Tapestry's Coach-parent Relies on Pricing to Safeguard Margins in Volatile Market

Tapestry, the parent company of Coach, is relying on price increases for its handbags and shoes to safeguard its profit margins, following the lowering of its annual sales prediction on Thursday. This change comes in response to lacklustre demand in both North America and China. Following the disclosure of Tapestry's first-quarter profits, which exceeded market projections, its shares closed up approximately 3% at $28.28. 

However, the company's shares have depreciated nearly 26% in value throughout this year. 

Tapestry saw a 250 basis point rise in gross margin. This growth can be attributed to higher full-price sales of their high-margin totes and boots, fewer promotions and decreasing freight costs. CEO Joanne Crevoiserat acknowledged the potential for further advancements in pricing, crediting developments in innovation, pipeline and brand popularity during a post-earnings call. The company - most significantly known for its brand, Coach - reported a 3% growth in sales. This was largely due to demand for its Tabby shoulder bags doubling year on year. 

Despite this, Tapestry predicts its 2024 revenue to be an estimated $6.7 billion, falling short of its prior target of roughly $6.9 billion. This decrease has been attributed to the impact of a strong dollar. In addressing the change in consumer buying behavior, Crevoiserat stated, 'Across channels the aspirational consumer is under more pressure on a relative basis. They're being more choiceful.' She also believes that the company's growth in North America is projected to stagnate in 2024 due to 'difficult consumer demand environment' and predicts volatile sales in China. 

Tapestry also confirmed it remains on course to finalize its acquisition of rival company, Capri, in the upcoming year. This comes after the U.S Federal Trade Commission requested additional information on their proposed $8.5 billion deal. Meanwhile, Capri, parent company of Jimmy Choo, reported second-quarter revenues of $1.29 billion. Falling short of market estimates of $1.34 billion, shares in Capri dropped by approximately 2% after hours. Tapestry's net sales held steady at $1.51 billion for the quarter ended Sept. 30, compared to the previous year, slightly under the average analyst expectation of $1.54 billion. Nevertheless, its adjusted earnings per share of 93 cents surpassed estimates of 90 cents.