The Business Overview: A Legacy of Craftsmanship and Innovation
Tapestry, Inc. is a house of iconic accessories and lifestyle brands that has been captivating consumers around the world. The company's portfolio includes the Coach, Kate Spade, and Stuart Weitzman brands, each with its unique identity and devoted following. As Tapestry navigates the dynamic retail landscape, it has demonstrated the ability to adapt and innovate, positioning itself for long-term sustainable growth.
Tapestry's roots can be traced back to 1941 when it was founded as the Gail Manufacturing Company, a small leathergoods company. In 1961, the company underwent a significant transformation, changing its name to Coach Leatherware Company and shifting its focus to the design and manufacture of high-quality leather goods and accessories. Over the following decades, Coach established itself as a leading American accessories brand, expanding its product offerings and global footprint.
The company's evolution continued with strategic acquisitions that broadened its brand portfolio. In 2017, Coach, Inc. acquired Kate Spade & Company, a leading global design house founded in 1993, known for its handbags and accessories. This was followed by the acquisition of Stuart Weitzman Holdings LLC in 2019, a luxury footwear and accessories company founded in 1986.
These acquisitions marked a pivotal moment in the company's history, transforming Coach, Inc. into a house of multiple luxury lifestyle brands. To reflect this new brand portfolio approach, the company changed its corporate name to Tapestry, Inc. in 2018.
Throughout its history, Tapestry has faced various challenges, including the 2008 financial crisis, which impacted consumer spending, and increasing competition from other luxury and accessible luxury brands. The company has successfully navigated these challenges through brand-building initiatives, product innovation, international expansion, and strategic acquisitions to diversify its portfolio. Additionally, Tapestry has had to address changing consumer preferences and shopping behaviors, such as the growth of e-commerce and the evolving preferences of younger consumers.
Financial Snapshot: A Resilient Performance
Tapestry's financial performance has been marked by resilience and consistent growth. In the latest fiscal year, the company reported revenue of $6.3 billion, a modest increase of 2.9% compared to the prior year. Net income for the same period stood at $497 million, reflecting a year-over-year decrease of 3.9%.
Financials
The company's balance sheet remains strong, with a current ratio of 1.58 and a quick ratio of 1.05, indicating a healthy liquidity position. Tapestry's debt-to-equity ratio of 0.57 suggests a prudent capital structure, with a manageable level of leverage.
In the most recent quarter, Tapestry reported revenue of $2,195.4 million, representing a year-over-year growth of 5.3%. Net income for the quarter stood at $310.4 million. The company generated operating cash flow of $506.0 million and free cash flow of $475.1 million during this period.
Liquidity
Tapestry's operational efficiency is evident in its financial ratios. The company's gross profit margin for the latest fiscal year was 74.8%, showcasing its ability to maintain pricing power and control costs. The net profit margin stood at 13.4%, reflecting the company's disciplined approach to managing its expenses.
As of the most recent quarter, Tapestry had $983.4 million in cash and cash equivalents. The company also has access to a $2 billion revolving credit facility, which was undrawn as of the end of the quarter, providing additional financial flexibility.
Brand Strength and Strategic Priorities
Tapestry's success is underpinned by the strength and appeal of its iconic brands. Coach, the company's flagship brand, has consistently delivered strong performance, driven by its ability to captivate both new and loyal customers with its innovative product offerings and compelling brand narrative. The brand's focus on design excellence, cultural relevance, and exceptional customer experiences has been instrumental in its success.
In the second quarter of fiscal 2025, Coach net sales increased 10.9% to $1.71 billion, driven by a $135.3 million increase in direct-to-consumer (DTC) sales globally, particularly in North America, Europe, and Greater China. Wholesale sales also increased $30.3 million, mainly in North America and Europe. Coach's operating income increased 17.5% to $620.9 million, with operating margin expanding 210 basis points to 36.4%, primarily due to gross margin improvement from pricing actions, partially offset by higher marketing spend.
Kate Spade, the company's fast-growing brand, has faced some challenges in recent years but is now under new leadership, with a clear strategic roadmap to reignite growth. The brand is focusing on strengthening its handbag offerings, enhancing its omnichannel presence, and crafting a more compelling brand identity to resonate with its target consumer base. In the second quarter, Kate Spade net sales decreased 9.6% to $416.4 million, as a $49.3 million decrease in DTC sales, mainly from lower store and e-commerce sales, was partially offset by a $3.6 million increase in wholesale. Kate Spade's operating income decreased 5.6% to $68.0 million, though operating margin improved 70 basis points to 16.4% due to gross margin expansion from lower duties and freight costs, offset by deleveraging of marketing and compensation expenses.
Meanwhile, the company's decision to divest the Stuart Weitzman brand in 2025 aligns with its strategy of optimizing its brand portfolio for long-term success, allowing it to dedicate more resources to its core Coach and Kate Spade brands. In the second quarter, Stuart Weitzman net sales decreased 15.2% to $69.7 million. The segment recorded an operating loss of $1.0 million, a $2.4 million decrease compared to the prior year period, with operating margin declining 320 basis points to 1.5%.
Navigating Macroeconomic Challenges and Opportunities
Tapestry operates in a dynamic global landscape, navigating various macroeconomic factors and industry trends. The company has demonstrated its ability to adapt to changing market conditions, such as the ongoing tariff negotiations and the impact of the COVID-19 pandemic.
Despite these challenges, Tapestry has remained agile, leveraging its diversified brand portfolio and strong supply chain capabilities to mitigate risks and capitalize on emerging opportunities. The company's focus on digital transformation, enhanced customer experiences, and strategic investments in its brands has positioned it well to navigate the evolving retail landscape.
Tapestry's global presence has been a key driver of its success. In the most recent quarter, all regions exceeded expectations, with international revenue rising 7% at constant currency, led by a 42% increase in Europe. Greater China also returned to growth, with revenue rising 2% in the quarter.
Outlook and Key Catalysts
Looking ahead, Tapestry remains cautiously optimistic about its future prospects. The company has provided guidance for the current fiscal year 2025, expecting revenue to exceed $6.85 billion, representing a year-over-year increase of approximately 3%, including an expected currency headwind of over 50 basis points. The company also anticipates operating margin expansion of around 100 basis points, driven by improvements in gross margin.
Tapestry has raised its earnings per share (EPS) guidance to $4.85 to $4.90, representing 13% to 14% growth compared to the prior year. The company now anticipates adjusted free cash flow of approximately $1.2 billion, with capital expenditures and cloud computing costs expected to be in the area of $170 million.
Key catalysts for Tapestry's growth include the continued momentum at the Coach brand, the successful execution of the Kate Spade turnaround strategy, and the potential for further brand portfolio optimization. The company's investments in digital capabilities, marketing, and customer engagement are expected to drive long-term sustainable growth and enhance shareholder value.
Conclusion: A Compelling Investment Opportunity
Tapestry's rich heritage, diversified brand portfolio, and strategic focus on innovation and customer experience position the company as a compelling investment opportunity in the luxury accessories and lifestyle space. With a strong balance sheet, robust cash flow generation, and a clear vision for the future, Tapestry is well-equipped to navigate the evolving retail landscape and capitalize on the growing demand for high-quality, aspirational brands.
As Tapestry continues to refine its brand portfolio, strengthen its digital capabilities, and deliver innovative products that resonate with consumers, the company's long-term growth prospects remain promising, making it a stock worth considering for investors seeking exposure to the dynamic luxury accessories market.