Following last week’s announced acquisition of Capri, Tapestry reported Q2 2023 results that were slightly lower than plan due to Kate Spade and a deeper decline in wholesale. Kate Spade is a brand heavily weighted to the younger aspirational female consumer--a segment that is under a lot of pressure as we have been sharing in the Anchor. Department store wholesale customers are also significantly curtailing orders, a dynamic that has been happening since last fall. Tapestry CEO Joanne Crevoiserat said, “In North America, the environment is challenging. The aspirational consumer--particularly the lower income cohort--is under pressure on a relative basis and being more choiceful. We see that in our conversion results...And what we're seeing with this more considered purchase in North America is that innovation is what's driving engagement. And we know that, that bar is high for the consumer.”
For the next twelve months, management expects the U.S. business to grow “slightly” following an -8% revenue decline for Q2 2023, with outlet and department stores called out as headwinds – a similar dynamic that we reported on with Dillard's and Ralph Lauren’s results. This is consistent with our visitation data regarding various mall and shopping center types (outlet malls continue to underperform) as well as discretionary retail categories (department stores have lagged other discretionary categories for much of the year).
Relatedly, this week Farfetch (which has more aspirational customers) reported softer than expected results in the U.S. Farfetch CEO José Neves noted, ”As in the case of many others in the luxury industry, we have seen a less buoyant luxury customer in the U.S...Many luxury companies have seen [double-digit revenue declines] in the U.S., with wholesale doing worse than direct-to-consumer. And that's what we see also in our business.”
In our story last week about why Tapestry may have wanted to acquire Capri, we stated that one motivation may have been to rationalize the market such that it would be easier to drive Coach’s average unit retail (AUR) higher as that has been the center of Tapestry’s value creation and investor pitch over the past three years. On its Q2 2023 update call, Tapestry’s management said “AUR” over twenty times. For Q2, Coach’s AUR was up double-digits on a global basis and up in the U.S.