Stuart Weitzman Is Posing Surprising New Setbacks for Tapestry

Shares for Tapestry Inc. are taking a beating today after the firm’s management signaled surprising challenges at Stuart Weitzman and offered an outlook that wasn’t as high as market watchers expected.

As of 12:25 p.m. ET, the shares remained down more than 12 percent at $47.15.

The parent company of Coach, Stuart Weitzman and recently acquired label Kate Spade said today that its third-quarter sales climbed 33 percent year over year to $1.3 billion, which was in line with forecasts.

But Tapestry CEO Victor Luis said that the typically successful Stuart Weitzman brand — which posted a sales gain of 5 percent to $84 million during the period — was a source of sales and margin pressure for the company this time around.

“We were disappointed with the overall level of sales growth [at Stuart Weitzman], which was impacted by both lower-than-expected sell-through of carryover styles as well as the development and production challenges on new collection — issues that intensified toward the quarter-end and have impacted timely delivery of the product,” Luis told investors during a conference call this morning. “Our dedicated Stuart Weitzman supply chain based in Spain was not prepared for the level of complexity and new development in this transitional period for the brand.”

Luis said the company is adding infrastructure and capacity to support the brand’s “creative vision with quality, on-time deliveries.” However, he cautioned that investors should expect the label to “continue to experience some disruption through the fall-winter season.”

The company also foresees that Stuart Weitzman’s sales and profitability will be under pressure in the fourth quarter, with only slight revenue growth for the fiscal year.

Things also remained somewhat challenged for Kate Spade, which the company acquired last year and continues to integrate. The brand saw sales of $269 million, reflecting, in part, the strategic pullback in wholesale disposition and online flash sales, partially offset by the consolidation of the joint ventures for Mainland China, Hong Kong, Macau and Taiwan, Tapestry said. Global comparable store sales declined 9 percent, including the negative impact of 800 basis points from a decline in global e-commerce. (On today’s conference call, CFO Kevin Wills also noted that the addition of Kate Spade pressured overall operating margin by approximately 230 basis points.)

Hero brand Coach continued to bring in the lion’s share of revenues for Tapestry, posting Q3 sales of $969 million, a gain of 6 percent over the comparable period.

Overall, Tapestry’s profits for the quarter rose 15 percent to $140 million, or $48 cents per diluted share. Adjusted profits advanced 22 percent to $158 million, or 54 cents per diluted share, besting forecasts for diluted earnings per share of 50 cents.

Looking ahead, the firm calls for full-year EPS between $2.57 and $2.60, up from a prior range of $2.52 to $2.60 — while consensus estimates pegged the diluted EPS forecast at $2.59. Tapestry continues to expect revenues to increase about 30 percent to $5.8 to $5.9 billion, with low-single-digit organic growth and the acquisition of Kate Spade adding more than $1.2 billion in revenue.

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