Tapestry Inc, the parent company of luxury brand Coach, has surpassed expectations for the holiday quarter thanks to the success of its new handbag lines. The company’s shares rose by 6% after the announcement, signaling investor confidence in its performance.
However, Tapestry has also expressed concerns about the ongoing coronavirus outbreak and its potential impact on sales. The company warned that it could face a loss of up to $250 million due to the virus. To mitigate the impact, Tapestry has already closed most of its stores in mainland China, a move similar to other luxury brands such as Michael Kors, Ralph Lauren, and Levi Strauss.
Prior to the outbreak, Tapestry had been performing well in China. Its products on Alibaba Group Holding Ltd’s Tmall platform drove strong sales, particularly for its Coach brand. Coach’s sales in the second quarter increased by 2% to $1.27 billion, attributed to higher prices and the success of its new “Tabby” handbag line. The company also found success with a Star Wars-themed collection of fanny packs and bags.
To attract younger customers, Tapestry enlisted actor Michael B. Jordan to design a limited edition Naruto line of apparel. These efforts have helped Coach maintain its appeal and drive sales among millennials and Gen Z shoppers.
Excluding certain items, Tapestry’s earnings per share in the second quarter surpassed analysts’ expectations, reaching $1.10 compared to the anticipated 99 cents. The company’s total net sales for the quarter also increased by almost 1% to $1.82 billion. Kate Spade, another brand under Tapestry, contributed to this growth with improved sales.
In a move aimed at revitalizing Kate Spade, Tapestry has appointed Liz Fraser, the president of women’s fashion brand Lafayette 148, as the new CEO. This decision has been viewed positively by analysts at Bernstein.
Looking ahead, Tapestry expects the coronavirus outbreak to have a significant impact on its financial results in the second half of the year. The company anticipates a potential loss of $200 million to $250 million in sales and a decline in earnings per share of 35 cents to 45 cents. Despite this, Tapestry has taken measures to mitigate the impact by reducing its supply chain exposure in China and shifting production to other regions.
Investors have responded positively to the news, relieved that the impact of the outbreak on Tapestry’s sales was not as severe as anticipated. However, some analysts remain cautious and believe that the impact may be greater than what management has indicated, particularly if the outbreak spreads beyond China. The ultimate impact on Tapestry’s business remains uncertain, and only time will reveal how the situation unfolds.