Tapestry Inc. — formerly Coach — is reaping early rewards from its latest acquisition.
The firm today posted a first-quarter sales gain of 24 percent to $1.3 billion, driven by the newest addition to its brand portfolio, Kate Spade. ( In May, Tapestry announced it would purchase the Kate Spade brand for $2.4 billion, propping up its luxury platform, comprising Stuart Weitzman and the Coach brand.) Those results were roughly in line with analysts’ expectations.
Specifically, the Coach brand posted Q2 sales of $924 million, a decline of 3 percent over the prior year — as its global same-store sales fell 2 percent. Kate Spade generated sales of $269 million — and while it boosted Tapestry’s overall results, it was a decline for the brand and reflected, in part, the strategic pullback in wholesale distribution and online flash. (When it acquired Kate Spade, Tapestry said it had planned to rein in distribution for the label to elevate its positioning.) Sales at Stuart Weitzman gained 10 percent year-over-year to $96 million.
“Our first-quarter performance was in line with our expectations, reflecting the benefits of our diversified multibrand model, notably the contribution of Kate Spade to our consolidated results and double-digit growth at Stuart Weitzman,” said Tapestry CEO Victor Luis. “While our Coach comparable store sales were impacted by both expected calendar shifts and inventory challenges as well as the effects of the unanticipated natural disasters, we have returned to growth thus far in the second quarter and are well-positioned for holiday. Importantly, we remain on track to achieve the annual guidance we set out for Tapestry in August.”
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For the period, on a reported basis, overall Tapestry posted a net loss of $17.7 million, or 6 cents per diluted share. On an adjusted basis, profits were $119.7 million, or 42 cents per diluted share, besting market watchers’ forecasts for diluted EPS of 36 cents per share.
While some analysts and investors were concerned that Tapestry may have overpaid for Kate Spade, Luis said he was especially pleased with the brand’s performance during the period and is optimistic about the opportunities ahead — even upping its expectation for run-rate synergies to $100 million to $115 million in fiscal 2019 versus previous guidance of $50 million.
“During the quarter, we took significant actions to position the brand for long-term success: We began to implement our strategic initiatives including the pull back on wholesale disposition and flash sales, while taking substantial steps to unlock cost synergies,” he said. “After only a few months since the close of the Kate Spade acquisition, we’re even more excited about the opportunities for the brand, both in terms of revenue growth, driven by distribution and productivity, and profitability improvements, as we leverage our scale across our supply chain, global business development organization and other corporate functions.”
The company maintained its full-year guidance and continues to expect revenues to increase about 30 percent to $5.8 billion to $5.9 billion, with low-single-digit organic growth and the acquisition of Kate Spade adding over $1.2 billion in revenue.
“Overall, we remain focused on creating desire for our brands through innovation and reinforcing the emotional bonds with our customers across geographies,” Luis said. “We are confident in the opportunities for Tapestry as a whole and for each of our brands individually within the attractive and growing $80 billion global market for premium handbags and accessories, footwear and outerwear.”
As of 9:55 a.m. ET, Tapestry shares were up 1.7 percent to $42.20.