrease of 3 percent. Results include the negative impact associated with the shift in timing of the Chinese Mid-Autumn festival into October, exacerbated by the impact of inventory mix issues as well as natural disasters occurring in the quarter, notably hurricanes in North America and typhoons in Asia.
“Our first quarter performance was in line with our expectations, reflecting the benefits of our diversified multi-brand model, notably the contribution of Kate Spade to our consolidated results and double-digit growth at Stuart Weitzman,” said Victor Luis, chief executive officer of Tapestry. “While our Coach comparable store sales were impacted by both expected calendar shifts and inventory challenges as well as the effects of the unanticipated natural disasters – we have returned to growth thus far in the second quarter and are well positioned for holiday. Importantly, we remain on track to achieve the annual guidance we set out for Tapestry in August.”
“We have been especially pleased with our progress on the integration of Kate Spade onto the Tapestry platform,” continued Luis. “During the quarter, we took significant actions to position the brand for long-term success. We began to implement our strategic initiatives including the pull back on wholesale disposition and flash sales while taking substantial steps to unlock cost synergies. After only a few months since the close of the Kate Spade acquisition, we’re even more excited about the opportunities for the brand, both in terms of revenue growth, driven by distribution and productivity, and profitability improvements, as we leverage our scale across our supply chain, global business development organization, and other corporate functions. Importantly, we now expect to achieve run-rate synergies of approximately $100 to $115 million in fiscal 2019 versus our previous guidance of $50 million.”
The company continues to expect revenues for fiscal 2018 to increase about 30 percent versus fiscal 2017, to $5.8 to $5.9 billion, with low-single-digit organic growth and the acquisition of Kate Spade adding over $1.2 billion in revenue.
Luis added, “As we look forward to the holidays and beyond, we are well positioned to drive positive comparable store sales for Coach driven by compelling product, our differentiated modern luxury store experience, and bold marketing campaigns. Overall, we remain focused on creating desire for our brands through innovation and reinforcing the emotional bonds with our customers across geographies. We are confident in the opportunities for Tapestry as a whole and for each of our brands individually within the attractive and growing $80 billion global market for premium handbags and accessories, footwear and outerwear.”