Luxury fashion company Tapestry, the owner of Coach, has turned to higher prices for its handbags and shoes as a means of safeguarding its margins. This decision comes amid a lower annual sales forecast due to sluggish demand in both North America and China. Although Tapestry was able to increase its gross margin by 250 basis points, it remains faced with challenges in the current consumer demand climate.
Despite these difficulties, Tapestry managed to beat market expectations in terms of first-quarter profit, resulting in a 3% rise in the company’s stock price. However, shares have still suffered a significant loss of nearly 26% this year. CEO Joanne Crevoiserat remains positive about the future, expressing confidence in the potential for pricing improvements driven by innovation, pipeline expansion, and brand appeal.
Sales at Coach, which is Tapestry’s largest brand, experienced a 3% growth thanks to the high demand for its Tabby shoulder bags, which almost doubled from the previous year. Nevertheless, Tapestry has made a downward revision to its 2024 revenue forecast, now expecting approximately $6.7 billion, slightly lower than its previous target of nearly $6.9 billion. This adjustment can primarily be attributed to the strengthening dollar.
Crevoiserat explained that the aspirational consumer is facing increasing pressure in the current market and is becoming more discerning with their purchases. Consequently, Tapestry anticipates stagnant growth in North America by 2024, with volatile sales in China.
Additionally, Tapestry is currently in the process of acquiring rival company Capri, the parent company of Jimmy Choo. Valued at $8.5 billion, the deal is set to be finalized next year. However, the U.S. Federal Trade Commission (FTC) has requested further information regarding the acquisition.
Capri reported second-quarter revenue of $1.29 billion, falling short of market expectations. Weak consumer demand in the United States has played a role in this decline, leading to a 2% decrease in Capri’s shares.
Tapestry’s net sales remained steady at $1.51 billion in the quarter ending September 30, slightly below analysts’ projections of $1.54 billion. Nonetheless, adjusted earnings per share of 93 cents surpassed estimates of 90 cents, indicating some positive performance for the company.
Overall, Tapestry is grappling with the challenges presented by weak demand in the current market. Nevertheless, the company remains optimistic about the future and is employing strategies such as higher pricing to safeguard its margins. With the impending acquisition of Capri, Tapestry aims to enhance its position within the luxury fashion industry and overcome these challenges.
Useful links:
– Tapestry website
– Coach website
