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February 6, 2018updated 12 Apr 2021 2:34pm

Tapestry hails Q2, announces “development initiatives”

Tapestry CEO Victor Luis said the group's second-quarter performance exceeded expectations, driven by a return to growth for Coach, sales gains at Stuart Weitzman and the contribution of Kate Spade, as he announced a series of "important business development initiatives", designed to allow each brand to assume greater direct control over its international distribution.

By Beth Wright

Tapestry CEO Victor Luis said the group’s second-quarter performance exceeded expectations, driven by a return to growth for Coach, sales gains at Stuart Weitzman and the contribution of Kate Spade, as he announced a series of “important business development initiatives”, designed to allow each brand to assume greater direct control over its international distribution.

For the period ended 30 December, net income totalled U$63m on a reported basis, compared to $200m in the prior year period.

However, Tapestry said it recorded non-GAAP reconciliation items that decreased its reported net income by $243m or about $0.85 per diluted share in the second quarter.

Gross margin narrowed to 66% from 68.6% on a reported basis and to 67% from 68.6% on a non-GAAP basis.

Net sales meanwhile, increased 35% on both a reported and constant currency basis to $1.79bn from $1.32bn in the year-ago period.

As previously announced, beginning in fiscal 2018, Tapestry changed its reportable segments to be by brand.

At Coach, operating income reached $361.2m from $338.7m in the year-ago period, while net sales were up 2% to $1.23bn from $1.20bn. Global comparable store sales rose 3%, including a benefit of approximately 100 basis points driven by an increase in global e-commerce.

Net sales at Stuart Weitzman meanwhile, totalled $121m, an increase of 2% from $118m last year. Operating income on a reported basis was $21.3m, compared to $12m in the year-ago period.

At Kate Spade, meanwhile, net totalled $435m, reflecting, in part, Tapestry said, the strategic pullback in wholesale disposition and online flash sales. Global comparable store sales declined 7%, including the negative impact of about 400 basis points basis points from a decline in global e-commerce. Operating income meanwhile, was $45.3m on a reported basis. On a non-GAAP basis, operating income totalled $92m.

CEO Victor Luis said the second quarter performance exceeded expectations, driven by a return to growth for Coach, sales gains at Stuart Weitzman and the contribution of Kate Spade as it continued to make progress on the brand’s integration.

He added: “Importantly, Coach comparable store sales rose globally, led by outperformance in North America, reflecting our strong holiday offering and improved inventory mix, all supported by festive marketing campaigns. In addition to the top line gains, we drove significant operating income growth on better-than-expected profitability metrics, notably gross margin, while expenses were well controlled and also benefitted from timing shifts.”

In addition, Luis revealed “several important business development initiatives”, which he said will allow each of its brands to assume greater direct control over their international distribution.

To that end, Tapestry has now taken operational control of the Kate Spade joint ventures, for Mainland China, Hong Kong, Macau and Taiwan, and has entered into a purchase agreement to acquire the Stuart Weitzman business in Northern China from the group’s distributor.

“These transactions are in keeping with our strategic priority to maximise the opportunity with Chinese consumers globally across our brands,” Luis said. “In addition, we are excited to announce the buyback of the Coach business in Australia and New Zealand from our distributor, with an expected closing in the third fiscal quarter. As a result, we will be creating a Tapestry hub and center of excellence in Sydney to drive growth across our portfolio, further unlocking the value of a multi-brand operating model.”

Luis added “given our strong year-to-date financial performance”, Tapestry expects to fund these strategic actions while maintaining its operating income growth targets for the year.”

The group now expects to drive strong double-digit adjusted earnings growth and exceed the annual earnings guidance it set out at the beginning of the fiscal year.

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