February 7, 2019
(Reuters) – Tapestry Inc blamed falling tourist spending and a slowing global economy for a cut in its full-year forecast on Thursday, as it reported disappointing holiday numbers and lower sales of Kate Spade handbags.
Shares of the New York-based fashion house fell 11 percent after the company said it now expects full-year adjusted earnings in a range of $2.55-$2.60 per share, down from its previous forecast of $2.75-$2.80.
Sales at Coach, whose handbags and accessories account for about 70 percent of the company’s business, rose about 2 percent in the quarter to $1.25 billion. However, sales at Kate Spade, which it bought in 2017, fell 1.6 percent to $428 million.
“(Kate Spade’s) comparable store sales were below our expectations, impacted by the lack of distinctive newness in the final collections from the prior design team,” Tapestry Chief Executive Officer Victor Luis said.
“In light of our second quarter results and the uncertain global environment, we are updating our outlook,” he added.
Spade, who built a fashion empire selling accessories that offered affordable luxury to younger working women, committed suicide in her New York apartment last June at the age of 55.
The resulting publicity helped drive a surge in sales in the months that followed. Sales at the brand jumped 21 percent in the company’s first quarter that ended in September.
“Much of the momentum Kate Spade built up in the prior quarter simply fizzled out,” said Neil Saunders, managing director of GlobalData Retail. “(Kate Spade’s) holiday assortment did not feel particularly compelling.”
Luis said initial signs of customer interest in new Kate Spade creative director Nicola Glass’s first Spring collection were strong and that he was confident of returning to comparable sales growth.
Tapestry has been cutting down on promotions to boost brand value and sell more items at full prices, but the handbag maker resorted to discounting during the holiday season to draw customers amidst a busy and competitive shopping period.
The cuts in outlook contrasted with domestic rival Capri Holdings Ltd, formerly Michael Kors, which forecast strong growth in coming years on Wednesday.
Excluding items, Tapestry earned $1.07 per share in the second quarter ended Dec. 29, missing the average estimate of $1.11 per share.
Global comparable sales at established Coach stores rose just 1 percent, short of analysts’ expectations of 1.7 percent.
Tapestry also said it expects full-year revenue to rise at a low-to-mid-single-digit rate compared with an earlier prediction of mid-single-digits.
(Reporting by Soundarya J and Nivedita Balu in Bengaluru; Editing by Saumyadeb Chakrabarty)