News

Nov 07, 2024

Tapestry raises annual earnings target on robust Tabby handbags demand

By Juveria Tabassum (Reuters) -Tapestry raised its annual earnings forecast and surpassed first-quarter estimates on Thursday, as the Coach parent benefited from full-prices sales of its popular Tabby

By Juveria Tabassum

(Reuters) -Tapestry raised its annual earnings forecast and surpassed first-quarter estimates on Thursday, as the Coach parent benefited from full-prices sales of its popular Tabby handbags.

Shoppers, particularly in the middle- and upper-middle income category, have continued to splurge on trendy apparel and accessories even as they pared back on most non-essential purchases.

Last month, a U.S. judge blocked an $8.5 billion merger between Tapestry and Michael Kors parent Capri. Tapestry CEO Joanne Crevoiserat reiterated on a post earnings call that the ruling was "incorrect" and the company had appealed against it.

While U.S. President-Elect Donald Trump is expected to take a more lenient stance on antitrust policies than President Joe Biden, analysts reckon the easing up in the climate for mergers in the country may have come too late for Tapestry and Capri.

"The date at which Tapestry can walk away without penalty is Feb. 10, and I do not expect an appeals decision or changes to the FTC before then. So, I would not expect the merger to be completed," said Mari Shor, senior equities analyst at Columbia Threadneedle Investments.

Shares of the company surged after the Federal Trade Commission's (FTC) decision late last month. They were up 3% in premarket trading, after sales at Coach, which houses Tabby and accounts for more than a third of Tapestry's total revenue, rose 2% in constant currency.

Tapestry's Tabby bags, which sell for as much as $750, have been a customer favorite for several years, garnering appeal among younger customers across its many iterations.

Robust demand in Europe, indicated from a 27% jump in sales during the quarter, also helped the company weather a 5% drop in revenue in its key market of Greater China.

In contrast, European luxury giant LVMH missed its quarterly sales expectations in October, hurt by weak demand in China and Japan.

Tapestry expects its 2025 earnings per share to be between $4.50 and $4.55, compared with the $4.45 to $4.50 forecast earlier.

Tight cost control and more full-price sales have helped the company's gross margins expand for eight straight quarters.

Tapestry's first-quarter revenue of $1.51 billion beat analysts' estimate of $1.47 billion, according to data compiled by LSEG. Its adjusted earnings per share of $1.02 also topped expectations.

Capri is scheduled to report its second-quarter results after markets close.

(Reporting by Juveria Tabassum; Editing by Shilpi Majumdar)