Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tapestry Inc (TPR, Financial) exceeded expectations for the first quarter, showcasing strong brand performance and operational excellence.
- The company achieved a record first-quarter gross margin, with a 280 basis point expansion compared to the prior year.
- Tapestry Inc (TPR) raised its full-year guidance, reflecting confidence in its growth strategies and shareholder value creation.
- The Coach brand delivered standout results with 2% constant currency revenue gains and significant margin expansion.
- The company acquired approximately 1.4 million new customers in North America, with over half being Gen Z and millennials, aligning with its strategy to attract younger consumers.
Negative Points
- North America revenue declined by 1% compared to last year, impacted by a planned decrease in wholesale.
- Greater China sales declined by 5%, although this was at the high end of the guidance range.
- Kate Spade's revenue declined as expected, and the company acknowledged the need for improved execution and brand-building efforts.
- Stuart Weitzman faced continued financial challenges, with softness in Greater China impacting results.
- The pending acquisition of Capri is facing legal challenges, with the US District Court granting the FTC's preliminary injunction, leading to an appeal by Tapestry Inc (TPR).
Q & A Highlights
Q: Can you expand on the deal update and discuss capital allocation priorities in a deal break scenario?
A: Joanne Crevoiserat, CEO, explained that they filed an appeal as required by their agreement, and the process is ongoing. The focus remains on organic business growth, particularly at Coach. In a deal break scenario, the company would prioritize maintaining a strong investment grade rating, resuming share repurchases, and strategic portfolio management, with no immediate plans for M&A unless Coach remains strong and Kate Spade returns to sustainable growth.
Q: Could you provide more specifics on share buybacks if the deal does not go through?
A: Scott Roe, CFO, stated that they have significant capacity for share buybacks, with a focus on maintaining a strong investment grade rating and a leverage target of less than 2.5 times debt to EBITDA. All vehicles are on the table, and they will provide more specifics if in a deal break scenario.
Q: What are the drivers of Coach's outperformance and recent global demand trends?
A: Joanne Crevoiserat, CEO, highlighted that Coach is winning with consumers through choice, innovation, and emotional connection. The handbag category has been durable, and Coach is growing faster than the category. Todd Kahn, CEO and Brand President of Coach, added that Coach excels at launches, with strong demand for new collections like the New York collection and Cabby family, driving customer acquisition and higher AURs.
Q: Can you diagnose the key reasons for Kate Spade's recent declines and the timeline for stabilizing sales trends?
A: Joanne Crevoiserat, CEO, expressed confidence in Kate Spade's potential, focusing on brand-building and innovation. New CEO Eva Erdman will sharpen the strategic roadmap and improve execution. Immediate actions include enhancing marketing, storytelling, and SKU focus. Scott Roe, CFO, noted that they do not expect growth this fiscal year but aim to stabilize trends.
Q: How do you see pricing evolving and the impact on margins given the current sourcing complexity?
A: Joanne Crevoiserat, CEO, emphasized the balance between introducing newness and investing in icons like the Cabby family. Innovation within icons and new product introductions drive AUR growth. Todd Kahn, CEO and Brand President of Coach, added that disciplined SKU management and marketing campaigns support sustainable growth, while Scott Roe, CFO, noted that structural drivers like AUR and supply chain efficiency will continue to support margin growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
