(Reuters) – Tapestry Inc raised its annual profit forecast on Thursday, betting that price increases and strong demand for its Coach handbags would help cushion a slowdown in luxury purchases in the United States.
Shares of the company jumped 6% in premarket trading, as it also surpassed Wall Street targets for third-quarter sales and grew its gross margin to 72.8% from 69.9% last year.
Demand for luxury goods is seeing a broad slowdown in the United States with consumers pausing a post-pandemic splurge. French fashion house LVMH had also reported softer demand for its leather goods and jewelry.
However, Tapestry (NYSE:TPR)’s Coach handbags – which typically sell for less than $1,000 – have attracted more Gen Z and millennial consumers with collections such as Tabby and Willow.
The luxury group has also tightened its inventories significantly, ending the reported quarter with levels just 2% above last year. Its inventory levels had risen about 30% at the end of the prior quarter.
Tapestry is seeing a strong rebound in demand from China, with Greater China revenue rising about 20%, compared with a 20% slump in the previous quarter.
The company’s net sales rose 5% to $1.51 billion in the third quarter ended April 1, beating analysts’ estimates of $1.44 billion, according to Refinitiv IBES data. Its profit of 78 cents per share beat expectations of 59 cents.
Tapestry now expects fiscal 2023 earnings per share in the range of $3.85 to $3.90, compared with its prior outlook of $3.70 to $3.75.
It also forecast annual revenue would approach $6.7 billion, compared with previous estimates of about $6.6 billion.
