Beats second quarter sales, profit estimates
Logs 280 basis points increase in quarterly gross margins
North America, Europe and China markets see strong demand
(Reuters) - Tapestry on Thursday raised its annual sales and profit forecast, driven by strong demand for its pricey Tabby bags and suede boots across Europe, North America and China, sending its shares surging 15% in premarket trading.
The New York-based firm also posted better-than-expected second-quarter results as sales of its Coach brand rose 10% on a constant currency basis, aided by full-price sales of its handbags.
Tapestry's Coach Tabby crossbody bags and Coachtopia leather handbags are riding a strong popularity wave on social media sites such as TikTok, attracting the attention of young shoppers.
The company has also been focused on selling its key styles at full price across physical and digital outlets, while quickly launching newer products to retain consumer interest.
"Coach, in particular, continues to differentiate itself from peers as it gains share but also does so healthily with increasingly impressive, and increasingly luxury-level gross margins," BMO analyst Simeon Siegel said.
Quarterly gross margins expanded 280 basis points, helped by higher average unit price and lower freight costs.
Across regions, Europe stood out with a 45% sales growth, while North America and Greater China markets saw a 4% and 3% rise, respectively, in the quarter.
In contrast, rival Michael Kors' Capri CPRI.N gave a weak forecast a day earlier as it grapples with a turnaround plan after a failed $8.5 billion merger with Tapestry last year.
Tapestry posted net sales of $2.20 billion for the quarter ended Dec. 28, compared with analysts' estimates of $2.11 billion, according to data compiled by LSEG. It earned $2 on an adjusted basis, beating estimates of $1.75.
The company now expects revenue of about $6.85 billion for the fiscal year 2025, compared with its prior target of more than $6.75 billion and better than analysts' estimates.
Earnings per share is forecast in the range of $4.85 to $4.90, compared with its prior expectation of $4.50 to $4.55.