Key points
- Tapestry beats quarterly expectations and raises guidance, sending shares up about 6% on a down day.
- Joanne Crevoiserat says Coach can become a $10bn brand as Tapestry cuts sub-$200 handbags and promotions.
- Kate Spade revenue fell as expected while gross margins expanded, and Tapestry hired Jonathan Saunders to restore brand heat.
Tapestry raises outlook as young buyers lift Coach
Tapestry's quarter showed a fashion group compounding growth by selling first handbags to young consumers rather than fighting for luxury's existing customers. Coach and Kate Spade reach Gen Z shoppers entering the category for the first time, so Tapestry can grow without leaning on discounts or trade-down demand. China is the clearest version of that bet, and the raised guidance rests on its breadth. Kate Spade is the exception, still shrinking while it rebuilds.
Takeaways
- Earnings beat and raised guidance lifted shares. Tapestry beat expectations and raised its full-year outlook after compounding growth on top of a strong prior year. Gains were broad-based, led by North America, its largest region, and Asia anchored by China. Shares rose about 6% while most stocks fell.
- Growth starts with deep consumer insight. Tapestry starts by understanding its target consumer, then turns those insights into product innovation, quality and craftsmanship, marketing and immersive experiences such as coffee shops in stores. Crevoiserat says the value proposition is the strongest it has ever been.
- China targets first-time handbag buyers, not trade-downs. Tapestry aims to be a young Chinese consumer's first luxury handbag, and most Coach customers enter the category for the first time rather than trading down from the top of luxury. Coach CEO Todd Conner puts the sweet spot for a genuine leather handbag at $200 to $500.
- Coach cut sub-$200 bags ahead of the holidays. Tapestry reduced the number of handbags priced below $200 going into the holiday season, saying young customers want to know their spending is worth it. Fragrance and footwear still sell under $200. Crevoiserat says Coach has the opportunity to be a $10bn brand.
- Tariff relief is welcome but not counted on. Margins expanded on favorable tariff rates, but Tapestry plans around tariffs rather than counting on relief, Crevoiserat says. She cites 85 years of craftsmanship and a diversified supply chain, and says six years have proven the company can compete in any environment.
- Kate Spade resets before chasing brand heat. Kate Spade revenue fell in line with expectations while gross margins expanded, and the brand added roughly 500,000 new customers. Crevoiserat says the health of the business has to come first. Tapestry hired Jonathan Saunders as executive creative director, and he started in the prior quarter.
Kate Spade's reset
- Restore the health of the business before trying to restore brand heat, Crevoiserat says.
- Step away from discounts so customers come for the brand rather than the price.