Categories Analysis, Retail

Tapestry (TPR) is leaning on a digital-first strategy to drive future growth

Tapestry Inc. (NYSE: TPR) ended fiscal year 2020 on a bleak note as its fourth quarter revenues almost halved and the company delivered a net loss compared to the prior-year period. Like its peers in the retail industry, Tapestry was impacted by store closures during the quarter due to the pandemic.

Tapestry’s online sales saw good growth during this period and the company is focusing on developing its omnichannel capabilities to drive growth going forward.

Quarterly performance

Total sales declined 53% on a reported basis, and 52% on a constant currency basis, to $715 million in the fourth quarter. The company reported a net loss of $1.06 per share compared to earnings of $0.51 per share in the prior-year period.

Net sales for Coach dropped 53% to $517 million while sales at Kate Spade fell 50% to $164 million. Stuart Weitzman sales decreased 61% to $33 million.

Digital strategy

Tapestry’s digital sales rose triple digits in the quarter with strong growth every month, as the company saw both an increase in new customers as well as re-engagement from lapsed customers. In the fourth quarter alone, Tapestry gained around 1 million new customers across its brands in North America through its digital channels.

The COVID-19 pandemic has accelerated the shift to digital and the company believes that over time, digital channels will be on par with physical channels. Tapestry is investing in its digital and omnichannel capabilities across its brands. Since late April, the company acquired around 600,000 new customers across its digital channel in its Coach brand.

The Kate Spade brand gained over 350,000 new customers in its digital channels in North America during the fourth quarter, up over 100% from the previous year. The brand also reactivated around 140,000 lapsed customers.  

The digital business is seeing both revenue growth and profitability as operating margins are higher in the digital channel compared to the physical channel. The company is developing data and analytics capabilities to increase efficiency and personalize the consumer experience. These capabilities are expected to help in product design and merchandise planning as well in responding quickly to changes in customer preferences.    

Outlook

Although Tapestry is not providing specific guidance for fiscal year 2021 due to the ongoing uncertainty, the company assumes revenues will be roughly even with the prior year on a 52-week basis, assuming the slow and steady recovery from the pandemic continues. Revenues are expected to face pressure in the first half of the year.   

Tapestry’s stock has dropped 41% since the beginning of the year but gained 18% over the past three months.

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