What happened
Shares of Tapestry (TPR 1.50%) surged 42.2% in October, according to data provided by S&P Global Market Intelligence.
Shares of the owner of luxury brands Coach and Kate Spade have more than doubled from their March low, but are still down 17.5% year to date.
Image source: Getty Images.
So what
Tapestry reported top- and bottom-line numbers that significantly exceeded expectations for its fiscal 2021 first quarter, and this provided investors with confidence that growth was returning for the company. Net sales fell 14% year over year to $1.2 billion, but operating profit almost tripled from $51.6 million to $150.6 million. Net income surged more than 11-fold from $20 million to $231.7 million, and Tapestry also reported a healthy free cash flow generation of $64 million.
CEO Joanne Crevoiserat highlighted two key areas that contributed to the company's recovery on the earnings call. The first was the achievement of triple-digit growth on the company's digital channels, allowing e-commerce to represent nearly 25% of total revenue during the quarter. This strong performance can be attributed to Tapestry's consistent investment in its technology infrastructure that has resulted in the company capturing a growing number of millennial and generation Z customers online. Furthermore, online sales also carry higher operating margins compared to brick-and-mortar sales.
The other aspect is Tapestry's significant growth in China as the company tapped myriad channels to reach its customers, coupled with a wide-ranging product assortment and effective marketing tactics. Impressively, Coach was ranked as the No. 1 handbag brand on Tmall, a Chinese e-commerce website spun off from Taobao and operated by Alibaba Group Holding.
Now what
Tapestry is determined to build on this growth momentum to deliver better numbers moving forward. The company has reduced its global corporate headcount expenses by 20% to streamline its costs and improve its operating margin, while also offering customers new choices for curbside pickup and contactless payment options in light of the pandemic. New technology is being harnessed to offer shopping appointments and "virtual queues" in certain North American stores to make customers feel safer when shopping in the company's boutiques.
Brand loyalty and enhanced digital marketing initiatives should enable Tapestry to remain resilient in the face of the strong headwinds caused by the pandemic.
