Tapestry Starts Review of Business, With Focus on Kate Spade

(Bloomberg) -- Tapestry Inc., the owner of Coach and Kate Spade, announced an in-depth review of the company and said its China business is “constrained” by Hong Kong unrest.

• The maker of luxury goods posted earnings that topped analysts’ estimates despite a sharp sales decline at its Kate Spade brand. Kate Spade products were pressured by China tariffs, and the line will be a key focus of the review, executives said on a conference call with analysts.

Key Insights

• Excluding some items, profit of 40 cents a share topped projections of 36 cents. The Coach brand, which accounts for more than two-thirds of Tapestry revenue, reported comparable sales growth of 1%, matching estimates, while Kate Spade’s same-store sales tumbled 16%, a little less than predicted.
• The Kate Spade results aren’t a welcoming start for new Tapestry Chief Executive Officer Jide Zeitlin, who stepped into the role in September. Zeitlin, a Goldman Sachs Group Inc. veteran who has served as Tapestry’s chairman since 2014, said the decline reflects “product and merchandising challenges” for the brand.
• Kate Spade has been a source of investor concern since it was acquired for $2.4 billion in 2017 under previous CEO Victor Luis. Executives have tried to dial back on Kate Spade promotions to reinvigorate full-price sales, but shoppers haven’t gotten back on board. Revenue at Kate Spade fell 6% to $306 million in the quarter.
• Meanwhile, the rejuvenated Coach brand remains stable, propped up by shoppers who have been successfully weaned off of perpetual discounts.

Market Reaction

• Tapestry shares rose as much as 2.6% in New York Tuesday. The stock had lost 21% through Monday’s close and is in the running for its worst annual performance since 2014.
• For the company statement, click here.

To contact the reporter on this story: Kim Bhasin in New York at kbhasin4@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Lisa Wolfson

©2019 Bloomberg L.P.