Coach-owner Tapestry reports quarterly revenue miss, sees Kate Spade turnaround taking more time

Tapestry Inc shares tumbled to their lowest in over a decade on Thursday after the high-end fashion house forecast a surprise fall in first-quarter revenue and profit and said it was not sure when same-store sales at Kate Spade would rise.

Weakness at the millennial-centric brand, which Tapestry has grappled to turn around since buying it in 2017, also prompted the company to cut its full-year profit growth expectations.

The struggle to clear Kate Spade excess inventory blunted the impact of new collections from Nicola Glass, a Gucci and Michael Kors alumnus, hired by Tapestry last year to refresh the brand’s designs.

Chief Executive Officer Victor Luis blamed a lack of newness in some Kate Spade satchels and heavy discounts from competing brands for the drop. A re-launch of previously best-selling Kate Spade collections, a strategy used successfully at Coach, also did not work.

“The fact that customers are not buying into the brand at full-price is because the brand has lost its direction and isn’t producing collections that are particularly compelling,” said Neil Saunders, managing director at GlobalData Retail.

Kate Spade, which has not reported a rise in same-store sales since Tapestry acquired it, was expected to achieve positive sales in the reported quarter.

But global same-store sales fell 6% in the fourth quarter ended June 29, and the company said sales would continue to fall in the high-teens in the first quarter.

Luis said he would not take a call on when the brand will get into positive territory.
The company said it would cut back on new store openings, and instead focus on improving margins at Kate Spade.

Sales at Coach, Tapestry’s biggest business, remained flat at $1.10 billion, with the company partly blaming lower tourist spending in North America.

Excluding items, the company earned 61 cents per share, in line with expectations.
Net sales rose 2% to $1.51 billion, but missed estimates of $1.53 billion, according data from Refinitiv.

The company also forecast fiscal 2020 earnings per share to remain about flat with last year, down from a prior estimate of double-digit growth.

Tapestry said first-quarter revenue and profit would fall but did not provide specific numbers. Analysts were expecting a 10.7% rise in earnings per share and a 4.2% increase in revenue.

The company’s shares were last down about 20% at $19.36, setting them up for their biggest one-day percentage loss since 2001.