The strength of the U.S. dollar put a bit of a crimp in Tapestry Inc.’s earnings in the first quarter, but the company still managed to beat projections on the strength of its international business, higher average retail prices and continued strong consumer engagement.
Even so, the headwinds are expected to continue for the rest of the year, causing the company to reduce its full-year projections as sales in North America are seen declining in the low-single digits and the situation in China remains uncertain.
Before the market opened Thursday morning, the parent company of Coach, Kate Spade and Stuart Weitzman reported net income for the quarter ended Oct. 1 fell to $195 million, or 79 cents a share, from $227 million, or 80 cents a share, in the same period last year. Sales grew 2 percent to $1.51 billion from $1.48 billion in the prior year.
The company said international sales rose 5 percent in the period, with strength in Japan, Europe and Asian countries other than China, where sales were down 11 percent as a result of continued COVID-19 related disruptions.
In Europe, sales rose 24 percent as tourist traffic increased, and were up 16 percent in Japan and 9 percent in the APAC region.
In North America, sales were up in the low-single digits “amid an increasingly difficult consumer backdrop,” said Joanne Crevoiserat, chief executive officer, with the company posting a high-single-digit sales gain in its physical store fleet but a high-single-digit decline in digital sales.
Despite the downturn in digital, Crevoiserat told WWD that Tapestry continues to focus on “driving engagement with the consumer where they choose to shop. We’re seeing consumer behavior changing and shifting back to stores which deepens the engagement with the brand. But we’re delighted that both channels are profitable.” She said that the omnichannel customer actually spends 2.5 times more than a single-channel customer, so the company will continue to offer them options.
Todd Kahn, CEO of Coach, added that by encouraging customers to visit stores, it affords the company the opportunity to showcase its entire lifestyle assortment.
By brand, Coach posted top-line increases of 4 percent to $1.1 billion, with strength in its core leather goods and signature products such as the Willow collection — which was the top-selling product line in the quarter — and the Tabby.
The new limited-edition Coachies collection, which offers playful takes on heritage bags, was “extremely successful,” Crevoiserat said, “underpinned by an AUR of nearly $800, well above our average.” And the Bandit crossbody bag has proven popular with the Gen Z customer.
In footwear, the Leah Loafer and the Lucy Sandal for women and the Lowline Sneaker for men were top performers in the quarter. The cut-and-sew assortment of ready-to-wear featuring the brand’s Signature C, Rexy and Horse & Carriage logos “continued to resonate with customers,” along with backpacks and messenger bags for men.
At Kate Spade, sales rose 10 percent overall to $322 million with a 7 percent increase in North America and 23 percent growth in international markets, she continued. Handbags, particularly the Knott collection and the Katy, “outperformed expectations” along with new shapes such as the Boxxy — which was especially popular with younger consumers — and the Lady Leopard Tote, which retails for more than $400.
Stuart Weitzman sales were flat to last year with strength in North American wholesale. The Stuart assortment, which launched earlier this year, experienced strength in pumps and boots along with the Soho Loafer.
Crevoiserat said the company is “well-positioned” for holiday, with a strong inventory position and innovative marketing campaigns.
Scott Roe, chief financial officer, added: “We are pleased with the makeup of our current inventory, which is highly penetrated in core and seasonless styles. We are well positioned into holiday and continue to expect to end fiscal year 2023 with inventory up single digits compared to the prior year as we’ve taken proactive measures to align our second half inventory receipt plans with our updated revenue outlook.”
For fiscal year 2023, the company is expecting “more modest revenue” in North America and Greater China, which should be offset by “outperformance” in the rest of Asia and Europe. It is now projecting sales of $6.5 billion to $6.6 billion for the year, a slight decline from prior projections of $6.9 billion, and earnings per diluted share of $3.60 to $3.70, a dip of 50 cents from currency issues.
And despite the headwinds, the company still plans to return about $1 billion to shareholders in fiscal 2023 through share repurchasing and dividends.