What’s better than one sales-boosting luxury brand?
Three of them alongside a major corporate tax kickback.
Tapestry Inc. — owner of Coach, Stuart Weitzman and newly acquired Kate Spade — announced today second-quarter sales and profit that handily topped Wall Street’s forecasts, thanks to its combination of powerful labels and a strategy that seeks to give each of them an increasingly premium image.
The firm said its sales during the period gained 35 percent to $1.79 billion, besting estimates for sales of $1.77 billion.
On an adjusted basis, Q2 profits advanced 45 percent to $306 million, or $1.07 per diluted share, topping analysts’ bets for profits of 89 cents per diluted share. Reported profits were $63 million, or 22 cents per diluted share.
“We are delighted to report a second quarter, which exceeded our internal expectations from both the top line and bottom line perspective, leveraging the strong holiday season in North America and the benefits of Tapestry’s multi-brand global model,” CEO Victor Luis told investors during a conference call today. “Our results benefited from both organic sales growth at Coach and Stuart Weitzman as well as the contribution of Kate Spade.”
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Coach brought in the lion’s share of revenues during the period, with a gain of 2 percent to $1.23 billion with global store comps advancing 3 percent.
Sales at Kate Spade were $435 million, reflecting in part Tapestry’s plans to pull back wholesale distribution and online flash sales to bolster the brand’s image. Comps for the label, which Tapestry acquired in May 2017, slid 7 percent. (Coach acquired Kate Spade in May 2017 and closed the transaction in July 2017.)
Sales increased 2 percent at Stuart Weitzman, to $121 million.
With a blockbuster quarter in the books, Luis today pointed to several business initiatives he expects will keep Tapestry’s momentum going — particularly when it comes to international distribution.
“We have now taken operational control of the Kate Spade joint ventures, for Mainland China, Hong Kong, Macau and Taiwan,” he said. “We also entered into a purchase agreement to acquire the Stuart Weitzman business in Northern China from our distributor … We are excited to announce the buyback of the Coach business in Australia and New Zealand from our distributor, with an expected closing in the third fiscal quarter. As a result, we will be creating a Tapestry hub and center of excellence in Sydney to drive growth across our portfolio, further unlocking the value of a multi-brand operating model.”
Luis added that the firm’s year-to-date financial performance will fund the strategic actions without affecting its operating income growth targets for the year. Tapestry’s chief also noted that the company was able to use excess cash in January to pay down $1.1 billion in debt.
“Taken together with the anticipated benefits from a lower tax rate, we expect to drive strong double-digit adjusted earnings growth and exceed the annual earnings guidance we set out for Tapestry at the beginning of the fiscal year,” he added.
Specifically, the company now expects earnings per diluted share in the range of $2.52 to $2.60, an increase of about 17 to 21 percent for the year, including mid-to-high-single-digit accretion from the acquisition of Kate Spade. It continues to expect full-year revenues to increase about 30 percent to $5.8 to $5.9 billion, with low-single digit organic growth and the acquisition of Kate Spade adding more than $1.2 billion in revenue.
As of 11 a.m. ET, Tapestry’s shares continued to respond favorably to its Q2 results —gaining nearly 6 percent, to $47.48.
