Kicking off the 2020 fiscal year, Tapestry Inc. posted first-quarter earnings that beat analysts’ bets — but struggles at Kate Spade continue to hurt overall sales.
The luxury fashion holding company — also parent to Coach and Stuart Weitzman — logged earnings of 40 cents per diluted share, compared with Wall Street’s forecasts of 37 cents, on profits of $114 million. For the same period last year, earnings were 48 cents per diluted share on income of $142 million.
Sales, meanwhile, declined 2% to $1.36 billion, impacted by continued weakness at Kate Spade, which is still in the midst of an intensive overhaul under creative director Nicola Glass. Revenues at the accessories brand dropped 6% to $306 million during the quarter, while global same-store sales decreased 16% with lackluster e-commerce performance.
“Kate Spade’s comparable store sales declined in line with expectations, reflecting the product and merchandising challenges we’ve previously identified,” said chairman and CEO Jide Zeitlin, who took the reins from Victor Luis in early September. Zeitlin has served for more than a decade on Tapestry’s board as well as chairman since November 2014.
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Stuart Weitzman’s sales also took a 9% dip to $87 million, which the company attributed to softer wholesale demand and continued operational challenges.
A silver lining was Tapestry’s star brand, Coach, which delivered its eighth consecutive quarter of positive comps, driven by its digital platform and international business. Revenues at the brand grew a modest 1% to $966 million.
“Comps in Europe, Japan and Mainland China were strong, offsetting weakness in Hong Kong,” added Zeitlin — a reference to the ongoing anti-government protests that have troubled the country for months, “while North America was even with prior year.”
For 2020, the company expects sales to increase at a low single-digit rate, projecting earnings per diluted share to be roughly in line with the previous year.
“Our imperative is to fuel desire for our brands and make investment decisions through a consumer-centric lens. We are focused on becoming more agile, continuously leveraging data and technology, to increase our productivity and speed to market,” Zeitlin said. “To this end, we have commenced an in-depth, comprehensive and efficient review of our business to address both near-term and long-term opportunities to drive organic growth and profitability across the portfolio.”
As of 9:00 a.m. ET in premarket trading, Tapestry’s stock was down 7.6% to $24.50.
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