Tapestry Beats Earnings Estimates as the New Era of Kate Spade Takes Hold

Tapestry Inc. painted a rosy picture for investors Thursday as the company reported better-than expected earnings for the third quarter, with sales beating expectations at its Coach and Kate Spade brands.

The company’s net income for the three months ended March 30 was $122 million, with earnings per diluted share of $0.42, ahead of the consensus estimate of $0.41. Net sales rose 2% on a constant currency basis to $1.33 billion, compared with $1.32 billion last year.

Tapestry also announced a $1 billion share buyback program, boosting the company’s stock more than 11% as of 10:30 a.m. EST.

At Kate Spade — which the company acquired in 2017 — comparable sales fell 3% but beat Wall Street’s estimate of a 3.8% decline, while net sales rose 4% to $281 million. After blaming a “lack of distinctive newness” for disappointing results at the brand last quarter, Tapestry CEO Victor Luis said that investors should expect improvements under the direction of designer Nicola Glass, who was hired last year to lead the brand.

On a call with investors and analysts, Luis reiterated the company’s three-year plan to turn Kate Spade into a $2 billion brand, pointing to several steps the company took during the quarter, including “migrating the Kate Spade brand to the Tapestry supply chain, realizing significant synergies and product quality improvements, attracting and retaining key operational and creative talent across the organization [and] laying the foundation for accelerated international growth through direct control of the brand’s businesses in Asia, notably in China.” As of the end of the quarter, he said, three quarters of the product in stores was new under Glass’ tenure.

Coach, which accounts for more than 70% of the company’s revenues, saw comparable sales rise 1% in the quarter, beating the consensus estimate of 0.84%, as negative North American comps were offset by positive results in all international regions.

At Stuart Weitzman, which struggled last year with production delays and executive departures, comparable sales rose 4% on a constant currency basis to $85 million. Luis touted sales growth in China and said the brand’s supply chain issues have been rectified.

“As our production levels and shipments have normalized, our focus is rebuilding our order book with our global wholesale partners to capture the in-season replenishment orders,” he said.

For fiscal full year 2019, Tapestry projects earnings per diluted share of between $2.55 and $2.60.

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