[1/2] A handbag is seen at a Kate Spade store, owned by Tapestry, Inc., in Manhattan, New York, U.S., Nov. 19, 2021. REUTERS/Andrew Kelly
May 11 (Reuters) – Tapestry Inc (TPR.N) raised its annual profit forecast on Thursday, betting that price increases, strong demand for its Coach handbags and a sharp rebound in China would shield the company from a broader slowdown in its purchases luxury items in the US.
Shares of the company were up about 8% as it also beat market estimates for Q3 results, recording a 20% increase in sales in China after lockdowns in the major luxury market were lifted.
Tapestry’s gross margin improved from 69.9% last year to 72.8%.
“It’s almost excellent, considering what many others are saying in retail right now,” said Edward Jones analyst Brian Yarbrough, adding that investors were more nervous about a potential earnings flop and lowered outlook.
Fashion houses ranging from LVMH (LVMH.PA) to Gucci owner Kering (PRTP.PA) have reported a slowdown in demand in the US as consumers pulled out of a post-pandemic splurge on leather goods and jewelry.
Credit card data from Citi had also shown that luxury spending in the US fell in March to its lowest monthly rate in nearly three years, but Tapestry managed to outperform as its Coach handbags — which typically sell for less than $1,000 — attracted more generation Z and millennials. consumers.
It added 400,000 new customers in North America – its largest market – while spending per customer also increased.
Still, trends softened towards April, with CEO Joanne Crevoiserat signaling “a more cautious consumer”. Tapestry expects a mid-single-digit decline in sales in North America in the fourth quarter.
It also tightened inventories significantly, with quarter-end levels only 2% higher than last year. Yarbrough said levels are now in good shape and not at risk of missing demand.
Tapestry now expects earnings per share of $3.85 to $3.90 for fiscal year 2023, compared to $3.70 to $3.75 previously estimated. The company also raised its annual revenue forecast from about $6.6 billion to nearly $6.7 billion.
Reporting by Deborah Sophia in Bengaluru; Edited by Devika Syamnath
