Luxury conglomerate Tapestry Inc. hosted an upbeat fiscal fourth quarter and full year 2021 earnings call today. Describing fiscal 2021 a “transformational year,” CEO Joanne Crevoiserat praised her company for adapting effectively in a “rapidly changing environment.”
She credited strong fourth quarter results, which topped same period in pre-pandemic 2019, to the passion of her teams and the power of its Coach, Kate Spade and Stuart Weitzman brands. In addition, she said, “We sharpened our focus on the consumer, leaned into digital and data and became a more agile organization.”
Crevoiserat’s exuberant tone, even more than her words, communicated confidence that Tapestry will continue to generate growth and profitability long-term. The company’s powerful digital transformation holds the key.
“The dynamic environment continues, but we’re in a position of strength with a proven track record of success,” she said in the earnings call. “We have increasing conviction in our ability to accelerate top and bottom line growth, with a focus on delivering for all our stakeholders, our customers, our teams, our community and our shareholders.”
Fiscal fourth quarter ending July 3 capped an extremely challenging year for Crevoiserat, who assumed the role of CEO last July after only a year as company CFO. Going into the quarter, Tapestry revenues from the first three quarters were underwater, down 3% from fiscal 2020 and 9% under 2019.
Fourth quarter turned all that around, with revenues topping $1.6 billion, 7% above fiscal 2019 and more than double 2020. However, its strong fourth quarter couldn’t reverse the damage done over the rest of the year. Year-end revenues stand at nearly $5.8 billion, up 16% over 2020, but still down 5% from pre-pandemic 2019.
Tapestry’s Coach brand was the hero of 2021. Fourth-quarter sales of $1.2 billion were 8% ahead of same period 2019, though about level with 2019 results. Kate Spade advanced a modest 3% in the fourth quarter over 2019 to $342 million and Stuart Weitzman with $85 million in revenues was flat. And both brands ended the year way under 2019 levels, -11% for Kate Spade and -27% for Weitzman.
The company also reported that operating income growth and margin expansion was running ahead of both 2020 and 2019 in the fourth quarter. And it is advising revenues to reach $6.4 billion in fiscal 2022, based upon a mid-teens level of anticipated growth. It also plans to return over $750 million to shareholders this coming year.
Highlights from the company’s performance reported today include:
- Attracting nearly 4 million new customers for this fiscal year, including over 900,000 new e-commerce North American customers in the fourth quarter.
- Triple-digit e-commerce sales growth over 2019, reaching $1.6 billion year-end and equaling nearly one-third of sales. In the fourth quarter, digital was up over 35%. It also reported an increase in number of repeat transactions and success in reactivating lapsed customers.
- Sales are catching on in China, up over 40% in the fourth quarter compared to pre-pandemic levels. In fiscal 2021, China generated 19% of revenues, compared with 62% in North America.
- Reduced SKU counts between 40% to 45% across brands, which improved productivity and resulted in “strong” overall AUR and gross margin gains. This resulted in $200 million in gross expense savings that was invested into digital and marketing for future growth.
- Continued optimization of its store fleet with 59 net closures in 2021 to total a net decrease of 90 doors in the past two years.
The company currently operates 939 Coach, 407 Kate Spade and 104 Stuart Weitzman stores. In addition, direct-to-consumer generates 90% of corporate sales. However, the company expects that store sales will remain below pre-pandemic levels as it leans into its digital platform.
Perhaps Tapestry can thank the pandemic for its digital transformation, as it has increased digital sales by $1 billion since 2019. While investing in digital and data analytic capabilities was a stated strategic goal for 2020, it would have been outrageously ambitious to commit to grow e-commerce from about 10% of sales in 2019 to its current 30% level unless forced to do so by the pandemic.
It is said, “Extraordinary times call for extraordinary measures,” and that is just what the company delivered. And as a result of its extraordinary digital transformation, it will be able to leverage new and better consumer data into the future.
With a customer database that grew by nearly 4 million customers in fiscal 2021, the company is using consumer data much more effectively to develop new products, grow sales and build brand loyalty across its portfolio.
In the earnings call, Crevoiserat explained the shift toward digital engagement resulted in structural changes throughout the organization. “We’re getting closer to our customer which is helping us deliver great products that our consumers value. [We are] embedding data and insights into our processes more,” she said.
She used Kate Spade as an example of how the organization’s structural changes driven by data are being realized.
“We’ve continued to focus on talent and culture,” Crevoiserat said and added, “This year, we reorganized our creative structure with the formation of the cross-functional ideation studio, spanning across our brand creative design, merchandising and marketing teams. This has increased collaboration and cohesion to drive more impactful and consistent storytelling.”
The results of this ideation studio can be measured in the 11 billion and counting views of the Kate Spade “Happy Dance” viral video on TikTok. She promised to maintain this consumer-centric approach across the brand and use storytelling-based marketing to strengthen Kate Spade’s lifestyle positioning.
Without a doubt, Crevoiserat and her whole team are doing a happy dance after the year they’ve come through. And with a solid and proven digital foundation, it is committed to using consumer insights to power innovative new products and engage with customers in new ways for sustainable long-term growth for all its brands.
“Driving engagement requires consistent innovation and product. We’re learning a lot about those new customers, engaging them in different ways and meeting our customers where they are. That’s the foundation that we built this past year, to truly understand our customer and embed those insights in the product development process where our creative teams bring their terrific product and creativity to bear. [That’s] our focus moving ahead,” she concluded.