New York-based apparel and accessories firm Tapestry saw profits jump in the first quarter of the year despite a sales decline of 14% year-on-year, boosted by strong e-commerce growth and higher sales in China.

For the three months to 26 September, the Coach brand owner reported a fall in net sales to US$1.17bn from $1.36bn in the prior-year period.

Net income amounted to $232m on a reported basis, compared to $20m last year. On a non-GAAP basis, net income for the quarter was $161m, compared to $114m last time.

Operating income was $202m on a reported basis, while operating margin was 17.3% versus operating income of $52m and an operating margin of 3.8% in the prior year. 

Inventory at the end of the quarter stood at $811m versus $880m last year.

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In terms of its individual segments, Coach booked a 9% fall in sales year-on-year to $875.4m, while Kate Spade saw sales fall 21% to $240.4m. At Stuart Weitzman, sales were down 35% to $56.4m.

Tapestry cited significant growth in China during the period in addition to hailing a second consecutive quarter of triple-digit e-commerce growth versus the prior year, while simultaneously improving global store sales trends.

It also noted further progress in creating an “agile and scalable operating model”, having made 15 net store closures in the first fiscal quarter, representing a net decrease of 50 stores from the prior year.

It remains on track to achieve a  gross run-rate savings of $300m, including gross savings of $200m in fiscal 2021.

Newly appointed CEO Joanne Crevoiserat said the results exceeded expectations and demonstrate the actions the group is implementing as part of its Acceleration Program.

“Our performance underscores the power of our brands, the agility of our talented teams and the competitive advantage of Tapestry’s enabling platform. Importantly, it also reinforces the potential of our Acceleration Program. Guided by an unwavering focus on the consumer and supported by new ways of working, we are positioning the company to successfully navigate the dynamic environment and drive long-term, sustainable growth.”

Tapestry outlined its multi-year turnaround plan to cut costs and focus on digital growth in July.

Weathering the storm

Neil Saunders, managing director of GlobalData Retail, notes although Tapestry’s sales are still in decline, the good news is there has been an improvement from last quarter.

“This underlines that some trade has come back since the depths of the pandemic, but it also highlights demand is still a long way off normal. The improvement on the top line, along with expense reductions, allowed Tapestry to post an operating profit of $202 million which puts the group on stable financial ground.

“While all brands in the Tapestry stable have seen a sales improvement, unlike last quarter there is a wide variation between them. This difference neatly reflects wider consumer behaviors and preferences during the third quarter.

“Sales at Coach were down by a relatively modest 9.4% which, given the 52.8% decline last quarter, is an impressive bounce back. Some of this is down to society starting to open back up which increased demand for bags for work and social occasions. These things are still not normal, but they are also not quite as abnormal as last quarter. With most of Coach’s sales driven by external events, further normalisation would be ideal. However, this trajectory is looking less likely which does not bode well for the remainder of this fiscal year and raises question marks over the sustainability of the recovery.”

One potential mitigating factor is that despite the lack of trigger events and a reduction in the number of opportunities to use handbags, some consumers are still willing to make purchases, Saunders says.

“This is because, unlike much of apparel, handbags are seen by many as an investment item that has longevity. There is also a heightened level of treat purchasing which may accelerate into the holiday period. From our data, the number of consumers with handbags on their gift list is down on last year, but numbers have held up far better than many other fashion categories.

“Coach also deserves credit for its pivot to digital which has made effective use of social media as well as strengthening omnichannel services for customers. This has made shopping easier during a disrupted period. It has also favorably exposed the brand to more younger consumers, and this widening of the audience has been another contributor to the improved sales figures.

“Unlike Coach, the pace of recovery at Stuart Weitzman is much more sluggish and the division posted a 34.8% decline in revenue over the same period last year. Outside of sneakers and casual styles, footwear has been one of the most badly affected segments of the apparel market. Footwear does not have the same investment appeal as handbags and there is a much more immediate link between buying and usage. Both these things mean many consumers are unwilling to purchase. We also believe that that Stuart Weitzman brand is seen as very dressy and formal which reduces its ability to sell through more casual styles like the boots and booties it has recently been focusing on. That said, the colder months ahead should provide an uplift to these categories.

“Kate Spade has also seen a recovery, but sales remain down by 21% over last year. The issue here is that the brand is part way through a reinvention at a time when demand remains very suppressed . This is far from ideal in terms of driving sales. We are pleased that there is more of a focus on lifestyle items such as homewares, accessories and robes for the holidays, but we caution that this will not be sufficient to offset the still steep declines in core apparel categories.

“Overall, Tapestry is in a reasonable position and, in our view, is weathering the storm much better than many of its rivals.”