Tapestry shares tumble as Kate Spade continues to drag overall results

270
Kate Spade Tapestry
// Tapestry reported an 18% tumble in shares
// The retail group failed to meet sales expectations for its latest quarterly results
// It has now issued a surprise profit warning

Tapestry has been hit with a 18 per cent drop in its shares in early trading after it slashed its full-year profit outlook.

The US-based parent company of luxury retailers Coach and Kate Spade issues the surprise profit warning after it missed expectations in its latest quarterly financial results.

The shares decline puts the stock on track for its third worst day on record, with the loss exceeding only by drops in July 2012 and September 2001.

The company said it now expected earnings for fiscal 2019 to come in at between $2.55 (£1.97) to $2.60 (£2.01) per diluted share — or 20 cents lower than the forecast it gave just three months ago.

It also predicted sales for the year to increase by low-to-mid single-digit, compared to its previous guidance for a mid-single digit increase.

Tapestry chief executive Victor Luis said the company was facing an “uncertain global environment” and “an increasingly volatile macroeconomic and geopolitical backdrop” this year.

He also cited costs related to its ongoing efforts to turnround Kate Spade — the company it acquired for $2.4 billion (£1.8 billion) in 2017 — for the guidance cut.

Tapestry is currently competing with Capri, the newly-rebranded parent company of Michael Kors and Jimmy Choo, to build the US equivalent of a luxury conglomerate while boosting growth in China.

Tapestry said its flagship Coach brand, whose leather goods generated nearly 70 per cent of total group sales during the quarter, was gaining “increased traction” with Chinese consumers.

Meanwhile, Kate Spade, best known for its handbags, is continuing to struggle and is currently discounting its products heavily.

Like-for-like sales at the brand fell 11 per cent during the fiscal second quarter that ended on December 29.

“Comparable store sales were below our expectations, impacted by the lack of distinctive newness in the final collections from the prior design team,” Tapestry said about Kate Spade.

Stuart Weitzman, Tapestry’s luxury shoe retailer, saw improvements.

While sales rose slightly, margins remained under pressure and the retailer saw operating profit halved to $11 million (£8 million) for the quarter.

Coach reported a one per cent up tick in same-store sales.

Overall, Tapestry took in $1.8 billion (£1.39 billion) in sales during the quarter, up from the $1.785 billion (£1.380 billion) reported in the prior year period but well below the $1.86 billion (£1.43 billion) the market was expecting.

Net income, at $254.8 million (£197.1 million), was down nearly a third year-on-year.

Click here to sign up to Retail Gazette‘s free daily email newsletter