On February 8, Tapestry, Inc., the American luxury fashion holding company that owns Coach, Kate Spade, and Stuart Weitzman, released its financial results for the second quarter of the fiscal year 2024 (ending December 30, 2023): Thanks to the strong performance of international markets, led by Greater China (+19%), the group’s net sales increased by 3% to $2.08 billion compared to the same period last year.
Tapestry’s impressive performance led to a new round of stock price increases. As of February 22, the group’s stock price was $47.8 per share, an 18.5% increase since February 7, bringing its market value over $10 billion to $10.964 billion, marking the highest record since May 2021.
During the earnings call, Tapestry’s CEO, Joanne Crevoiserat, and the CEO and President of its core brand Coach, Todd Kahn, attended and shared the key drivers of the company’s growth, including the Virtuous Flywheel, Generation Z, the China market, and for the first time, detailed strategic considerations behind the acquisition of Capri Holdings (the parent company of Michael Kors, Versace, Jimmy Choo, etc.).
Todd Kahn highlighted Coach’s growth due to the creation of a virtuous flywheel.
“We grow our gross margin by reducing COGS, increasing initial pricing and reducing promotions, coupled with efficient non-marketing SG&A allows us to invest in full funnel marketing, which drives productive sales. This creates a virtuous flywheel. Growing sales enhances the lifetime value of our new and younger clients. Our cogenomic model bodes well for our future growth in the quarters and years ahead.”
*Full-funnel marketing is the process of creating a comprehensive marketing strategy that covers all stages of the customer journey, from awareness to purchase.
Tapestry’s latest quarterly report highlighted that it gained approximately 2.5 million new customers in North America, about half of whom are from Generation Z and Millennials.
Joanne Crevoiserat also discussed acquiring young new customers, stating that “Customer Obsession is really the engine that drives growth for our brands, but frankly, for all brands. And it really does start with being curious about the customer and understanding how to bring our brand to the market with even more relevance, more connectivity and truly a more emotional — creating a more emotional connection with the consumer.”
Crevoiserat further mentioned that the company conducted extensive customer research, not just brand tracking studies but also deeper sociological research to understand customers’ feelings in store environments, their feelings about our products, and their views of the world, which are constantly changing. This requires the company to continuously be curious, with the entire company “absorbing” this “data.” Over the past four years, Tapestry’s way of working has dramatically changed, with our team getting better at gaining these “insights” and applying them across all aspects of our value creation.
“We implement this philosophy not only in brand positioning but also in product development, understanding who we are talking to, what values we are conveying, including emotional and functional values, and which consumer needs we are meeting. Importantly, we continue to attract young consumers to our brand, with 2.5 million new customers, about half of whom are Generation Z and Millennials, proving this.”
Todd Kahn added that the Coach brand has been redefined as Expressive Luxury since September 2023, focusing on the eternal Gen Z consumer. “When you combine the stories we tell with eye-catching products, we are driving meaningful growth among new young consumers, thereby igniting brand heat.”
The executives also shared their latest views on the Chinese market, stating, “We continue to believe that China represents long-term opportunity across our brands.”
Joanne Crevoiserat noted that the Coach brand has been in the Chinese market for over 20 years. As it relates to the business right now, we are seeing a slower pace of recovery in the market. But our China business was landed right in line with our expectations in the second quarter at up 19%. Our outlook for this fiscal year is that we will drive mid-single-digit growth in the year. That expectation is unchanged. So the dynamics in the market are unfolding the way we expected.”
“And what’s driving our success is that our teams in the market are doing an excellent job building our brands and connecting with consumers. We continue to see consumer desire for our brands is strong and we saw that through the second quarter. And importantly, in the surveys we field in the market purchase intent in our category, handbags and leather goods is still high with consumers in the market. So again, expectations are high,” Crevoiserat added.
Todd Kahn further stated, “When you look at where the Coach brand sits today and the white space between us and traditional European luxury, that’s at an all-time high. And in a market like China, where maybe people are being more frugal and thoughtful about their purchase, that bodes very well for Coach.”
In response to questions about the ongoing Capri acquisition, Joanne Crevoiserat gave a systematic explanation for the first time, stating that the group considers four dimensions in any capital allocation decision:
- Does it align with our overall company strategy?
- As owners, what can we bring to it, and are we good owners of these assets?
- What are the expected financial outcomes and shareholder returns we model?
- What is the execution difficulty?
“…as we evaluated all of those, we landed on this Capri acquisition is quite compelling.”
| Source: Tapestry Group Analyst Conference
| Image Credit: Tapestry Group Official Website
| Editor: LeZhi
