Coach parent Tapestry raised its annual profit forecast on Thursday, betting on full-price sales of its premium handbags and satchels as well as early signs of a demand recovery in key market China.
Shares of the Kate Spade handbags maker were up about 6 percent in early trade, as strong international growth helped it beat sales estimates during the crucial holiday quarter.
Sentiment improved in Greater China from last year’s pandemic-related impact, echoing trends seen at other luxury retailers like Ralph Lauren, Canada Goose and Christian Dior owner LVMH.
After a softer start to the year owing to cautious spending in North America, the company saw its sales in China and Europe rising 19 percent and 11 percent, respectively in the quarter.
“We’ve continued to see an uptick in travel spend from Mainland China tourist, with increases across Asia and Europe,” CFO Scott Roe said.
Earlier in the day, Ralph Lauren posted upbeat quarterly results partly boosted by a strong rebound in China.
Revenue in Tapestry’s Coach brand rose 6 percent, boosted by a near-doubling in sales of its Tabby handbags over last year. This offset declines of 6 percent and 4 percent, respectively, in its Kate Spade and Stuart Weitzman brands.
CEO Joanne Crevoiserat indicated in a post-earnings call that further pricing improvements were planned this year. She said new customers “transacted at higher AUR (average unit retail) than the balance of our customer base”.
BMO analyst Simeon Siegel said the top- and bottom-line beat was driven by better margins and expenses, with clean inventory.
Net sales rose to $2.08 billion in the second quarter ended Dec. 31, edging past analysts’ average estimate of $2.06 billion, according to LSEG data. Easing freight costs helped margins expand by 300 basis points.
It now expects fiscal 2024 adjusted earnings per share of $4.20 to $4.25, compared to $4.10 to $4.15 it forecast earlier.
Tapestry said its planned $8.5-billion buyout of Michael Kors owner Capri was on track as it gears up for tough competition in the global luxury market.
By Savyata Mishra; Editing by Pooja Desai
Tapestry Cuts 2024 Sales View on Slowing Demand
Shares fell 1.7 percent before the bell despite profit exceeding market expectations.