Tapestry Inc.’s new transformation plan could help boost average unit retail and stronger margins, while closing stores that fail to perform.
In a Nutshell: Joanne Crevoiserat, interim CEO of the parent to Coach, Stuart Weitzman and Kate Spade, told Wall Street analysts that the plan will help drive “accelerated revenue growth, higher gross margins and substantial operating leverage across Tapestry’s portfolio.”
The three-pronged plan calls for the accessible luxury company to sharpen its focus on the consumer, while leveraging data and adopting a digital-first mindset to transform into and agile and responsive organization. Tapestry estimates it will save about $300 million from these initiatives, including $200 million projected for fiscal 2021.
Crevoiserat said the company began its review of operations last fall. “The changing landscape [due to the COVID-19 pandemic] has not changed our priorities. In fact, it has been a catalyst to accelerate them,” she said. Focusing on data will help stores understand local customer preferences, which would improve average unit retail, she added. Tapestry is also trying to become a more omnichannel-minded retailer.
Moreover, the company reduced its headcount by 20 percent, resulting in a leaner operation that is expected to help foster quicker decision-making. She also said the company’s sourcing model has reduced production lead times from four months to three months, and the company continues to work with its raw materials and service suppliers to drive more speed to its processes.
“Looking forward, Tapestry’s next chapter of growth is ours to write. While the backdrop remains volatile, it has not changed our long-term objectives. Rather, it has been a catalyst to accelerate our strategic agenda. Through our Acceleration Program, we are transforming into a world-class consumer centric organization that is more agile and data-driven with a digital-first mindset. We believe these initiatives will create stronger connections with our customers, fueling accelerated growth and profitability for Tapestry and each of our brands,” Crevoiserat said.
Brand presidents for Coach, Kate Spade and Stuart Weitzman said the new strategy places a focus on the customer that each brand has, instead of the customer the brand wanted. Tapestry isn’t changing its positioning in the mass luxury market that targets the aspirational consumer, but it is fine-tuning how the brands reach out to their customers by making sure each one is inclusive and omni-channel focused. And with a renewed focus on profitability, underperforming stores are likely to close.
The Coach brand will right-size its store fleet and accelerate growth in China. Stock keeping units for holiday have been reduced by 50 percent. And while some stores have been viewed as marketing vehicles, they will now have internal sales goals that if not met could put them on the chopping block.
Kate Spade will introduce “non-negotiable brand elements” as the brand re-energizes its handbag and leather goods categories. And at Stuart Weitzman, the brand will restore profitability by focusing distribution in key markets where it has the greatest opportunity for growth, such as China where it has strong momentum and high margins.
“Our fourth quarter results reflected our effective and values-led approach to navigating the COVID-19 pandemic. This performance exceeded internal expectations, demonstrating the power of our unique brands and the decisive actions taken to adapt our business to the rapidly evolving environment and enhance financial flexibility,” Crevoiserat said. “Looking forward, Tapestry’s next chapter of growth is ours to write. While the backdrop remains volatile, it has not changed our long-term objectives. Rather, it has been a catalyst to accelerate our strategic agenda. Through our Acceleration Program, we are transforming into a world-class consumer centric organization that is more agile and data-driven with a digital-first mindset. We believe these initiatives will create stronger connections with our customers, fueling accelerated growth and profitability for Tapestry and each of our brands.”
Net Sales: Net sales for the three months ended June 27 fell 52.7 percent to $714.8 million from $1.51 billion.
Gross margin for the quarter was 69.8 percent versus 66 percent in the year-ago quarter. By brand, Coach sales were $517 million versus $1.10 billion a year ago, while Kate Spade was $164 million versus $332 million in the prior year. At Stuart Weitzman, sales were $33 million versus $85 million a year ago.
Inventory at the end of the quarter was $737 million versus $778 million a year ago.
For the year, net sales fell 17.7 percent to $4.96 billion from $6.03 billion.
Earnings: The net loss for the quarter was $293.8 million, or $1.06 a diluted share, against net income of $148.9 million, or 51 cents, a year ago. On an adjusted basis, the net loss was $70 million, or a diluted loss per share of 25 cents.
Results were better than the loss of 56 cents on revenue of $663.4 million that Wall Street expected.
For the year, the net loss was $652.1 million, or $2.34 a diluted share, against net income of $643.4 million, or $2.21, in the prior year.
CEO’s Take: “We have a clear vision, strong teams and three powerful brands supported by Tapestry’s unique, enabling platform. I am confident that our strategy is the right one for our future. We are committed to strengthening our brands and organization by focusing first and foremost on the consumer, leveraging digital and data more fully, and creating a culture of empowerment and entrepreneurship to enhance responsiveness,” Crevoiserat said. “As we enter the new fiscal year, we are taking deliberate actions to lower promotional activity and increase AURs across brands, resulting in gross margin expansion, while creating a scalable agile framework, notably through targeted reductions in SG&A. These initiatives are designed to create a strong foundation for profitable expansion over our planning horizon. Therefore, assuming continued steady recovery as we emerge from the pandemic, we would expect a return to sustained topline growth in the second half of fiscal 2021, with bottom line growth in each of fiscal 2021, 2022 and 2023.”