Tapestry, the parent company of Coach, is implementing a strategy of higher pricing to protect its profit margins amidst sluggish demand in North America and China. The company recently adjusted its annual sales forecast downwards as it prepares to acquire its rival, Capri. However, despite these challenges, Tapestry’s shares closed up by around 3% after it announced that its first-quarter profit exceeded market expectations.

One of the key factors contributing to Tapestry’s success is its ability to boost its gross margin by 250 basis points. This has been achieved through increased sales of its high-margin handbags and shoes at full price, as well as reducing promotions and freight costs. CEO Joanne Crevoiserat expressed confidence in the company’s ability to continue raising prices due to its focus on innovation, a strong product pipeline, and growing brand popularity.

While Tapestry’s flagship brand, Coach, experienced a 3% growth in sales during the quarter, driven by a surge in demand for its Tabby shoulder bags, the company expects its revenue for 2024 to be lower than its initial target. This is mainly due to the impact of a stronger dollar. Additionally, Tapestry anticipates flat growth in the North American market and volatility in sales in China, as consumers become more selective in their purchasing choices.

Despite these challenges, Tapestry is still set to finalize its acquisition of Capri in the coming year. However, the U.S. Federal Trade Commission has requested additional information on the proposed $8.5 billion deal. Capri, the parent company of Jimmy Choo, reported second-quarter revenue of $1.29 billion, falling short of market expectations due to weak consumer demand in the United States.

In the quarter ending September 30, Tapestry’s net sales remained flat at $1.51 billion compared to the previous year, slightly below analysts’ average expectation. However, the company’s adjusted earnings per share of 93 cents exceeded estimates of 90 cents.

Despite the challenging demand environment, Tapestry is taking proactive steps to protect its profit margins and maintain its position in the competitive fashion industry. By focusing on higher pricing and continued innovation, the company aims to navigate through uncertain times and seize growth opportunities in the future.

Useful links:
CNBC – Tapestry reports better-than-expected Q1 earnings
Reuters – Tapestry lifts profit above expectations with higher prices