Tapestry Leans Into Its Digital Future

Tapestry is leaning into a future that is increasingly online.

The fashion group — parent to the Coach, Kate Spade and Stuart Weitzman brands — reported another solid quarter Thursday morning, improving on top and bottom lines thanks to strength in the e-commerce businesses across all three brands, in addition to growth in North America and China.

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“Our focus is meeting our customers where they are,” Joanne Crevoiserat, chief executive officer of Tapestry, told WWD.

That includes the metaverse. In the last quarter, Coach, Tapestry’s largest brand, launched a small collection of NFTs, or non-fungible tokens. The roughly 80 pieces of digital art were claimed in 11 seconds.

“The work we’re doing with NFTs right now is an example of how we think about innovation,” Crevoiserat said. “We’re always testing new ways to engage with consumers. We’re testing and learning how they engage with NFTs [and] how it drives consumer loyalty. So we’re experimenting and we’ll see where the customer takes it, as we learn more about NFTs.”

“And not only are we finding and engaging customers where they are, and how they are preferring to shop, it’s driving a sizable business with accretive margins to Tapestry,” the CEO continued. “And we’re acquiring new and increasingly younger customers through these platforms.”

In fact, Tapestry acquired about 3 million new customers in North America in the last three months — or 11 million new customers in the last year and a half. In addition, the company’s overall digital business grew more than 30 percent in the most recent quarter, compared with 2021’s second-quarter fiscal results, and nearly tripled compared with pre-pandemic levels.

“Given strong consumer engagement in this channel and the power of our platform, we expect digital to reach $2 billion in revenue in this fiscal year with further runway ahead,” Crevoiserat told analysts on Thursday morning’s conference call.

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The growth helps explain why the firm logged quarterly profits of $318 million and raised several full-year targets. Shares of Tapestry to shoot up roughly 3 percent at the start of Thursday’s session.

The firm now expects full-year revenues to be roughly $6.75 billion, compared with its previous estimates of $6.6 billion, “which would mark a record for the company,” Scott A. Roe, Tapestry’s chief financial officer, said on the call. “This represents an increase of nearly 20 percent, compared to fiscal [year] 2021, with strong double-digit growth at each brand.”

In addition, the company anticipates earnings per diluted share to be in the range of $3.60 to $3.65 apiece, up from the previously stated range of $3.45 to $3.50 a share. The company also plans to buy back roughly $1.25 billion in common stock during the current fiscal year.

Just how far the fashion firm will enter the metaverse is yet to be seen.

“We’re going to have a test-and-learn approach here and see where our customers take us,” Todd Kahn, CEO and president of the Coach brand, told WWD. “I like selling real, concrete products, versus just virtual products. That said…you’ll probably see us do more [NFTs]. But it’s less about revenue generation and more about customer engagement and bringing us more connected to our customer. But over time, who knows where it will take us. A year from now I might be saying, we’re the number-one handbag in the metaverse.”

Crevoiserat pointed out that even as Tapestry’s digital ecosystem continues to gain traction, in-store traffic trends are also improving. (The retailer ended the quarter with approximately 1,455 stores around the world.) In-person activations — such as a Kate Spade disco truck in Manhattan, pop-up in Tokyo and London cabs draped in Kate Spade’s flowers — have also heightened brand awareness.

“Overall, these activities to increase brand heat are paying off with growing brand awareness [according to] our most recent U.S. brand tracking survey,” the CEO said.

Fewer promotional sales, higher sku activity and increased prices, as well as the North America and China businesses, also served as tailwinds throughout the recent quarter. Sales in both regions were up, compared with both last year and pre-pandemic levels.

“We remain confident that China represents a meaningful long-term opportunity across our brands,” Crevoiserat said. She added that strategic price increases throughout the portfolio have helped offset inflationary pressures — and have been met with little resistance from shoppers.

“The Kate Spade sequined slice pizza bag was a hit — at regular price — over $300 retail,” Crevoiserat said. “We’re seeing a strong response from our consumers across our products. They recognize the value that all of our brands represent in the marketplace. We’re seeing higher full-price sell-through, pretty much across the board and all of our brands are delivering [average unit retail price] increases. So we’re seeing pricing power across the brands and we believe this is sustainable.”

Kahn added that consumers should expect to see more price increases at Coach over the next year.

“You’ll continue to see us absorb any inflation through pricing,” said Kahn, regarding the brand that achieved its highest quarterly revenues and profitability in nearly 10 years and is expected to surpass $5 billion by the end of the fiscal year.

“Obviously, you can’t do that in one quarter when you’re hit with freight,” Kahn said. “And I think the reason Coach is perhaps in, maybe, a slightly better inventory position than our sister [brands] is not that our merchants don’t want the newest, greatest product as well; it’s just [that] we’ve been on the journey a little longer and developing product that allows us to stay in a slightly better inventory position. So I feel very good about our pricing power.”

Still, Tapestry hasn’t been able to completely dodge headwinds.

“We clearly are navigating the same challenges in the marketplace that others are seeing, including a challenging supply chain and increasing concerns about labor,” the CEO said.

In Tapestry’s case, that translates to some near-term COVID-19-related pressures in the fast-growing China region, thanks to travel restrictions and continued lockdowns. In addition, the company anticipates added shipping costs of roughly $170 for the year, or $55 million in the current quarter, with “an outsized financial impact on our smaller brands,” Roe said.

“Across the world, the backdrop continues to be volatile,” the CFO said on the call. “Further, supply chain constraints persist throughout the industry. We’re continuing to act boldly to mitigate these headwinds and deliver for our customers. Our guidance contemplates ongoing strong momentum in North America in the second half, which is helping to offset the expected near-term COVID-19-related disruptions in China. This is proof of the benefits of our globally diversified platform. Our guidance also incorporates lower-than-expected on-hand inventory due to the revenue outperformance in the first half, as well as higher levels of in-transit. These longer lead times from ongoing supply chain disruptions are expected to limit our ability to change stronger underlying demand in the second half of the year, specifically in Q3.”

Executives on the call added that Tapestry will continue to invest in marketing and new media efforts across all three brands, including TikTok and Tmall in China, accounting for at least some added SG&A expense.