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Kate Spade Owner Hasn’t Seen ‘Negative’ Impact Since Raising Prices

The owner of Coach, Kate Spade and Stuart Weitzman says the three brands have the pricing power they need to bounce back from disruption in China and other challenges after third-quarter results came in “well ahead” of plan, CEO Joanne Crevoiserat said.

In a Nutshell: Tapestry Inc. retooled its buys to bring in more inventory and avoid relying on expedited freight, chief financial officer and head of strategy Scott Roe told Wall Street analysts Thursday.

While North America grew 22 percent, Covid-related restrictions drove a mid-teens Mainland China sales decline, Roe said.

By the end of March, over 40 percent of our mainland store base was closed or operating on modified hours and our regional distribution center located in Shanghai temporarily shut down. Digital sales growth of over 20 percent was not sufficient to offset pressure to our stores, and wholesale businesses are continuing to navigate these near term headwinds,” he said.

However, the Coach parent is “getting approvals from local authorities” to reopen its Shanghai distribution center, Roe said.

The three labels’ average unit retail growth gives Roe “the confidence in our ability to maintain margins over time,” reiterating Tapestry’s broad-based pricing power.Crevoiserat said the company’s results came in “well ahead of our expectations,” with “double-digit top-line growth” at all brands.

Tapestry has attracted nearly 13 million new customers since the Acceleration Program got off the ground 21 months ago. These younger, high-frequency shoppers helped drive Tapestry’s 20-plus-percent digital sales growth in the quarter, for 30 percent of the company’s total business.

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While reiterating Tapestry’s portfolio-wide pricing, Crevoiserat said the Kate Spade owner hasn’t seen a “negative impact” after raising prices, “highlighting our value proposition, brand relevance and the increasing traction of our product offerings.”

Coach is using data analytics to understand customers and sell more items at full price, which helped increase global handbag AUR despite reducing promotions. The brand lifted prices on some products during the quarter, and the company expects to reach $5 billion in revenue in the current fiscal year.

Kate Spade’s investment in novelty, reduced promotions and strategic price increases grew handbag average unit retail nearly 20 percent. The brand opened an experiential popup in a Manhattan townhouse that helped attract new shoppers.

Stuart Weitzman is capitalizing on the shift to occasion wear and seeing strength in the North American wholesale channel. “Weitzman has now re-established a presence in all Nordstrom full-price stores in North America, representing significant progress from where we were just one year ago. At the same time, we’ve added depth within our international luxury accounts across Europe,” Crevoiserat said.

Net Sales: For the three months ended April 2, net sales rose 13 percent to $1.48 billion from $1.27 billion.

Coach sales rose 11 percent to $1.07 billion, while Kate Spade gained 19 percent to $301.5 million. Stuart Weitzman sale also rose 11 percent in the quarter to $63.6 million.

For the nine months, net sales rose 22 percent to $5.06 billion from $4.13 billion.

Earnings: The company reported a 34 percent jump in net income to $122.7 million, or 46 cents a diluted share, from $91.7 million, or 32 cents, in the year-ago quarter. On an adjusted basis, diluted earnings per share (EPS) was 51 cents.

Wall Street was expecting 41 cents in adjusted diluted EPS on revenue of $1.42 billion.

The company modified its Fiscal 2022 outlook, due in part to Covid-related pressures in China and the expectation that retroactive benefits from Generalized System Preferences (GSP), a trade preference program that eliminates duties from GSP countries, will not be adopted within Tapestry’s current fiscal year. Tapestry guided diluted EPS for the year to $3.45, on revenue of $6.7 billion.

For the nine months, net income rose 5 percent to $667.5 million, or $2.42 a diluted share, from $634.4 million, or $2.25, in the same year-ago period.

CEO’s Take:  “With the resilient nature of our categories, the attractive positioning of our brands and the emotional connections we are building with our customers, we are confident in the significant runway ahead,” Crevoiserat told investors.