Coach-Owner Tapestry Beat Expectations Despite Sales Dip in China

Tapestry just posted better-than-expected results for the third quarter, despite industry-wide headwinds that impacted its bands.

The Kate Spade, Coach and Stuart Weitzman owner reported Q3 net sales of $1.44 billion, up 13% from last year. Net income was $123 million on a reported basis, with earnings per diluted share of $0.46. The strong results were led by Coach, which delivered a sales increase of 11% compared to prior year.

Shares up Tapestry were up 15% as of Thursday morning.

However, the luxury brand powerhouse was not immune to COVID-19 related lockdowns in China. Sales in Greater China dropped in the low teens, including a mid-teens decline in Mainland China. Executives attributed this decline to the lockdown restrictions, which impacted 40% of the company’s mainland store base and its regional distribution center in Shanghai, which temporarily shut down.

“We’re continuing to navigate these near-term headwinds and believe in the resiliency of the Chinese consumers,” said CFO Scott Roe in a call with investors.

In Q4, the company expects revenue in Greater China to decline about 35%.

Like other companies, Tapestry’s China business was impacted in the most recent quarter by COVID-19 related lockdowns in the country. In the last few weeks, Crocs, Under Armour, Adidas Allbirds and Wolverine Worldwide all reported headwinds to their businesses in China for similar reasons. However, most of these companies said they expect these headwinds to ease through the back half of 2022.

Tapestry is posted an optimistic business outlook for the fiscal year, despite pressures in China.

The company expects revenues to be approximately $6.7 billion in fiscal year 2022, which would represent a high-teens increase compared to fiscal year 2021. The company expects gradual improvements in China as well, starting with the expected reopening of its regional distribution center in mid-May and the easing of Shanghai lockdowns in the beginning of June.

“Despite a deterioration in trends in China due to COVID, we remain confident in our ability to return to profitability this fiscal year,” said CEO Joanne Crevoiserat. “We’re leaning into the strength we’re seeing in North America, notably in the wholesale channel, which is helping to offset the pressures in China.”

Neil Saunders, managing director of GlobalData, also said he expects to see “future momentum from China” for Tapestry when lockdowns slow down.

“In our view, this will be helpful as we move into the quarters ahead,” he said.

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