Just One Quarter in, Tapestry Is Off to a Slow Start So Far

The group formerly known as Coach, Inc. released its first earnings report since announcing its new identity and latest acquisition.
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Photo: Robin Marchant/Getty Images

Photo: Robin Marchant/Getty Images

We're still getting used to the name Tapestry, which the company formerly known as Coach, Inc. chose to reflect its new identity as a house of brands following acquisitions of Stuart Weitzman and Kate Spade — distinct from the Coach brand. The name change was announced in October, and about a month later, Tapestry has released its first earnings report — encompassing the first quarter of its fiscal 2018, or the three months ending Sept. 30.

Tapestry isn't exactly off to a booming start. The company's profits (understandably) took a hit of about $188 million related to the purchase and integration of Kate Spade, and saw lower-than-expected comparable sales (a decline of 2 percent) at Coach stores, for which it blamed calendar shifts and unexpected natural disasters. According to CEO Victor Luis, however, the brand has returned to growth already in the second quarter, is "well positioned for holiday" and hasn't changed the annual guidance it set out for itself in August.

During an earnings call with investors, Luis outlined the "common philosophy" guiding all three of Tapestry's brands. "First, driven by brand-led strategies that focus on the consumer and on an inclusive approach to luxury; second, a focus on innovation across product, marketing and experiences both in our stores and in our digital channels; and lastly, the objectives to drive sustainable revenue and earnings growth through strategies that are focused on long-term brand health."

Speaking of marketing, Luis also touched on Coach's Selena Gomez collaboration which launched during the quarter, noting that the Selena Grace bag in red "virtually sold out." (It is sold out on the brand's website.) The collaboration, which was always a pretty clear play for the attention of Gomez's massive millennial and Gen-Z following, seems to have fulfilled those objectives. "What was specially exciting was the increase in our North America retail customer database, in part reflecting our strategy to leverage the Selena collaboration to cut through to a broader audience," said Luis, who added that the collaboration helped with brand perception as well. "This was also evidenced in our brand tracking where among the broad premium market, women who believe wearing Coach handbags make them feel fashionable and put together, rose versus a year ago, while Coach also leads in being viewed as high quality." The company isn't done leveraging Gomez's influence, especially with the all-important holiday season coming up: "We will of course be using Selena to amplify our gifting message and our holiday campaign and including a personal appearance at our Regent Street store in London."

Kate Spade sales also took a hit from the reduction in wholesale and flash sales, as Luis and co. are already fast at work integrating the brand and taking "significant actions to position the brand for long-term success," in what sounds like a slightly less intense version of Coach's overhaul over the past three years.

Luis said the company is also testing a new visual merchandising approach at Kate Spade stores and, as with Coach, saw success with its customization program. Going forward, he said the brand will continue to reduce wholesale and promotional activity and "accelerate innovation" in handbags and accessories by leveraging Tapestry's supply chain. "We've already made key decisions to reinforce Kate Spade’s leather goods design talent," he noted. Tapestry has also closed four Kate Spade stores and opened five, and sees great potential for the brand internationally. He also said that Jack Spade, the Kate Spade menswear offshoot that had already closed all of its stores, is "winding down" and that the company is focused on Kate Spade's women's offering. Otherwise, it seems safe to say we won't see a dramatic change in Kate Spade branding, at least not in the near future. "We will tailor the brand's whimsical and fun marketing messages, ensuring that it resonates in all key global markets while remaining true to the brand’s unique personality," said Luis. "Looking to holiday and beyond, our focus remains on delighting customers in a distinctly Kate Spade way, full of color and playful sophistication." Sounds about right.

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