Tapestry quarterly profit beat Wall Street’s view despite sales dip

Tapestry Inc.’s shares rose on 15 August as the maker of handbags and clothing’s quarterly results beat Wall Street expectations amid continued weak consumer confidence and inflation fears.

Adjusted earnings per share were 92 cents a share in the fourth fiscal quarter, New York-based Tapestry said in a statement, while analysts surveyed by Bloomberg had expected 88 cents. Revenue of $1.59 billion narrowly beat projections.  

The shares gained as much as 9.2% in trading before US markets opened. They had risen 3.1% this year through Wednesday’s close. 

Like many other high-end brands, Tapestry’s Coach brand raised prices during the pandemic amid high demand and surging inflation. Investors had worried that Coach would give up some of those gains when the pace of sales began to flag. Instead, it has continued to increase the average price of its handbags and other accessories in recent quarters, improving profitability.  

For Q4, Tapestry said net sales fell 2% on a reported basis. Excluding a currency headwind of approximately 170 basis points, sales were approximately even with the prior Q4.

Gross profit totalled $1.19 billion, while gross margin was 74.9%, which included operational improvements, a benefit of approximately 90 basis points from lower freight expense, as well as FX tailwinds.

Operating income was $235 million on a reported basis, while operating margin was 14.8%. On a non-GAAP basis, operating income was $262 million, while operating margin was 16.5%. This compares to reported and non-GAAP operating income of $274 million and a 16.9% operating margin in the prior year period.

It didn’t give details about individual brand performance. But Tapestry’s Kate Spade has been more of a laggard for the company and, earlier this month, it appointed Eva Erdmann to lead the brand. A veteran of L’Oréal SA and Christian Dior Beauty, Erdmann is a “seasoned brand builder,” Telsey Advisory Group analyst Dana Telsey wrote in a research note. 

Tapestry reiterated its commitment to buying rival handbag and apparel retailer Capri Holdings Ltd. The US Federal Trade Commission sued to block the deal in April and a trial is set for September. Earlier this month, Capri reported its seventh straight decline in annual sales, raising questions as to whether Tapestry would rethink its $8.5 billion takeover offer for the owner of the Michael Kors, Jimmy Choo and Versace brands.

The company “looks forward to presenting its strong legal arguments in court” according to the statement, and is “working expeditiously to close the transaction in calendar year 2024.”

Written with Bloomberg