Tapestry, Formerly Coach, Advances as Holidays Boost Sales

(Bloomberg) -- Tapestry Inc. is on the comeback path after a robust holiday season for the fashion company formerly known as Coach Inc.

Same-store sales for the Coach brand surpassed analysts’ estimates last quarter, a sign the label is rebounding as executives try to elevate its image by reducing markdowns. That helped send the shares up the most in nine months on Tuesday.

Chief Executive Officer Victor Luis is trying to reinvigorate his portfolio brands, which also include handbag label Kate Spade, and shoemaker Stuart Weitzman, as the company pulls some merchandise from department stores and weans shoppers off of deep discounts and flash sales. Luis said Tuesday that Coach benefited last quarter from strong sales in North America, an increase in global e-commerce and an improved inventory mix.

“Coach’s game plan of becoming less ubiquitous and selling more at higher price points is now delivering,” said Neil Saunders, managing director of research firm GlobalData Retail.

The company raised its full-year profit forecast to a range of $2.52 to $2.60 a share. That’s up from a previous outlook of as much as $2.40 and topped analysts’ average estimate of $2.42.

The stock climbed as much as 9 percent to $49 in New York trading, the biggest intraday jump since May. It had increased 22 percent in the past year through Monday’s close.

“We are thrilled with Coach’s holiday performance,” Luis said on a conference call after the results were released. “As we look forward to spring and beyond, we are well-positioned to drive positive comparable store sales.”

Sales Growth

Same-store sales, a key retail metric, rose 3 percent at Coach. Analysts had projected a gain of 2 percent, according to Consensus Metrix. The measure fell 7 percent at Kate Spade, though that wasn’t as deep a drop as the 8.8 percent estimated.

Excluding some items, Tapestry’s profit amounted to $1.07 a share in its second quarter that ended Dec. 30, compared with an 88-cent prediction.

Tapestry changed its name from Coach Inc. in October, a few months after its $2.4 billion acquisition of Kate Spade, signaling its reorganization into a multibrand fashion house. Tapestry bought Stuart Weitzman in 2015.

‘Necessary Step’

The comparable sales decline at Kate Spade comes as it retreats from heavy promotions and a pullback from some department stores. Tapestry said Tuesday that Kate Spade and the cost savings from integrating that business will contribute about $130 million to $140 million in operating income in fiscal 2018.

“Tapestry wants to take Kate Spade through the same process used to rebuild Coach,” Saunders at GlobalData Retail said. “This is a necessary step to bolster brand as Kate Spade had become too -oriented and overly reliant on excessive, and margin depleting, promotions to drive results.”

Executives are working to revitalize Coach after sales struggled in recent years due to intense competition from rivals Kate Spade and Michael Kors Holdings Ltd. Coach seeks to regain prestige by going more upscale and increasing digital marketing. In late 2016, Coach enlisted singer Selena Gomez as the face of the brand.

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