Tapestry boosts outlook on stronger sales for Coach brand

Tapestry Inc. raised its guidance for the year, citing better-than-expected quarterly revenue at its Coach brand and strong sales in Europe.

The owner of the Coach and Kate Spade brands is forecasting revenue of more than $6.75 billion this fiscal year, the company said Thursday in a statement. That would represent growth of as much as 2% versus the prior year, up from the nearly flat annual growth it had forecast in August. 

The company also boosted its profit forecast for the full year. It expects annual earnings per diluted share of $4.50 to $4.55. That range is above estimates and an increase from a previous forecast of $4.45 to $4.50.

Shares rose as much as 6.6% in Thursday premarket trading in New York. Tapestry stock has jumped 35% for the year through Wednesday’s close, while the S&P 500 index has gained 24%. 

Tapestry’s $8.5 billion bid to buy Michael Kors parent Capri was blocked by a judge late last month, handing a win to the Federal Trade Commission. Tapestry has said that it plans to appeal the ruling, but Wall Street thinks the acquisition is likely doomed. 

Now, Tapestry executives will have to convince investors they have a credible plan to continue to increase revenue in the coming years, even without the addition of three new brands. Investors already seem to have warmed to the idea: Tapestry shares spiked when the judge blocked the deal in late October. Acquiring Capri had become a bigger financial and administrative challenge the longer the deal dragged on — and a distraction from Tapestry’s successful efforts to elevate the cachet and profitability of its Coach brand. 

At Coach, its Tabby handbags continued to sell well in the most recent quarter and there was “strong demand” for a new line, featuring the Brooklyn and Empire handbags, the company said in an investor presentation. Coach will be able to continue to raise the average price of its products in coming quarters, the company added.

Sales in Europe rose 27% in the three months that ended on September 28 to $94.3 million, fueled by demand from locals and “strong new customer acquisition” particularly with Gen Z, the company added.

The New York-based company didn’t mention plans to resume share repurchases, which were paused after it bid to acquire Capri last year. Many on Wall Street are expecting the company to eventually use the debt it raised to finance the acquisition to instead buy back some of its shares.

Capri reports quarterly earnings after the market closes later Thursday. Revenue in the most recent quarter is expected to fall nearly 9% from a year ago, according to a Bloomberg survey.