Stuart Weitzman saw sales heavily impacted by China shutdowns and wholesale declines in Tapestry’s otherwise positive second quarter earnings on Thursday.
In fact, shares for Tapestry Inc. were up 6% after the company raised its outlook for the full fiscal year 2023 after it beat expectations in the holiday season.
The New York-based parent company of Coach, Kate Spade and Stuart Weitzman reported net sales in the second quarter of $2.03 billion, down 5% from the same time last year. Net income, however, was $330 million, or earnings per share of $1.36, up from $318 million and earnings per diluted share of $1.15 in the prior year period.
On the company’s quarterly earnings call, Tapestry CEO Joanne Crevoiserat noted that these results were led by double-digit sales increases in Europe, Japan and other Asian countries, which together outpaced its expectations. She also added that In North America, the company saw a slight decline in revenue amid a “difficult consumer backdrop” due to inflation and reduced spending.
But as the executive said on the call, its growing consumer base, which increased nearly 2.6 million in North America alone in the quarter (half of these were Gen Z or Millennials), are gravitating towards the company’s emotional product – something Tapestry has focused on since it started elevating its brands.
As for Greater China, sales declined 20% on a constant currency basis, below the company’s expectations as it experienced greater-than-anticipated COVID-related disruption. But, following the change in the COVID containment policy in China, Crevoiserat said that Tapestry has since experienced “a meaningful improvement” in traffic trends, driving a positive Lunar New Year performance and a solid start to the third quarter.
By brand, Coach saw net sales of $1.4 billion in the second quarter, down 5% from the same time last year. For footwear, Crevoiserat said that Coach saw outsized growth led by trend-right styles, including the Leah Loafer and the men’s Low Line Sneaker as well as boots and booties across genders. In men’s, revenue growth was fueled by Coach’s core leather goods families, notably the Gotham, League, Charter and Hitch.
At Kate Spade, net sales decreased 2% to $490.3 million in Q2, as Crevoiserat noted that the brand delivered second quarter revenue ahead of its expectations, driven by outperformance during peak selling periods, including a record Thanksgiving week and Cyber Monday event in North America. For footwear, the brand’s evergreen styles, notably boots and booties, led its performance.
The good news stops, however, at Stuart Weitzman. Tapestry’s footwear brand reported net sales of $85.4 million in Q2, down 26% from the same time last year. Crevoiserat noted that the brand was impacted by its significant exposure to China as well as a decrease in wholesale. These declines were also due to a reduction in off-price shipments as Tapestry remains focused on tight inventory management and brand elevation. However, in its North America direct business, sales rose mid-single digits.
As for its footwear successes, the executive noted that the “Soho” remained a top collection with notable success among younger customers given the family’s on-trend lug soul. The “Stuart,” a new staple in the brand’s offering resonated across age groups, while the “Land” styles “acted as a strong recruitment tool,” Crevoiserat said.
Overall, though, the CEO said that Tapestry generated second quarter earnings well above expectations, supported by stronger-than-anticipated margins. On a currency-neutral basis, EPS rose 10%, which it accomplished despite headwinds in China and continued investment in its platform capabilities and its brands.
As such, the company raised its fiscal 2023 earnings outlook with expected revenue of approximately $6.6 billion. Crevoiserat noted the move incorporates a more moderate headwind from currency, the expectation of more modest growth in Greater China for the fiscal year and the operational outperformance of the second quarter.
“Our foundation is strong, and our runway is significant,” Crevoiserat told analysts. “We are staying agile and disciplined in a volatile environment to successfully navigate current headwinds and at the same time, drive forward our long-term growth agenda.”
