The Kate Spade handbag brand’s turnaround is progressing more quickly than expected.
Tapestry (TPR), its parent company, said Kate Spade’s same-store sales in its most recent quarter, fell 3%, a far more moderate decline than the 7.2% drop Wall Street was fearing, according to Consensus Metrix.
While sales got some help from nostalgia in the wake of the passing in June of the designer Kate Spade, the fixes Tapestry used to rehabilitate Coach, the biggest brand in its portfolio, a few years ago seem to be working on Kate Spade now, too, and helping it recover a sense of exclusivity. (Kate Spade herself had not been involved in the brand since 2006.)
Coach’s aura had been severely damaged by years of unrelenting promotions and reliance on outlet stores, as well as the opening of too many stores. As detailed by Fortune last year, Coach in recent years cut most online sales events cold turkey, closed dozens of mall-based stores, hired a top designer in Stuart Vevers, and tapped celebrity Selena Gomez to be its spokesperson. That has allowed Coach to return to growth and regain much of its high-end luster.
Tapestry, which bought Kate Spade last year for $2.4 billion as part of its effort to become a house of brands beyond Coach, has applied the same approach to Kate Spade, which had also suffered from having its brand overextended. (Michael Kors has also used this strategy to rehabilitate its similarly damaged brand in the past two years.) Part of Tapestry’s rationale for buying Kate Spade was that it had a blueprint for re-elevating its image after become ubiquitous and taking the brand global. (Coach has long been a power house in markets like Japan and China.)
“Fiscal 2019 will be a pivotal year at Kate Spade as we evolve the brand,” Tapestry CEO Victor Luis said in a statement. “We will focus on global expansion, notably in China where the brand is nascent and we see boundless opportunity.”
At Coach, same-store sales grew 2% percent, a hair less than the 2.1% estimated. And at Stuart Weitzman, also a Tapestry brand, delivery delays and other logistics problems dented sales, which fell to $73 million during the quarter, from $88 million a year earlier. As a whole, Tapestry reported fiscal fourth-quarter net income of $211.7 million, or 73 cents per share, up from $151.7 million, or 53 cents per share a year earlier. Excluding items, Tapestry earned 60 cents per share, topping the 57 cents per share expected by analysts surveyed by Thomson Reuters. Net sales rose 31% to $1.48 billion, slightly ahead of $1.47 billion.
Wall Street liked those results and shares went up 12% in Tuesday morning trading.