Tapestry Inc. shares fell 22 percent today as progress at Kate Spade — a brand in the midst of an intensive overhaul — stalled during the fourth quarter.
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%.
“Unfortunately, Kate Spade was not immune to weak traffic and a heightened level of promotions in outlets — and faced a number of brand-specific issues. [They] include the lack of distinctive newness, disappointing customer reception to certain styles — and a difficult comparison of last year’s strong demand following the founder’s passing,” said Oliver Chen, an analyst at Cowen & Co.
Tapestry CEO Victor Luis said in a conference call that the company, which acquired Kate Spade two years ago, is addressing the label with a sense of urgency. “While there have been some green shoots, we clearly need more time to drive an inflection to positive comps, especially given the brand’s exposure to the competitive and traffic-challenged North America market,” said Luis.
The exec said he was confident in creative director Nicola Glass’ new vision for the label. But he acknowledged that staid inventory was still an issue in stores, particularly outlets. “The outlet channel is in need of a much more substantial amount of distinctive newness than we planned,” said Luis, who noted that Kate Spade plans to slow the pace of store openings for fiscal ’20.
Moving forward, Kate Spade plans to focus on invigorating product, starting with the handbag category. “We’re introducing new [satchel] designs in a broader range of high-quality materials that provide the structure, durability and functionality that the Kate Spade brand is known for,” Luis said. “We also believe there is an opportunity in [crossbody] bags and backpacks given the hands-free trend in the market.
To drive buzz, the brand also plans to launch more whimsical novelty items and will unveil collaborations to get the customer excited.
Footwear is also a major priority as Kate Spade, led on the business side by shoe veteran Anna Bakst, introduces its first in-house collection for spring ’20. (Steve Madden was Kate Spade’s most recent licensing partner through its Schwartz & Benjamin arm.) “We showed our new spring collection at FFANY just last week, and the response was positive as buyers describe the offering as relevant, fun, exciting and truly lifestyle in addressing many usage occasions,” said Luis.
Glass told FN last fall that her design approach across categories is to look at all the details. “Kate Spade is known for strong color, but I wanted to look at it in a [fresh] way with unexpected combinations. Another important thing was the use of prints and finding a new way of doing them. I started looking at iconic elements and building them,” she said.
While Kate Spade moves quickly to get back on track, Tapestry is hoping to keep the momentum going at its other two brands.
Fourth-quarter revenues for Stuart Weitzman grew 17% to $85 million. 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. Luis noted that the firm’s “largest and most globally diversified brand” was driven by both international and digital gains, “outperforming the direct competition in North America.”