Q2 2024 Earnings Summary
- Strong gross margin expansion across all brands, exceeding expectations with a 300 basis point increase in the quarter, driven by operational improvements and pricing power, and expected to continue in future periods.
- Coach brand's momentum is fueled by its expressive luxury positioning and successful marketing campaigns like Wear Your Shine, resulting in the attraction of 1.5 million new customers in North America, nearly half of whom are Gen Z and millennials, supporting growth while maintaining strong margins.
- Tapestry's data-driven, customer-centric strategies are effectively driving customer acquisition and engagement, particularly among younger consumers, enhancing pricing power and supporting long-term growth across its brands.
- Pressure on Q3 results due to tougher comparisons in China: Tapestry anticipates pressure on top and bottom line figures in the third quarter, primarily due to tougher comparisons from the prior year's strong performance in China. This is expected to affect growth momentum in the near term.
- Underperformance at Kate Spade with execution challenges: Kate Spade is facing significant challenges, underperforming relative to initial margin goals. The brand's core handbag offerings are underperforming expectations, requiring accelerated progress and improved execution to achieve its ambitions. ,
- Softening trends at Capri Holdings could impact acquisition benefits: Since announcing the acquisition of Capri Holdings, there have been softening trends at Capri, which may affect the expected synergies and financial benefits of the acquisition for Tapestry.
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Capri Acquisition Update
Q: Has the softening trends at Capri changed your thinking on the acquisition?
A: We remain excited about acquiring Capri, recognizing opportunities to unlock value by improving execution and leveraging the Tapestry platform. The acquisition economics remain strong, and we're making progress towards closing in this calendar year, unchanged from our prior outlook. Our integration planning continues, and we gain confidence in areas where we can add value. -
Fiscal 2025 Targets
Q: Any updates on fiscal '25 organic goals, margins, and EPS targets?
A: We reaffirm our confidence in achieving the $4.65 EPS target for fiscal '25, which was adjusted from $5 due to the lack of share repurchases. While brand performances have evolved differently, with Coach outperforming, our disciplined capital allocation and operational excellence support our confidence in these goals. -
Gross Margin Drivers
Q: What are the multiyear gross margin drivers beyond freight recovery?
A: Beyond this year's freight benefits, our gross margin expansion is driven by pricing power, operational improvements, and disciplined cost management. Reinvesting in capabilities that deepen our consumer understanding strengthens our pricing power long term. This approach allows us to increase profitability while reinvesting in the business. -
China Market Outlook
Q: What's your view on the health of the Chinese consumer and Coach's strength in China?
A: We see a slower pace of recovery in China but remain confident in its long-term potential. In the second quarter, our China business grew 19%, in line with expectations. We project mid-single-digit growth for the fiscal year, unchanged from prior outlook. Strong brand positioning and consumer desire drive our success in the market. -
Revenue Guidance and China Impact
Q: With flat revenue guidance for Q3, what are you seeing, especially in China?
A: The third quarter faces tougher comparables due to prior-year "revenge spending" in China. Despite quarter-to-quarter noise, we're maintaining our mid-single-digit growth expectations for China. Overall, we beat expectations in Q2 and raised our full-year outlook. -
North America Outlook
Q: What's driving confidence in stronger growth in North America handbags, particularly for Coach and Kate Spade?
A: Our Q2 North America business was flat year-over-year but above expectations, driven at higher margins. Consumers are responding to newness, innovation, and elevated brand messaging. We continue to manage inventory well and focus on healthy growth. -
Kate Spade Performance
Q: What changes are being made at Kate Spade to improve growth and margins?
A: We're focusing on three areas: strengthening the core handbag foundation, enhancing the omnichannel customer experience (including launching outlet.com), and investing in emotional marketing to fuel brand heat. Despite sales pressure, we've expanded gross margin, operating margin, and profit at Kate Spade. We see a path to mid-teens operating margins over time. -
Customer Acquisition Strategies
Q: How does Tapestry's platform support product innovation and customer acquisition?
A: Our customer obsession drives growth by leveraging data and insights across the value chain. We conduct extensive research to understand customers deeply, informing brand positioning, product development, pricing, and marketing. This approach has attracted 2.5 million new customers last quarter, nearly half being Gen Z and Millennials. -
Tabby Platform and AUR Drivers
Q: What's ahead for the Tabby platform, and what's driving AUR growth?
A: Tabby is a multi-year platform elevated through continuous innovation. Recent launches like the Quilted Tabby are performing well. AUR growth is driven by a combination of higher initial pricing and disciplined discounting. Coachtopia, while not yet material financially, enhances brand desirability and has potential for significant growth. -
Gross Margin Beat and Freight Outlook
Q: What drove the gross margin beat, and what are the freight impacts ahead?
A: We achieved over 300 basis points of gross margin expansion in Q2, with about 170 basis points from freight benefits. We expect freight benefits to moderate but remain positive in the second half, contributing about 120 basis points to full-year gross margin expansion. Operational improvements and pricing power also drive margin growth. -
Coach Brand Momentum
Q: How confident are you in maintaining the momentum at Coach?
A: We delivered strong results at Coach, with strategies like expressive luxury targeting the timeless Gen Z consumer. Campaigns like "Wear Your Shine" and product innovation with the Tabby family are driving meaningful growth with new and younger customers. Our "cogenomic" model creates a virtuous flywheel enhancing lifetime customer value.