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Tapestry’s Coach Rebounds, Thanks to Data Discipline and Accessible Luxury Positioning

Tapestry gave a stellar performance in third quarter 2021, reporting revenues reached $1.28 billion, advancing 19% from $1.07 billion same quarter last year. On the news, TPR stock ended the week up 5% to $49.12, just pennies shy of its 52-week high of $49.66.

Corporate results lagged slightly behind $1.33 billion reported in 3Q2019 due to poor performance of its Kate Spade and Stuart Weitzman brands. Kate Spade generated $252 million third quarter this year, compared with $281 million same quarter 2019, and Stuart Weitzman brought in $57 million compared with $85 million in 2019.

Claiming its third quarter results “significantly outpaced expectations,” CEO Joanne Crevoiserat singled out Coach’s 25% year-over-year increase and said it has returned to pre-pandemic levels or $964 million. She credited the implementation of its turnaround Acceleration Program with much of Coach’s revival. Perhaps the program will begin to work its magic on Kate Spade and Stuart Weitzman as well.

But for now, Coach, which represents about three-fourths of corporate sales, is on track to reach $4.2 billion by year’s end and lift total corporate revenues to $5.6 billion, according to Cowen’s predictive model.

In a nutshell, Cowen’s retail and luxury leader Oliver Chen sums up Tapestry’s momentum, which goes double for Coach. “TPR’s organizational agility and focus on data, new ways to approach ‘customer centricity’ and inventory rationalization are all key positives for the medium to long term.”  

Let’s break it down:

Renewed corporate energy and direction

Since joining the company in August 2019 as CFO and promoted to CEO in October 2020, Crevoiserat has provided the reliable, steady and focused leadership Tapestry needed, since the two previous CEO’s left under a cloud.

Victor Luis served as CEO for two years from 2017 to 2019, after joining Coach in 2006, but was reportedly let go for “failing to deliver shareholder value.” His replacement, Jide Zietlin, lasted less than a year after personal misconduct allegations resulted in a board investigation and his subsequent resignation.

No employee can bring their best selves to work without trusting in the person at the helm and the bigger the company, the greater the damage. With over 17,000 staff members at the end of June 2020, the lack of leadership and direction has been a drag on Tapestry’s performance for too long.

Right after assuming her new role, Crevoiserat announced the company’s Acceleration Program hinged on three objectives:

  • Sharpen focus on the customer, putting them at the core of everything the company does;
  • Leverage data and lead with a digital-first mindset by using data analytics to drive decision-making, strengthen e-commerce and social media engagement and optimize its store fleet; and
  • Transform the organization to be leaner and more responsive with simplified internal processes and more team empowerment to respond to changing customer needs.

After less than a year of implementing the program, Crevoiserat is confident the company has the foundation to keep accelerating improvements across the board.

“Our standout results for the third quarter reinforced the deliberate actions we’re taking under our Acceleration Program and the strength of our global teams,” she concluded in the most recent earnings call.

With Coach the company’s most valuable resource, she is delegating responsibility for that brand to Todd Kahn, who she appointed to CEO and brand president last month. He has been with the company for 13 years after joining the company as senior vice president, general counsel and secretary in January 2008.

Coach is now in good hands as Kahn understands the brand’s DNA and core values and has the vision to translate that into modern products today’s consumer wants.

“Coach is an iconic brand with a remarkable 80-year history and incredibly talented teams,” he said in a statement. “We will deliver the blend of magic and logic that make our brand and business distinctive.”

Powered by data

Rigorous analytic discipline is the logic Kahn speaks of, which the company is leveraging across all aspects of its operations. It calls its digital capabilities the “flywheel” to unlock the company’s growth potential.

The results so far are remarkable. Corporate accomplishments include:

  • Adding 700,000 new customers through e-commerce in North America, including 400,000 to the Coach brand alone;
  • Achieving triple-digit growth in digital;
  • Increasing purchase frequency and reactivating lapsed customers;
  • Driving dynamic 40% growth over third quarter 2019 in China; and
  • Managing resources more effectively and efficiently with closure of 94 net locations and a 20% reduction in corporate headcount.

