- Tapestry's gross margins grew to 69.8% during the fiscal fourth quarter, up from 66% a year ago.
- Management said sales online are carrying higher margins than sales in stores.
- Analysts and investors will be looking to see if the trend can hold, especially during the all-important holiday season.
Coach and Kate Spade owner Tapestry said Thursday its sales online during the latest quarter surged a triple-digit percentage from a year ago, as consumers stuck at home during the coronavirus pandemic flocked to its websites for handbags, pajamas and other whimsical accessories.
But when you're in retail and you hear about such impressive e-commerce growth, you often immediately think about the pressure that, in turn, is being put on gross margins. Typically, a retailer's online sales are less profitable than sales in stores — when you account for all the extra expenses like packing, shipping and delivery.
The issue has plagued companies including Target and Walmart, especially during the pandemic as their digital businesses have boomed. The online furniture company Wayfair is still unprofitable, as another example.
But that seemingly was not the case for Tapestry, which also owns Stuart Weitzman, this quarter.
Its gross margins grew to 69.8% during the fiscal fourth quarter, up from 66% a year ago. And management said sales online are carrying higher margins than sales in stores.
"There are a couple reasons why," Joanne Crevoiserat, Tapestry's interim CEO, told CNBC in a phone interview following the earnings report.
"The fixed component of the digital business ... that fixed cost is leveraged across a much larger platform of sales. In aggregate, it is a lower percentage of every sales versus our brick-and-mortar business."
She added that the company over the past few months has been reining in its promotions, selling more at full-price.
"It starts with getting closer to the customer, knowing what they want," she said. When you present a customer with something that meets or exceeds his or her expectations, they won't require a discount, Crevoiserat said.
A booming online business amidst the coronavirus pandemic also means Tapestry is reevaluating what to do with its real estate. Altogether, it has 863 locations globally across its three brands, according to its website.
As part of its turnaround plans outlined Thursday, Tapestry says it is planning for store closures, but has not said exactly how many doors it will shut.
"Net-net, we will see some reduction in store count this year," Coach Chief Executive and Brand President Todd Kahn said in an interview.
Tapestry is "raising the bar" for the stores it continues to keep open for business, according to Crevoiserat. "We are reevaluating the role of the store," she said. "And we expect the store to be profitable."
Analysts and investors will be looking to see if this trend can hold, especially during the all-important holiday season.
Though Tapestry reported a net loss during its latest fiscal quarter, management said the company expects to return to growth this fiscal year.
Shares of Tapestry were falling more than 2% Thursday afternoon. The stock is down around 42% from a year ago.