Tapestry Inc. has run into a few challenges as it chases a steeper growth curve — but Victor Luis said he’s ready to take them on and push the company higher.
In addition to working through an 11 percent drop in comparable sales for the group’s Kate Spade business last quarter, Tapestry faces the threat of higher tariffs that could affect the Coach handbag business, pressures in its North America businesses and at least a perceived slowdown in Chinese consumer spending.
There is plenty there to spook investors and shares of Tapestry fell 14.8 percent, to $33.50, after the company reported fiscal second-quarter results Thursday.
But Luis, Tapestry’s chief executive officer, told WWD in an interview that Kate Spade has just received a makeover and that the group, which also owns Stuart Weitzman, has been repositioned for the better.
The ceo’s plans include new Kate Spade products; more stores opening across all three brands; efforts to leverage the strength of the Chinese consumer, and, potentially, adding to the portfolio with another acquisition.
“I’m very excited for us to grow, not only with the three brands that we have, but others beyond,” Luis said. “That’s really what we’re focused on: the long-term opportunities.”
While he said there are no immediate deals on the horizon, he is always looking for opportunities that are consistent with Tapestry’s three fashion categories: handbags and accessories, outerwear and ready-to-wear, and footwear.
“From that perspective we’re going to look for great brands that have those businesses and we’re going to look for brands where obviously there can be benefit to us helping them grow internationally,” Luis said.
But investors were disappointed with Tapestry’s second-quarter results. Total sales inched up to $1.8 billion from $1.79 billion, while net income surged to $255 million, compared with $63 million in 2018. But in Kate Spade specifically, sales slipped to $428 million from $435 million a year earlier.
Luis said that was a reflection of the old creative team’s “lack of newness in products.” Kate Spade’s current creative director Nicola Glass, who launched her first collection during last fall’s New York Fashion Week, delivers the Kate Spade vision in a “very pretty, very feminine” way, the ceo said.
The collection hit stores a few weeks ago and the response so far, Luis said, has been “absolutely amazing.”
“It’s very important for us to have newness in there and for us to differentiate ourselves, because the market is moving very fast and Kate has not evolved enough,” he said, referring to the decision to hire Glass.
The new line includes Kate Spade’s vibrant hues and bold prints, but features a sophisticated twist from Glass.
Investor worries over a slowdown in China don’t seem to faze the ceo, who pointed to results last quarter.
“All of our brands outperformed in China compared with every other market in the world,” said Luis, who noted there is still tremendous growth in the country’s middle-class “that has much more opportunity than people realize.”
Still, Tapestry revised its outlook downward, a reflection of old Kate Spade products currently cycling through the full-price channel. The firm is now looking for sales to increase at a low- to mid-single-digit rate this fiscal year, while projections in October called for a mid-single-digit increase. Luis said the effects of Glass’ collection won’t be seen until next quarter.
Tapestry also has plans to open between 50 and 60 Kate Spade stores this year, and another 30 Stuart Weitzman stores, mostly in China. Luis didn’t offer a number on how many Coach stores will open, but said it will be “modest” after factoring in some closures.
“We’re really entering the first full year of Tapestry with all three brands and excited as we head into the new calendar year by all the plans that we’ve made and executing those and then getting a return on the investments that we’ve been making behind both the structure and the brand,” Luis said.
Tapestry’s results came a day after its competitor — and rival empire builder — Capri Holdings Inc. revealed quarterly numbers that showed weakness in the company’s Michael Kors brands, but big growth at Jimmy Choo, which pleased Wall Street.
Choo’s revenues jumped 40.9 percent to $162 million in the most recent quarter while Kors’ sales dropped 4 percent to $1.44.
Going forward, Capri is looking to the recently acquired Versace to provide another growth vehicle for the company. That only increases the pressure on Luis to find another deal to stay competitive.