“It really is about taking our customer database and driving more active consumers, recruiting more, retaining more, bringing them back with higher frequency,” said Crevoiserat in the earnings call.

In a comment that sounds more like Amazon than a fashion company, she added, “We believe the use of data is powering a shift in our culture, creating a robust test-and-learn environment that empowers our teams to move quickly to respond to changes in consumer preferences and demand.”

Customer first

Speaking specifically to Coach’s commitment to customer centricity, brand president Kahn said in a statement:

“We’re ready to ignite the accessible luxury segment by evolving our message from one rooted in high fashion imagery to one that is inclusive, culturally relevant and consumer-centric. We will focus on authentic communications that are grounded in our values and embody the courageous spirit of New York City.”

That is a back-to-basics turnaround for the Coach brand, which strayed from its historic and accessible luxury roots. The discipline imparted by data will keep its staff of 11,000 employees on the straight and narrow.

Kahn gave a poignant example of how left-brain data discipline is transforming fashion’s typical right-brain culture by citing the evolution of its top-performing Tabby silhouette collection.

“Tabby originally launched in July of ‘19. In prior years, what would have happened by the time we got to February of ‘21, we would have been bored with it and tired and moved on,” he shared in the earnings call.

“Instead, we recognize what an incredible iconic family family we have, and we relaunched it with Pillow Tabby, bringing the entire Tabby family back to the #1 position in our fleet,” he continued.

Inventory rationalization for maximum results

And perhaps the company’s biggest milestone in its Acceleration Program is its reduction of SKU counts between 30% to 50% across all brands, including an over 40% cut for Coach. Along with that, the brand achieved an increase in average unit price both at full-price and outlet retail, higher margins and reduced promotions.

Kahn reported that Coach’s average unit retail price rose 25% in the third quarter, but its handbag prices still remains highly affordable compared with the majority of competitive luxury brands, which reports average between $2,000 to $2,500. Currently out of 700+ bags on Coach’s website, only about 30 are priced over $500, and only three of those over $1,000.

By exercising data-driven discipline in managing operations, Andrea Shaw Resnick, interim CFO, reported:

“This year Coach will already be at a best-in-class op margin in and around 30-ish percent. And we still think that we’ll have digital and China being the revenue drivers. So our opportunities at Coach are really around opportunity to grow the top line and maintain attractive margin,” which she asserted are “already excellent.”

Back on track

Coach lost its way in fiscal 2015, when sales tanked 13% from $4.8 billion to $4.1 billion. It’s hovered just above $4 billion through 2020, when the pandemic took another bite out sales to $3.5 billion.

With a 25% increase at its back this quarter and Cowen projecting total revenues for the brand to reach $4.2 billion by end of fiscal year in June, Coach is enjoying strong tailwinds.

“We remain confident that Coach brand momentum and product execution can continue,” Cowen’s Chen wrote.  

For the fourth quarter, Coach will be introducing new colorways in its Signature Jacquard fabrication, reimagining its Signature C and Horse and Carriage logos to be featured on its Beat and Fields handbag families and expanding its Coach Originals line with a quilted version. And to continue Chinese consumers’ adoption of Coach, it will partner with local ambassadors and introduce exclusive products designed for the Chinese customers.

“We believe Coach’s return to pre-pandemic levels of sales and significant profit growth is a standout achievement, particularly given the challenging backdrop,” Crevoiserat asserted in the earnings call.

“We are building on this momentum and the foundational changes we’ve made this year as we head into the fourth quarter and beyond. We’re proud to celebrate the brand’s 80th anniversary this year and are confident in the future,” she continued.

The brand’s digital flywheel and steady management team is providing the energy and direction needed to keep Coach’s momentum growing.

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