Despite logging solid international sales, Tapestry Inc.’s fourth-quarter financial results is offering up more proof of the challenges posed by the U.S. retail environment.
The New York-based company — parent to Kate Spade, Coach and Stuart Weitzman — posted profits of $175 million, or adjusted earnings of 61 cents per diluted share, which met analysts’ expectations. Revenues, however, rose 2% to $1.51 billion, missing forecasts of $1.53 billion.
The results have been weighing on Tapestry’s stock since market open. As of 9:45 a.m. ET, its shares were in the hole nearly 17% to $20.83.
The report, which also recorded 2019’s performance, detailed “a year of meaningful evolution for Tapestry,” said CEO Victor Luis. “We experienced ongoing strength in our business internationally while navigating a volatile backdrop in North America.”
The firm has been in the midst of a three-year plan to turn Kate Spade into a $2 billion brand following its acquisition in 2017. It overhauled the label’s design team, which is now under the leadership of creative director Nicola Glass, who was hired last year and presented her first collection during the spring ’19 season.
“We are incredibly confident in this vision, supported by the emerging positive signs we are seeing, notably in the new brand codes and evolved product in the full-price business,” Luis shared. “That said, the brand’s financial results did not meet our expectations and more time is required to drive a positive inflection in the business, particularly in light of the traffic-challenged and competitive retail environment in North America.”
During the period, revenues for Kate Spade were up 6% to $332 million, but global e-commerce gains were offset by declining same-store sales, down 6%. (For the full year, sales also climbed 6% to $1.37 billion, and comps declined 7%.)
Revenues for Stuart Weitzman, on the other hand, grew 17% to $85 million. Full-year figures totaled $389 million — a 4% improvement from the previous year period. The brand has been in expansion mode with regional distributor acquisitions abroad as well as new store openings, particularly in China.
A bright spot for Tapestry was the consistent performance of Coach, which saw a 2% rise in sales to $1.1 billion as well as a 2% increase in global same-store sales. (It marked the seventh consecutive quarter of positive comps for the label.) Full-year revenues advanced 2% to $4.27 billion, with comps also up 2%. In his statement, Luis noted that its “largest and most globally diversified brand” was driven by both international and digital gains, “outperforming the direct competition in North America.”
Still, the company adjusted its guidance for the year, looking at more modest top line growth at Kate Spade in the United States. It announced a cutback in new store openings for the brand in an effort to focus on its better-performing outposts.
“Looking ahead, we are revising our outlook for fiscal 2020 to reflect the current trends in our business, notably at Kate Spade,” Luis said. “We believe this is prudent, particularly in light of the uncertain environment in North America and as we build the brand’s global awareness.”
The company said it earned $749 million, or $2.57 per share on an adjusted basis, for the full year. Sales increased 3% to $6.03 billion. It expects revenues to increase at a low single-digit rate for 2020, with earnings per diluted share roughly even with the previous year.
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