• Tapestry Q2 net income rose 39.5% US$212m from $152m. 
  • Net sales increased 31% to $1.48bn from $1.13bn.
  • Sales boosted by the acquisition of Kate Spade in 2017.

Victor Luis, CEO at accessories business Tapestry, formerly Coach Inc, has hailed the group's "strong" performance in both the fourth quarter and full year and outlined plans to acquire the Kate Spade operations in Singapore, Malaysia, and Australia as well as the Stuart Weitzman business in Southern China.

For the three months ended 30 June, net income climbed more than a third to reach US$212m on a reported basis, from $152m in the prior year quarter. Gross margin widened to 67.6% from 66.59% on a reported basis and to 68% from 66.8% on a non-GAAP basis.

Net sales, meanwhile, increased 31% to $1.48bn from $1.13bn a year-ago. On a constant currency basis, net sales increased 29%.

Beginning in fiscal 2018, Tapestry changed its reportable segments to be by brand. At Coach, operating income reached $283.8m from $246.1m a year earlier, while net sales were up 5% to $1.10bn from $0.05bn. Global comparable store sales rose 2% in aggregate, including e-commerce, as well as for bricks and mortar stores.

Net sales at Stuart Weitzman meanwhile, totalled $73m, compared to $88m last year. Operating income for the brand was a loss of $20.7m on a reported basis, compared to a loss of $2.9m last year.

At Kate Spade, net sales totalled $312m, reflecting, in part, the strategic pullback in wholesale disposition and online flash sales, partially offset by the consolidation of the joint ventures for Mainland China, Hong Kong, Macau and Taiwan. Global comparable store sales declined 3%, including the negative impact of about half a point from a decline in global e-commerce due to the reduction in online flash sales. Operating income for Kate Spade was $23.9m on a reported basis, representing an operating margin of 7.6%.

For the full year, net income slipped to $398m from $591m in the prior year, while gross margin narrowed to 65.5% from 68.6%. Net sales totalled $5.88bn as compared to $4.49bn in the prior year, an increase of 31% on reported basis. On a constant currency basis, total sales increased 30%.

Fiscal 2018 performance includes the contribution of Kate Spade for the period subsequent to the closing of the acquisition on 11 July 2017 through the end of the fiscal year on 30 June 2018. Kate Spade is not included in the prior year results.

At Coach, operating income reached $1.08bn, while net sales were up 3% to $4.22bn from $4.11bn last year. Net sales at Stuart Weitzman meanwhile, were flat at $374m, while operating income was a loss of $3m on a reported basis. Operating income for Kate Spade was a loss of $62m on a reported basis, while net sales totalled $1.28bn.

CEO Victor Luis said the "strong" fourth-quarter results capped a year that demonstrated the power of the group's multi-brand model.

"We achieved our annual sales and operating income guidance, driving significant growth while earnings per share outpaced our forecast," he added.

Meanwhile, Luis said the group's fiscal 2018 performance reflected the benefits of diversification across brands, geographies and categories.

Looking ahead, "we will continue to harness the power of our multi-brand model, fuel innovation across brands, drive global growth with an emphasis on the Chinese consumer, and advance our digital and data analytics capabilities."

Tapestry expects revenues for fiscal 2019 to increase at a mid-single-digit rate from fiscal 2018 to $6.1bn-$6.2bn.

Neil Saunders, managing director of GlobalData Retail, notes this is the final quarter in which sales will be boosted by the inclusion of Kate Spade, which the company purchased in 2017.

He also notes that Coach has driven the whole business forward, while "the numbers from Stuart Weitzman and Kate Spade are less impressive. Most of the issues at Stuart Weitzman still stem from production problems, which delayed key seasonal styles, Saunders explains.

"Not only did this reduce sales of those products, it also weakened overall interest in the brand which meant core products had to be discounted to stimulate demand. Unfortunately, these second-half issues undid most of the advancement during the first quarter."

Looking ahead, Saunders believes Tapestry is in good shape. "It should have a successful holiday quarter which will boost the first-half of its new fiscal year. And now that Kate Spade is in order, we do not preclude further acquisitions in the year ahead."