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Tapestry (TPR) Gleams on Strong Demand, Growth in Online Sales

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With the easing of pandemic-led restrictions and socialization back into the picture, consumers are spending more on apparel and accessories. Several retail players are gaining from resurgence in demand. One among them is Tapestry, Inc. (TPR - Free Report) . This renowned designer and marketer of fine accessories and gifts delivered sturdy growth when it reported fourth-quarter fiscal 2021 results. In addition to favorable demand conditions, the company has been gaining from robust omni-channel offerings, efforts undertaken as part of the Acceleration Program as well as initiatives to boost product offerings and market presence.

Shares of this Zacks Rank #2 (Buy) company have surged 170.4% in a year compared with the industry’s rally of 85.5%. That said, let’s take a closer look at the factors acting as aces in Tapestry’s stack.

Strong Online Sales is a Key Catalyst

The company’s efforts to expand digital distribution channels has been aiding e-commerce sales growth. It is aiming to enhance curbside or store pickup service as well as contactless payment options as well as provide opportunities to make virtual appointments. The company is also investing in digital marketing initiatives, advanced digital analytics capabilities and the expansion of distribution centre capacities.

During the fourth quarter, the company’s digital sales rose more than 35% year over year. Online sales surged more than 200% from pre-pandemic levels. For fiscal 2021, e-commerce sales increased 30% and contributed 35% to the company’s top line. We note that strong online sales have been helping the company effectively meet consumer demand. During the fourth quarter, the company added more than 900,000 new customers through its e-commerce channels in North America, resulting in nearly 4 million new customers during the fiscal.  Management highlighted that the company was able to sustain the strong digital sales momentum, despite lapping the digital initiatives and the initial uplift in online sales in the prior year.

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China: An Important Growth Region

Mainland China remains one of the prominent markets for Tapestry. During the fourth quarter, the company registered about 60% year-over-year increase in sales in Mainland China and over 40% rise from pre-pandemic levels.

The company has been accelerating growth in the region through tailored and innovative product assortments, enhanced marketing as well as broader reach across direct channels and third-party online distribution. Tapestry has a strategic alliance with Alibaba’s Tmall, China’s largest B2C e-commerce platform. The country also offers significant long-term growth opportunities for the Stuart Weitzman brand.

Strategic Moves for Growth

Tapestry’s impressive performance reflects on significant progress made through the Acceleration Program. This multi-year initiative is focused on driving revenue growth as well as boosting gross margin and operating leverage across portfolio. The program aims at transforming the company into a leaner and more responsive organization as well as building digital capabilities. It helps the company operate with a clearly defined path and formulate strategy for each brand. Tapestry is on track to realize about $300-million gross run-rate savings in fiscal 2022. The company has attained $200 million of gross expense savings in fiscal 2021. It has also been enhancing the flexibility of its operating model via a streamlined organizational structure and optimized global fleet. The company’s actions to lower promotional activity and improve Average Unit Retail or AURs across brands have been supporting operating income growth and margin expansion.

The company has also undertaken transformation initiatives revolving around its product, stores and marketing initiatives. It is focusing on renewing Stuart Weitzman brand’s reputation for fit, comfort and quality, and growing its key categories by building a leading presence in footwear and casual assortment. With respect to Kate Spade, the company is focused on growing handbags and leather goods. Tapestry’s largest brand, Coach, has been performing well on the back of efforts to drive market share across channels and an expanding customer base.

Wrapping up

Tapestry’s strategic efforts have been yielding and helping it meet the demand conditions, even when stores continue to bear the impacts of the pandemic. All said, we expect the company to sustain its growth momentum and successfully achieve the set targets for fiscal 2022. In the period, it expects to achieve mid-teens growth in sales and a sharp increase in the bottom line.

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