Tapestry shares rise as Capri falls after earnings
Florida, Orlando Vineland Premium Outlets, Coach sign with leather goods at the entrance.
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Tapestry, the company behind the coach and Kate Spade, beat analysts’ expectations for second-quarter earnings on Thursday and raised its full-year profit guidance. Although, it was a different story for his competitor Capri Holdingswhose brands include Michael Kors and Versace.
Tapestry’s rally, which surged shares more than 3% on Thursday, came a day after Capri’s disappointing third-quarter earnings report. Capri’s shares have fallen more than 25% in the past two days after the company lowered its guidance for its fiscal fourth quarter and fiscal year 2024 and missed estimates of revenue, earnings per share and margins.
Tapestry said nearly half of its 2.6 million new customers in North America are Generation Z and millennials. He reported an increase in the average selling price of handbags, including heart-shaped Coach bags and Bandit shoulder bags.
Rick Patel, managing director of Raymond James, said both Tapestry and Capri “have done a great job” of bringing new, younger customers to their brands through social media and website appeal. However, he acknowledges that the Coach brand has executed its go-to-market strategy better than Michael Kors.
Tapestry has spent years retooling its brands and making them relevant to Gen Z and millennial consumers, said Jan Schatzberg, CEO and co-founder of brand agency General Idea, who has worked with Capri and Tapestry.
Schatzberg told CNBC Tapestry that he tried to represent different age groups and stylistic demographics by finding ambassadors for different communities and focusing them on his products. He said that some competitors did not use this diversity of cultural context in their marketing strategy.
“What you see with the Tapestry numbers indicates that the brand portfolio is really focused on modernizing their behavior and reaching out to consumers who may be under some pressure but still want to buy bags. clothes, outerwear and shoes,” Schatzberg said.
Tapestry reported earnings per share of $1.36 on Thursday, up from an estimate of $1.27, according to an analyst poll by Refinitiv. Tapestry has outperformed EPS estimates three times over the past four quarters.
Revenue for the quarter was in line with analysts’ expectations of $2.03 billion, down 5% year-over-year from $2.14 billion.
Chinese influence
However, sales in China were down 20% due to increasing pressure from the Covid outbreaks.
Capri reported a double-digit decline in revenue in Asia due to lower store traffic as a result of China’s abandonment of its zero-Covid policy.
Patel said the “primary culprit” for Capri’s shortfall was the downturn in the wholesale business, which has been weak across the board for global brands due to inventory issues.
“One of the key differences between the two lines of business is that Tapestry is 90% retail and e-commerce, while Capri is approximately 73% retail and e-commerce, and this channel is well ahead.” Patel said.
Tapestry has raised its FY 2023 earnings guidance to $3.70-3.75 per share from its previous estimate of $3.60-3.70. FY 2023 revenue is estimated to be approximately $6.6 billion, slightly less than the previous year.
Schatzberg said Tapestry’s emphasis on creating stories and narratives around its products has been a critical component of Tapestry’s success. He foresees fierce competition between affordable luxury companies over the next few years to tamp down the brand’s marketing and attract a younger audience.
“If the story isn’t aligned and the product isn’t aligned with where the consumer is, it’s just less successful, which is really brand marketing talk,” Schatzberg said.
State of luxury
Inspiring luxury goods companies such as Tapestry and Capri are forced to compete with larger European companies whose customers are more affluent and repeat customers. Some European luxury brands have recently created products at higher prices, which sometimes encroach on the prices of companies such as Capri or Tapestry.
“Given inflation and other macroeconomic hurdles that these companies face in this environment, I think higher end consumers are more resilient than ambitious luxury consumers,” Raymond James’ Patel said. “It has to do with the consistent results of these other companies.”
Despite these headwinds, Raymond James is still outperforming Tapestry and Capri, although he has lowered Capri’s price target to $60 from $73 at lower valuations.
“Despite some problems with the channel, I believe that … proximity to the brand and product remains favorable, and we also consider it reasonable to expect a gradual recovery in China in 2024,” Patel said.
fashion company Ralph Lauren also beat third-quarter expectations on Thursday. The company reported a 1% increase in net revenue to $1.83 billion, compared to Refinitiv’s estimate of $1.76 billion.
Despite a 2% decline in wholesale sales in North America, Ralph Lauren reported same-store sales were up 2%. The company said it has seen an increase in attracting younger consumers thanks to increased brand awareness.
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