The new ad campaign from Kate Spade.

The second quarter was a very good one for Tapestry Inc.

For the three months ended Dec. 30, net income was $63.2 million, or 22 cents a diluted share, compared with $199.7 million, or 71 cents, a year ago. On an adjusted basis, diluted earnings per share were $1.07 versus 75 cents last year.  Net sales rose 35 percent to $1.79 billion from $1.32 billion.

Wall Street was expecting 89 cents on sales of $1.77 billion.

Victor Luis, chief executive officer of Tapestry, highlighted “a return to growth for Coach, sales gains at Stuart Weitzman and the contribution of Kate Spade as we continued to make progress on the brand’s integration.”

The company last July acquired its handbag competitor Kate Spade & Co. for $2.4 billion.

 

By brand, Coach sales rose 2 percent to $1.23 billion as comps gained 3 percent. At Kate Spade, sales totaled $435 million, reflecting in part the strategic pullback in wholesale distribution. Global comps were down 7 percent. Sales at Stuart Weitzman rose 2 percent to $121 million.

Luis said Coach’s comparable-store sales in the quarter “rose globally, led by out-performance in North America, reflecting our strong holiday offering and improved inventory mix, all supported by festive marketing campaigns.” He also noted “significant operating income growth on better-than-expected profitability metrics, notably gross margin, while expenses were well controlled.”

Tapestry said GAAP gross margin for the quarter was 66 percent.

Luis also noted several business development initiatives to enable the brands to take on greater control over their international distribution. The company took over operational control of the Kate Spade joint ventures for Mainland China, Hong Kong, Macau and Taiwan. Further, the company entered into a purchase agreement to acquire the Stuart Weitzman business in Northern China from its distributor. Tapestry said both deals are in “keeping with our strategic priority to maximize the opportunity with Chinese consumers globally across our brands.”

The company also said it is buying back its Coach business in Australia and New Zealand from its distributor, with the closing expected in the third fiscal quarter. It plans to create a Tapestry hub and center in Sydney to “drive growth across our portfolio, further unlocking the value of a multi-brand operating model.”

Financially, Luis said the company expects that it will be able to fund the strategic actions while also maintaining its operating income growth targets for the year. Last month the company used excess cash to pay down $1.1 billion in debt, and expects benefits from the lower tax rate.

For fiscal 2018, the company expects revenues to increase 30 percent to between $5.8 to $5.9 billion on a non-GAAP basis. Projected diluted EPS is in the range of $2.52 to $2.60.

Shares of Tapestry rose 4.3 percent to $47.00 in pre-marketing trading at 8:00 a.m.

 

Coach’s new ad campaign, with Selena Gomez.  Courtesy Photo

 

 

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