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At Tapestry, Weitzman Supply Chain Disappoints, Coach Rides Logo Wave

As Tapestry continues to integrate Kate Spade, it’s been suffering supply chain woes with its Stuart Weitzman division, but capitalizing on logos for the Coach brand.

In a Nutshell: In its Coach division, Tapestry highlighted the relaunch of its logo-driven Signature collection, saying it “exceeded our expectations globally.”

During the earnings call, Tapestry CEO Victor Luis projected the logo trend could have legs for as many as seven years based on the decades-long run it had in the early 2000s. Despite the excitement, Luis said the team is attempting to maintain some scarcity around the product. He noted that Coach is “managing [Signature] carefully, having had past experience with what that can do, both in terms of driving growth but also driving ubiquity to the brand.”

The company reported the integration of the Kate Spade brand is proceeding as planned including a decrease in both flash sale activity and wholesale outlets. Tapestry anticipates achieving synergies of $45 million in FY18, related to SG&A and cost of goods benefits.

Tapestry acknowledged issues with the Stuart Weitzman brand, which it attributed to “a once-in-a-lifetime” transition related to the brand’s factory in Spain, which “is separate from everything that we do with Coach and Kate.”

Ultimately the issues negatively impacted sell-through for existing styles and resulted in late deliveries for new items.

“While we’re very proud of our team in Spain, it does lack the processes and the systems to deal with the level of complexity and innovation that the teams need and wants to deliver,” Luis said, adding Tapestry has responded with new hires to bring greater expertise to the process. The brand expects to return to growth in the back half of fiscal year 2019.

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Sales: The company reported net sales of $1.3 billion for the quarter, or a 33 percent increase over the $995 million from the prior-year period. The results reflect the addition of the Kate Spade business, which Tapestry acquired in the fourth quarter of 2017.

Net sales for the Coach brand totaled $969 million compared to $915 million during the same period last year. Comp sales for the brand rose by 3 percent, aided by global e-commerce.

Tapestry reported net sales for Kate Spade at $269 million, noting the strategic repositioning of its wholesale and flash sale businesses.

For Stuart Weitzman, the company reported net sales of $84 million for the quarter, up 5 percent from $80 million during the prior year period.

Earnings: Net income for the group totaled $140 million, or earnings per share of 48 cents, for the quarter compared to $122 million, or 43 cents per diluted share.

CEO’s Take: “As we look forward to the balance of our fiscal year and into 2019, we are excited about the growth opportunities for Tapestry and reaping the continued benefits of a diversified, multi-brand model. At Coach, we look forward to cascading the innovation from the runway across channels and price points,” Luis stated. “During the quarter, we completed the buybacks of the Coach business in Australia and New Zealand as well as the Stuart Weitzman business in Northern China, while also taking operational control of the Kate Spade joint ventures for Mainland China, Hong Kong, Macau and Taiwan. As we’ve demonstrated with our past experiences, we believe that controlling these businesses directly allows us to accelerate international growth and enhance each brand’s development in these markets.”