Dive Brief:

• Tapestry, the conglomerate once known as Coach, on Tuesday reported that second quarter net sales rose 35% to $1.79 billion from $1.32 billion in the year-ago quarter, driven by in part by last year's acquisition of Kate Spade. Net income in the quarter was $63.2 million, or 22 cents per diluted share, down from $199.7 million, or 71 cents per diluted share in the year-ago quarter. Adjusted earnings were at $1.07 per diluted share, which beat the FactSet analyst expectation cited by Marketwatch for earnings of 89 cents per share on revenue of $1.77 billion.

• At Coach, second quarter net sales rose 2% (on a reported and constant currency basis) to $1.23 billion, up from $1.20 billion in the prior year quarter, and global same-store sales rose 3%, with e-commerce growth contributing approximately 100 basis points. Kate Spade net sales totaled $435 million — reflecting, in part, a strategic pullback in wholesale and online flash sales — as global same-store sales fell 7%, including an approximately 400-basis-point hit from a decline in global e-commerce. Finally, Stuart Weitzman net sales rose 2% to $121 million, up from $118 million a year ago.

• The company affirmed its revenue guidance for the fiscal year, saying it expects it to rise about 30% to between $5.8 billion and $5.9 billion, amid low-single digit organic growth and a contribution from Kate Spade of more than $1.2 billion. Tapestry expects earnings to range between $2.52 to $2.60 per share, a notch higher than the FactSet estimate for earnings of $2.40 per share on revenue of $5.83 billion.

Dive Insight:

Tapestry's new Kate Spade unit is getting the Coach treatment — a pullback from department stores and other channels designed to elevate the brand, boost prices and protect margins. The strategy has worked for Coach, which had seen its sales and its brand image topple after years of steady markdowns and outlet sales.

"Tapestry wants to take Kate Spade through the same process used to rebuild Coach," GlobalData Retail Managing Director Neil Saunders said in comments emailed to Retail Dive. Saunders called the steps necessary because Kate Spade, like Coach, has become "too value-oriented and overly reliant on excessive, and margin-depleting, promotions" to drive sales. The recent appointment of Nicola Glass as Kate Spade's Creative Director is a good sign that Tapestry is serious about seeing that through, he added.

Coach, now at the tail end of that strategy, provides an excellent example of why patience with Kate Spade is warranted. "Coach's game plan of becoming less ubiquitous and selling more at higher price points is now delivering," Saunders said.

Strong holiday sales at Coach in North America were made possible in part by a confident consumer and stand out because of the previous year's softer results. Saunders gave the brand props for "an on-trend holiday line up, a compelling marketing campaign and great in-store execution."

Results could slim down in coming quarters as comparatives get tougher, Saunders warned. But softness in North America could be partially offset by international growth, including in Australia and New Zealand, according to Saunders. 

While Coach was the focus for a good while, changes are notable at all Tapestry brands, according to Jane Hali & Associates analysts. Those changes include more sophisticated designs (including a revamped Coach logo), customization at Kate Spade, a new store concept from Stuart Weitzman and assertive marketing moves by all three — including shoppable Instagram. Coach's move to expand sneaker styles and the company's China expansion plans bode well, according to a Jane Hali's note emailed to Retail Dive.

Tapestry can't just put itself on automatic pilot, however, Saunders warned. "Net income was less impressive," he said, noting that higher tax provisions and some integration costs in the quarter more than depleted gains in gross margin and operating profit. "This is a short-term issue, but it underlines the fact Tapestry still a lot more reengineering to do," he said.