April 20, 2021

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Tapestry (TPR) Q4 2020 earnings beat expectations

Coach and Kate Spade owner Tapestry reported a narrower-than-expected loss Thursday, as a strong online business helped offset the impact of closed stores during the coronavirus pandemic

The company said it will slash expenses and turn its focus to digital growth as part of a turnaround plan. It said e-commerce sales shot up by triple digits versus the prior year, as it gained nearly 1 million new customers online in North America during the quarter, many of them younger. 

During a conference call, management discussed the company’s vision to refresh each of its three brands, including Stuart Weitzman, to carve out niche audiences in a crowded market for accessories. Each of the brand’s leaders called out past missteps. 

“We have placed too much focus on the customer we wanted, and not enough on who our customer actually is [and] what we as a brand stand,” said Todd Kahn, Coach brand president and CEO. “We’re ready to reignite the accessible luxury segment by evolving our message.” 

While the company is not offering an outlook for the upcoming fiscal year due to the pandemic, it said it expects revenue to be about in-line with the prior year. 

Shares of Tapestry rose more than 8% in premarket trading. 

Here’s what the company reported compared with what Wall Street was expecting for the fiscal fourth quarter ended June 27, based on a survey of analysts by Refinitiv: 

  • Losses per share: 25 cents, adjusted vs. 57 cents, expected 
  • Revenue: $714.8 million vs. $663 million, expected 

Tapestry reported a net loss of $293.8 million, or $1.06 per share, compared with a profit of $148.9 million, or 51 cents a share, a year ago. 

Excluding special items, the company lost 25 cents per share. 

Net sales dropped to $714.8 million from $1.51 billion a year ago. 

Analysts had expected a loss of 57 cents per share, on revenue of $663.3 million, based on a Refinitiv survey. 

Coach sales fell 53%, while sales at Kate Spade dropped 51%, and sales at its Stuart Weitzman brand plunged 61% during the quarter. 

The company reported hopeful signs, however, that could bode well for its future. It said it returned to positive year-over-year sales growth in Mainland China. It also reopened the majority of the stores it operates across the globe. 

Gross margins improved at each of the company’s brands due, in part, to fewer markdowns on bags and jewelry. 

“I’m confident that Tapestry’s next chapter of growth is ours to write,” Joanne Crevoiserat, Tapestry’s interim CEO, said during the conference call, adding that the fourth quarter exceeded the company’s own expectations. “The changing landscape has not changed our priorities, [but] it has been a catalyst to accelerate them.” 

Meantime, the company committed to speeding along a turnaround plan. It said it will become leaner, more focused on its e-commerce business and appeal to consumers in new ways to drive up sales for Coach, Kate Spade and the Stuart Weitzman. It estimated it will reduce expenses by about $300 million, including $200 million projected in fiscal 2021. 

As one example, Kahn said the Coach brand will have 50% less handbags and items for customers to choose from this upcoming holiday season. “This reduction is key to greater productivity and clearer brand messaging to the consumer,” he said. 

Crevoiserat, a former Abercrombie & Fitch executive, stepped into the CEO role as the company looks for a permanent replacement. 

Tapestry’s CEO Jide Zeitlin resigned in mid-July as the board began a probe into his personal conduct. He had been chairman since 2014 and had just taken over the CEO role in September from Victor Luis. 

To buoy its finances during the pandemic, Tapestry said it cut corporate headcount costs by 20% and made other decisions to reduce operating expenses. The company ended the fiscal year with $1.4 billion in cash and short term investments, including a $700 million revolver draw down. 

Read the complete earnings press release here. 

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