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Outlooks from Other Mass Luxury Brands

Thomas Paulson
Nov 11, 2022
Outlooks from Other Mass Luxury Brands

The September-end quarter from Ralph Lauren, Capri (Michael Kors), and Tapestry (Coach, Kate Spade) were all better-than-feared and reflected stability in their U.S. businesses and re-investment for growth. The managements indicated that current trends were relatively stable and that the holiday season looked promising, albeit they are mindful of deteriorating consumer sentiment in the U.S. and Europe. In sum, their outlooks were in-line with investor’s recently lowered expectations. We've provided some additional commentary on each company below:

Ralph Lauren

  • Ralph Lauren’s U.S. comp-store-sales (brick &mortar) were flat, which is 200 bps lower than the June-end quarter (and that increase was inclusive of an +18% increase in average unit retail (AUR) on top of last year’s +15% gain). That AUR increase reflects management’s intent to elevate the brand. Ralph was also able to increase its U.S. wholesale business by +8% which implies that the brand is performing well for its retailers and with the consumer. CFO Jane Nielsen noted that, "[wholesale] accelerated sequentially from [the prior] quarter trend driven by [U.S. department stores]...Inventories remain well positioned in the channel versus demand, and we have not experienced cancellations to date for either holiday or spring 2023. We still expect the channel to be up modestly in the second half of fiscal 2023, despite challenging compares from last year and our more cautious approach to spring 2023 inventory buys."
  • Not unanticipated, U.S. full-price stores comped positive, whereas factory was down. Nielsen continued, "We continue to see softness in our value-oriented consumers, a subsegment of the [outlet] channel."
  • The U.S. business segment’s margins were down substantially on a large increase in brand marketing--something that Ralph’s retailer customers will like to see. You can read more about Ralph Lauren’s transition here and its ambition to become the "world's leading luxury lifestyle company" and one of its three strategic objectives "win in key cities" (i.e., its retail expansion.)

Capri Holdings

  • Capri for the U.S. reported double-digit growth for each of its brands: Versace, Jimmy Choo, and Michael Kors (+16%). Kendall Jenner is the face of Jimmy Choo’s fall 2022 campaign–a brand that strives to be "glamorous, confident, and daring." The Michael Kors brand remains focused on exuding the "jet set" and "New York City" lifestyle. As part of its brand elevation and building strategy the company will be opening two new (10K square feet) flagships, on Madison Avenue in NYC and the other on Bond Street in London.
  • Capri CEO John Idol stated, "In North America and in Europe, we're seeing very robust sales in both of those markets. We're actually quite pleased in our own channels…We've started to add sales associates back in both in North America and Europe, where we had really pared back on that program pretty significantly going into COVID and coming out of COVID, we didn't fund it as aggressively as we are now doing. And as we're adding sales associates back into our shop-in-shops around the United States and Europe, we're seeing a very significant uplift in the business, and we see that again. The more clienteling we can do, the more of the customer journey we can give in-store as well as online, the consumer is definitely responding to that."
  • However, guidance for Michael Kors U.S. wholesale revenue was reduced by $100M (about 16% on an annualized basis) due to more cautious ordering from its retailer customers, double-orders that were cancelled, or potentially some other issue. Management didn’t have a strong answer and implied that it was "macro-related," sharing that they were told of weaker sales trends in recent weeks.

Tapestry

  • Tapestry U.S. (Coach, Kate Spade, and Stuart Weitzman) revenue growth at flat was less than Capri’s and below expectations. Unlike Ralph and Capri, CEO Joanne Cravoiserat described the market as "an increasingly difficult consumer backdrop." Coach was also flat which we suspect is the consequence of its core customer’s more cautious state of mind in regards to discretionary purchases. Kate Spade grew +7% which likely reflects a younger customer and the brand’s lower prices. By channel for all three brands, revenue was up for its stores and wholesale, and down in e-com. Given these trends, management tweaked down its outlook for U.S. revenue to a low-single-digit decline.
  • As it relates to U.S. stores, Cravoisert shared, "we're also seeing customers becoming more omnichannel. We're welcoming a lot more customers back in our stores. We're seeing traffic. We're seeing traffic increase to our store channel, and we're thrilled to be welcoming more customers back to our stores." Coach Brand President Todd Kahn added, "we're seeing great traffic in both [full-price and outlet]. And as we've seen the consumer in North America is returning to stores...And we're looking to maximize the opportunity, be where the customer wants to be. And we also love having them back in our stores because the opportunities to upsell and to create that connectivity is always most significant in the store format."
  • Of note, "great traffic" is not necessarily "increased traffic." Like most outlet centers, Placer shows traffic down YoY and Yo3Y. Additionally, the three primary brands for the holding companies have similar traffic declines. Kors have been able to drive stronger revenue growth because it has had more success in elevating their brands and driving the average unit retail (AUR) higher. For Ralph, from management’s language, outlet is less of a focus for the brand and it isn’t intended to be a growth driver. It’s intended to be a cash cow to fund brand spend and drive elevation and category breadth for the full-price brand part of the business.

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Thomas Paulson

Director of Research and Business Development, Placer.ai

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more.

He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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