Tapestry Inc. shares rose on Aug. 15 as the handbag and apparel maker’s quarterly results beat Wall Street expectations amid continued weak consumer confidence and inflation fears.

To the catwalk

Adjusted earnings per share in the fourth quarter were 92 cents, New York-based Tapestry said in a statement. Analysts surveyed by Bloomberg had expected 88 cents. Sales of $1.59 billion narrowly exceeded expectations.

The shares rose by as much as 9.2 percent in trading before the opening of the US stock markets. By the close of trading on Wednesday, they had risen by 3.1 percent this year.

Like many other luxury brands, Tapestry’s Coach brand raised prices during the pandemic amid high demand and rising inflation. Investors had feared that Coach would give up some of those gains if the pace of sales slowed. Instead, the company has continued to raise the average price of its handbags and other accessories in recent quarters, improving profitability.

For the fourth quarter, Tapestry said net sales decreased 2% on a reported basis. Excluding currency headwinds of approximately 170 basis points, sales were approximately in line with the prior fourth quarter.

Gross profit totaled $1.19 billion, while gross margin was 74.9%, reflecting operational improvements, a benefit of approximately 90 basis points from lower freight costs and a tailwind from foreign exchange rates.

Operating income was $235 million on a reported basis while operating margin was 14.8%. On a non-GAAP basis, operating income was $262 million while operating margin was 16.5%. This compares to reported and non-GAAP operating income of $274 million and operating margin of 16.9% in the prior year period.

Details on individual brands’ performance were not provided. Tapestry’s Kate Spade, however, has been a latecomer for the company, which named Eva Erdmann as brand chief earlier this month. Erdmann is a veteran of L’Oréal SA and Christian Dior Beauty and a “seasoned brand builder,” Dana Telsey, an analyst at Telsey Advisory Group, wrote in a research note.

Tapestry reiterated its intention to acquire rival handbag and clothing retailer Capri Holdings Ltd. The U.S. Federal Trade Commission filed suit in April to block the deal, with a trial scheduled for September. Earlier this month, Capri reported its seventh consecutive sales decline, raising questions about whether Tapestry will reconsider its $8.5 billion takeover bid for the owner of the Michael Kors, Jimmy Choo and Versace brands.

The company “looks forward to presenting its strong legal arguments in court,” the statement said, and “is working expeditiously to complete the transaction in calendar year 2024.”

Written with Bloomberg