Tapestry’s disappointing second-quarter earnings report last week may not have been what the company had hoped for, but it also wasn’t enough to make chief executive officer Victor Luis want to change course from company’s planned strategic initiatives for the year.
“The political impact on the business is a top concern. The greatest risk is unpredictability or, simply, a volatility that impacts on consumer confidence, whether that’s how they spend, how they save or how they travel,” he told Sourcing Journal. “When consumers travel, they shop. Of course there’s a potential impact from the politics from what is happening in Europe with Brexit to the trade discussion with China. These are issues we are following.”
Adding to that, he said, “The most important conclusion for us is to keep the focus on our business, our brands, and execute on our strategy. We need to keep that emotional connection with the consumer,” Luis said.
All three brands–Coach, Stuart Weitzman and Kate Spade–still have growth opportunities in the North American market, Luis said. However, those opportunities pale in comparison to the future prospects in Europe and China, which Luis said represents the largest growth opportunity for Tapestry.
And China, to no one’s surprise, is where much of the company’s investments in systems and strategic brand marketing across its portfolio have been over the past year, as well as where it will continue to be for the balance of the fiscal year. The CEO told Wall Street analysts during a conference call last week that the investments in systems and infrastructure has been for the build out of a “scalable shared services model.”
For the Coach brand, the company held its first runway show in Shanghai, which generated more than 1.1 billion social media impressions, while at Kate Spade and Stuart Weitzman the investments have been on marketing partnerships with brand ambassadors and on infrastructure. The company is opening more stores for both Kate Spade—where the brand’s international presence is negligible compared with its corporate siblings—and Stuart Weitzman across China.
In the case of Stuart Weitzman, there are plans in place for a new store concept that will showcase in China. The plans call for the opening of “at least 30 stores within the China market,” Luis said. As for opening more stores stateside, Luis said,”In the U.S., there’s not much store growth. The brand has a very good footprint. It’s more about driving same-store sales [in the U.S.].”
The U.S.-China trade war is expected to have a minor tariff impact on the company since only 3 percent to 5 percent of the handbag business for the Coach brand is manufactured in China, Luis said.
But if those tariffs go into effect, should there be a concern that the consumer will have less discretionary income to spend and therefore might see the average price points for a Coach bag as now out of their reach? According to Luis, “That’s hard to predict. You can’t put everything in a silo. If consumers don’t want to spend on the expensive European luxury brands because of how much they are spending on other items, maybe they’ll come [and take a look at] our prices instead. It’s difficult to predict what will happen.”
As for the Coach brand, Luis said logos continue to show strength, with “no change in the trend globally.” While the comparable-store sales gain was just 1 percent for the quarter, Luis noted that the gain was on top of “strong comps from a year ago, making the [comparison] more difficult.”
And Stuart Weitzman looks to be turning the corner now that it has achieved top-line growth for the just reported second quarter after dealing with supply-chain issues over the last few quarters.
The Kate Spade brand in the quarter was the company’s “problem child,” according to Luis, with comps down 11 percent. But the brand also has a new creative team in place, under the direction of Nicola Glass. Analyst Dana Telsey of Telsey Advisory Group noted that the quarter just ended “was always expected to be a transition period with negative comps and lack of excitement in stores” due to the last holdover line from the prior creative team.
Luis said all of the new product under Glass’ direction will be in stores by the end of June, which is also the end of Tapestry’s fourth quarter.
“The product is being delivered to department stores [and] are already in our stores. The reaction has been very positive and people are very excited about what they are seeing. That will be a key driver of an inflection for the Kate Spade brand,” the CEO said. “About 50 percent of the full price product from the new collection will be in doors by the end of the third quarter, and all product at the end of the fourth quarter will be Nicola’s. We expect positive comps for the Kate Spade brand by the fourth quarter.”
Telsey, in a report Monday, said of the new line from Glass, “Her spring collection was just introduced to the full-priced channel on Jan. 28, and initial results have been encouraging. In handbags, the Nicola Group featuring the Spade twist-lock hardware has resonated as a new brand code,” the analyst said. The spade heart twistlock hardware is the new closure on some handbags that have flaps. A heart fits inside the spade, and when the consumer wants to secure the bag, she twists the heart to interlock with the spade.
According to Telsey, “The Margaux bag and ready-to-wear designs across classifications have also seen a strong response. The initial performance underscored management’s confidence in a significant inflection in the business.”