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Earnings Results: Coach parent company Tapestry and Ralph Lauren both see growth from Gen Z, millennials

Tapestry Inc. stock jumped 6% Thursday, after the parent of Coach, Kate Spade and the Stuart Weitzman brands beat profit estimates for its fiscal second quarter and raised guidance.

It was a similar story at luxury lifestyle brand Ralph Lauren Corp. RL, +1.32%, where profit and revenue topped estimates by a wide margin, buoyed by sales of its men’s, women’s and children’s polo shirts, stay-at-home sweatshirts and evening wear.

The companies appeared to succeed where rival Capri CPRI, -3.37% did not a day earlier, in resonating with younger consumers and persuading them to pay full price.

“During the quarter, we acquired nearly 2.6 million new customers in North America alone,” Tapestry TPR, +4.89% Chief Executive Joanne Crevoiserat told analysts on the company’s earnings call, according to a FactSet transcript.

“Importantly, these customers transacted at higher AURs than the balance of our customer base,” she said, referring to average unit retail, or the average price items are sold at. “At the same time, nearly half of these customers were millennial and Gen Z, consistent with our strategy to attract younger consumers.”

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AUR rose by mid-single-digits in the quarter, as the company succeeded in persuading customers to buy Coach handbags and accessories as holiday gifts. Unlike Capri, Tapestry’s business is dominated by its direct-to-consumer outlets, which account for about 90% of overall sales.

That allows the company to collect data on its customers that help cement the relationship. In addition to its bigger handbag “families,” Willow, Tabby and Rogue, the company is leaning into the micro and mini handbag trend with its Studio Baguette and Mini Tabby, which also resonated with its young audience, she said.

And while China’s COVID lockdowns hurt sales for part of the period, the reopening and ending of COVID restrictions in late December have set the company up for a rebound in 2023.

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“Over the long term, we see no reason why Tapestry can’t outpace the industry’s growth given its success in raising AUR, the potential to recover in China, Coach’s momentum in underpenetrated categories (i.e., Footwear), and progress at Kate Spade/Stuart Weitzman,” wrote Raymond James analyst Rick Patel. Patel reiterated his outperform rating on the stock.

Ralph Lauren said its AUR rose in the double digits in the quarter, even as the marketplace became more promotional, a trend it was expecting.

“And as you know, we’ve done a lot of work over the past few years to evolve our customer base to bring in a higher value, younger customer that played out again this past quarter 1.6 million new consumers, higher value, less price-sensitive, younger consumer,” Chief Executive Patrice Jean Louis Louvet told analysts on the earnings call.

Wedbush analyst Tom Nikic said the numbers showed Ralph Lauren was resilient in a tough environment.

“Ralph Lauren management continues to perform extremely well on their strategic vision, and they’re offsetting pockets of softness (domestic outlets and wholesale, China bricks-and-mortar) with strength elsewhere in the enterprise,” Nikic wrote in a note. “That said, we think the stock is pretty fairly-valued right now, so we’d wait for a better entry point before getting more constructive here.”

Wedbush has a neutral rating on the stock.

Tapestry stock has gained 12% in the last 12 months, while Ralph Lauren has fallen 6%. The S&P 500 SPX, -0.56% has fallen 10% in the period.

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