Strong U.S. Dollar Impacts Tapestry Q1 Earnings

The strength of the U.S. dollar weighed slightly on Tapestry Inc.’s earnings in the first quarter, but the company still managed to beat expectations thanks to 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 remainder of the year, forcing the company to lower its full-year projections as North American sales are expected to fall in the mid-single digits and the situation in China remains uncertain.

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Before the market opened Thursday morning, the parent company of Coach, Kate Spade and Stuart Weitzman said net profit for the quarter ended Oct. 1 fell to $195 million, or 79 cents a share, from $227 million. dollars, or 80 cents per share, in the same period last year. Sales rose 2% to $1.51 billion from $1.48 billion a year earlier.

The company said international sales rose 5% during the period, with strength in Japan, Europe and Asian countries other than China, where sales fell 11% due to continued disruptions. related to COVID-19.

In Europe, sales increased by 24% with the increase in tourist traffic, and increased by 16% in Japan and by 9% in the APAC region.

In North America, sales grew in the low digits “in an increasingly challenging consumer environment,” said Joanne Crevoiserat, chief executive, as the company posted a high-single-digit sales gain across its store fleet. physical, but a high-low single-digit digital sales.

Despite the digital downturn, Crevoiserat told WWD that Tapestry continues to focus on “engaging with the consumer where they choose to shop. We see consumer behavior shifting and returning to stores, which deepens engagement with the brand. But we are delighted that both channels are profitable. She said the omni-channel customer actually spends 2.5 times more than a single-channel customer, so the company will continue to give them options.

Todd Kahn, CEO of Coach, added that by encouraging customers to visit stores, it gives the company the opportunity to showcase its entire lifestyle assortment.

By brand, Coach reported a 4% increase in revenue to $1.1 billion, with strength in its core leather goods and flagship products such as the Willow collection – which was the range best-selling product during the quarter – and the Tabby.

The new limited-edition Coachies collection, which features playful takes on heritage bags, was “extremely successful,” Crevoiserat said, “backed by an AUR of nearly $800, well above our average.” And the Bandit shoulder bag has proven popular with Gen Z customers.

In footwear, the women’s Leah Loafer and Lucy Sandal and the men’s Lowline Sneaker were the best performers of the quarter. The cut and sewn 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% to $322 million, with an increase of 7% in North America and 23% in international markets, she continued. Handbags, particularly the Knott collection and the Katy, “exceeded expectations” along with newer shapes such as the Boxxy – which was particularly popular with younger consumers – and the Lady Leopard Tote, which is selling for more of $400.

Stuart Weitzman’s sales were flat compared to a year ago, with wholesale strength in North America. The Stuart assortment, which launched earlier this year, saw strength in pumps and boots with the Soho Loafer.

Crevoiserat said the company was “well positioned” for the holidays, with a strong inventory position and innovative marketing campaigns.

Scott Roe, Chief Financial Officer, added, “We are pleased with our current inventory mix, which is heavily penetrated into staple and non-seasonal styles. We are well positioned for the holidays and continue to expect to end fiscal 2023 with inventory up mid-single digit from the prior year as we have taken proactive steps to align our inventory receipt plans from the second half on our updated revenue outlook.

For fiscal 2023, the company expects “more modest revenue” in North America and Greater China, which should be offset by “outperformance” in the rest of Asia and Europe. It now forecast sales of $6.5 billion to $6.6 billion for the year, down slightly from previous projections of $6.9 billion, and diluted earnings per share of 3 .60 to 3.70 dollars, a 50 cent drop in currency issues.

And despite the headwinds, the company still expects to return about $1 billion to shareholders in fiscal 2023 through stock buybacks and dividends.

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