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Tapestry CEO Joanne Crevoiserat Dissects ‘Transformational Year’

Tapestry Inc. continued to make progress against its Acceleration Program, beating Wall Street estimates for the fourth quarter and bringing in over 900,000 new customers as it now plans to increase inventories to get ahead of supply chain disruptions.

In a Nutshell: During the conference call to Wall Street analysts, CEO Joanne Crevoiserat referred to the year ended as a “transformational year for Tapestry. We are a fundamentally different company today than we were just one year ago.”

Many of the changes she referred to are due to the company’s Acceleration Program, which has the goal of sharpening the company’s focus on the consumer, leveraging data to lead with digital and becoming a leaner and more responsive organization. The program delivered an increase in the number of repeat transactions, even reactivating lapsed customers across brands.

It seems to be working because Tapestry now has nearly 4 million new customers for the fiscal year, helped by a fourth quarter boost of over 900,000 new shoppers, including a growing number of millennial and Gen Z consumers, she said.

The businesses generated $1.2 billion of free cash flow, helping the company reduce its leverage and fully pay down its $700 million revolver, she said. As such, Tapestry reinstated its capital returns program, through both dividends and share repurchases in Fiscal Year 2022.

Crevoiserat said Coach fueled momentum through innovation across consumer touchpoints, driving engagement with new and existing customers. The company launched a loyalty program in North America during the quarter, and drove repeat transactions through increased target marketing. For the year, the brand acquired “nearly 2.5 million new Coach customers through our digital channels in North America alone,” Crevoiserat said. She added that fourth quarter handbag average unit retail rose “high single-digits globally, led by particular strength in North America.” The company’s goal is to build brand awareness for Coach and increase its presence in Asia as it targets over $1 billion in revenue for its core handbag and small leather goods categories.

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She said the company during the quarter re-engaged lapsed Kate Spade customers at an increasing rate, reactivating 550,000 customers through our North America digital channels. Also, data analytics helped the brand adjust its assortment and pricing strategies, resulting in a 40 percent lower stock-keeping unit count and in disciplined promotion activity. “This ultimately drove overall handbag AUR (average unit retail) growth, which increased mid-single-digits in both the fourth quarter and for the fiscal year,” Crevoiserat said.

Tapestry's Target Marketing Focus Helps it Grow 4Mn New Customers
Jennifer Lopez is Coach’s global brand ambassador. Courtesy Photo

At Stuart Weitzman, she said the brand renewed its reputation for fit, comfort and quality by listening to customer needs, and grew key categories by building strength in boots, booties and sandals—a selection that also attracted a younger audience.

Chief financial officer Scott Roe said, “We have taken the position that we’ll be aggressive on protecting the momentum of the business, by securing significant expedited deliveries at an additional cost in order to mitigate the impact of supply chain disruptions, at least through the holiday period.”

That means that while inventory levels slipped to $735 million for the quarter from $737 million a year ago, it will rise “meaningfully throughout the year as we pull forward receipts to match strong demand” and get ahead of lead times from supply chain pressures due to Covid-19 disruptions.

The Coach parent will raise some prices to increase AUR to counter “counter some of the additional cost pressures.”

Net Sales: For the three months ended July 3, net sales more than doubled to $1.62 billion from $714.8 million.

Digital grew over 35 percent from last year and up over 200 percent when compared with the same 2019 pre-pandemic quarter.

By brand, Coach sales rose 130 percent to $1.19 billion from $517.4 million last year, and up 8 percent from the same 2019 quarter. Kate Spade sales rose 108 percent to $341.6 million from $164.1 million, and was up 3 percent from 2019 levels. Stuart Weitzman sales climbed 156 percent to $84.9 million from $33.3 million, and was essentially flat when compared with the same 2019 quarter.

By region, sales in Mainland China for Coach grew 60 percent from last year and over 40 percent from the same 2019 quarter. Tapestry also said topline momentum in North America rose 165 percent from a year ago and up in the high-teens percentage when compared with the same 2019 quarter.

Tapestry said it reduced the amount of stock-keeping units by 40 percent and improved its assortment productivity. Data and analytics, combined with fewer promotions, helped drive stronger overall AUR in the quarter.

For the year, net sales increased 16 percent to $5.75 billion from $4.96 billion. The company said new customer acquisition contributed to Tapestry’s triple-digit global digital gains in fiscal year 2021 to $1.6 billion in e-commerce sales.

Earnings: Net income was $199.8 million, or 69 cents a diluted share, against a net loss of $293.8 million, or $1.06, in the year-ago quarter. The company said adjusted diluted earnings per share (EPS) were 74 cents for the quarter.

Wall Street expected adjusted diluted EPS of 68 cents on revenue of $1.56 billion.

For Fiscal Year 2022, the company forecasted diluted EPS between $3.30 to $3.35 on revenue in the $6.4 billion range.

For the year, net income was $834.2 million, or $2.95, against a net loss of $652.1 million, or $2.34, in the year-ago period.

CEO’s Take: “We are in a position of strength, supported by our clear strategy, compelling brands and differentiated platform. We believe these competitive advantages will enable us to win with consumers and capture market share. We are in a position of strength, supported by our clear strategy, compelling brands and differentiated platform. We believe these competitive advantages will enable us to win with consumers and capture market share,” Crevoiserat said.