Tapestry, Inc. (TPR) 2024 Q4 Earnings Call Summary

Optimistic Highlights

• Record Annual Revenue for Coach: Coach achieved record annual revenue, surpassing $5 billion, driven by growth in handbags and AUR gains.
• Strong Gross Margin Delivery: Tapestry achieved its highest annual gross margin in over 15 years, contributing to record fiscal year earnings per share.
• Global Revenue Growth: Total revenue grew by 1% on a constant currency basis, with international growth of 6% led by Europe, Other Asia, and Japan.
• New Customer Acquisition: Over 6.5 million new customers were acquired in North America, with over half being Gen Z and Millennials.
• Digital Business Strength: Digital sales remained strong, more than 3 times pre-pandemic levels, representing nearly 30% of revenue at accretive margins.

Pessimistic Highlights

• Challenges in Greater China: Sales in Greater China rose only 3% for the year, with declines in the second half due to a more gradual recovery than expected.
• North America Revenue Decline: In North America, revenue declined by 1% compared to the previous year.

Company Outlook

• Fiscal Year '25 Guidance: Tapestry expects revenue of about $6.7 billion, representing growth on a reported basis, including approximately 50 basis points of currency pressure. Operating margin is expected to expand by about 50 basis points versus the previous year.
• Long-term Growth: Tapestry aims to accelerate growth at Kate Spade and Stuart Weitzman while building on Coach's momentum for long-term profitable growth.
• Capri Acquisition: Despite Capri's disappointing standalone results, Tapestry remains committed to the acquisition, seeing it as a strategic fit and a value creation opportunity.

Q & A Highlights

• Q: Can you talk about your commitment to the Capri deal and your thinking around the level of financial returns? (Bob Drbul, Guggenheim Securities)

  A: Despite Capri's underperformance, Tapestry sees the acquisition as a strong strategic fit and a compelling value creation opportunity. Tapestry's results contrast with Capri's, showcasing Tapestry's focus on brand-building and consumer centricity. The deal remains compelling, with iconic brands under Capri's portfolio that Tapestry believes can be reinvigorated. (Joanne Crevoiserat and Scott Roe)

• Q: Are there upside opportunities to the synergy target initially guided for the Capri acquisition? What is Plan B if the deal does not go through? (Ike Boruchow, Wells Fargo)

  A: Tapestry has developed more conviction in the opportunities for synergies, adapting integration planning and strategies. If the deal does not go through, Tapestry's strong free cash flow allows for investment in its business and brands and return of capital to shareholders. (Joanne Crevoiserat and Scott Roe)

• Q: Could you elaborate on the current health of the Coach brand in North America and any changes in customer behavior? (Matt Boss, JPMorgan)

  A: Coach continues to build strength, achieving slight growth in North America in Q4 with exceptional margins, led by the retail full price business. Coach's positioning and product innovation, such as the Tabby and Brooklyn bags, continue to resonate with consumers. (Joanne Crevoiserat and Todd Kahn)

• Q: Can you touch on Kate Spade's need for further investment to fuel a turnaround? (Lorraine Hutchinson, Bank of America)

  A: Kate Spade's focus is to accelerate top-line growth through brand building while continuing to expand margins. Investments in the brand are being made alongside delivering higher gross margins, operating margins, and profit dollars. (Joanne Crevoiserat)

• Q: Could you elaborate on the health of your brands in the China marketplace and the drivers of a return to growth? (Brooke Roach, Goldman Sachs)

  A: Tapestry is building a healthy business in China despite macro headwinds. The long-term view on China remains unchanged, with a prudent approach in the short term. Coach is positioned well in China, offering value compared to traditional European luxury, with opportunities for productivity gains and distribution expansion. (Joanne Crevoiserat and Todd Kahn)