Tapestry Inc. is looking for growth, and acquisitions continue to play a key role in reaching that goal.
The company on Tuesday disclosed several business development initiatives in connection with the overseas distribution of some of its brands. The company took over operational control of the Kate Spade ventures for Mainland China, Hong Kong, Macau and Taiwan. It entered into an agreement to buy the Stuart Weitzman business in Northern China from its distributor. Both moves enable Tapestry and its brands to gain better control over how they are distributed in those areas. The company also is buying back the Coach business in Australia and New Zealand, with plans to create a Tapestry hub and center in Sydney to gain better efficiencies for all three brands in the region.
It’s a move Coach has done before. In 2008, the company bought out its venture partner, ImagineX, which had the distribution for the Coach brand in China, Hong Kong and Macau.
In a telephone interview, Tapestry chief executive officer Victor Luis said there are still other opportunities for the company to buy back businesses from distributors.
“An opportunity is the Southern China business for the Stuart Weitzman brand. There are also, in other parts of Asia in the Southeast Asian markets, smaller distribution businesses, in Indonesia, Thailand and Vietnam. In Singapore and Malaysia, Coach is directly operated, while Stuart Weitzman is a distribution [model] and so is Kate Spade,” Luis said.
The ceo also cited future opportunity in Australia, noting the Australian transaction is expected to close in the third quarter. “After we take back Australia and New Zealand, we will be creating Tapestry Australia with our Coach brand. Eventually we would add our Stuart Weitzman and Kate Spade brand — the two brands are with distributors today,” Luis said.
Explaining the thinking behind setting up a different hub for the Australian market, Luis said while the continent is a “nice market” for any brand, it is “not as easy” in terms of direct profitability. Setting up a hub allows Tapestry to share services across all three brands that “would allow us to create efficiencies for the entire group,” he said.
In larger markets such as Japan and China, where the “opportunity is substantial enough and a brand has enough scale as a stand-alone [business], we would not be creating a Tapestry hub,” Luis said.
The ceo spoke to WWD shortly after a company conference call to Wall Street following Tapestry’s posting of second-quarter earnings for the period ended Dec. 30.
The company said net income was $63.2 million, or 22 cents a diluted share, while net sales rose 35 percent to $1.79 billion. Adjusted diluted earnings per share were $1.07. Wall Street’s consensus estimate was 89 cents on sales of $1.77 billion.
Coach and Kate Spade have long been stalwart brands on the department stores’ accessories floors and numerous fashion industry executives have pointed to the woes of the channel over the last 18 months. Luis noted that wholesale sales to the department store channel have become a smaller component of the overall business. He also noted sequential improvement in comps for Coach’s North American business. Comps for the Coach brand rose 3 percent in the quarter.
Doing well for the company has been its work on enabling customization for the consumer. Luis said on the call to analysts that there were 32 stores worldwide in the quarter that offered the Coach Create service, and 35 percent of its direct retail fleet offered either monogramming in its in-store craftsmanship bar or monogramming station. The company plans to expand that concept to more than 250 stores, or 40 percent of its store base, by the end of the year.
At the Kate Spade brand, backpacks and cross-bodies “comped significantly,” and customers have been responding to the “Make It Mine” customization program.
Stuart Weitzman saw newer occasion categories performing well in the quarter, such as booties, weather and sneakers, including a developing handbag offering. It, too, has offered a customization feature since holiday that includes a single-letter crystal-encrusted monogram clip available at select Stuart Weitzman stores and on its web site. The clip, in clear or jet black crystals, retails for $125 and can be worn with any footwear or handbag silhouette.
Dana Telsey at Telsey Advisory Group has an “outperform” rating on shares of Tapestry Inc.
She said of the results: “We see the return to positive comps at the Coach brand as encouraging, providing incremental confidence in the underlying health of the brand following what we saw as a temporary dip to negative territory in the September quarter.
“We believe management was better able to chase into the logo trend in the outlet channel into the holiday season, and see the company as positioned to continue to deliver positive Coach comps through the remainder of the year,” the analyst said.
Shares of Tapestry were up 9 percent to close at $49.02 in Big Board trading.