Coach Owner Tapestry Sales Top Estimates; Virus Impacts Forecast

(Bloomberg) -- Tapestry Inc. rose in early trading after posting strong sales at its Coach brand while the struggling Kate Spade unit’s results weren’t as bad as expected. Still, the company said its full-year forecast will be negatively impacted by the coronavirus.

• Coach same-store sales grew 2% worldwide in the second quarter, topping the 1% average of analysts’ estimates, according to Consensus Metrix. Kate Spade had a drop of 4%, compared with projections for an 8.5% decline.
• The company expects its full-year profit to take a 35-cent to 45-cent hit from the impact of the deadly virus outbreak in China.

Key Insights

• Asia was already a source of concern for Tapestry, with the ongoing U.S.-China trade war pressuring manufacturing and protests in Hong Kong disrupting retail operations.
• Chief Executive Officer Jide Zeitlin said that if the situation with the coronavirus deteriorates further, the effect on Tapestry’s forecast “could be worse.”
• The results show Coach has successfully turned around its sales by elevating the brand after a period of heavy discounting.
• On Thursday, Tapestry named Liz Fraser as head of Kate Spade, which has tried for years to recover from a period of heavy discounting and flash sales, eroding the label’s cachet. Same-store sales have fallen each quarter since Tapestry acquired the brand in $2.4 billion in 2017. Fraser comes from Fashion brand Lafayette 148 and had served as CEO of Anne Klein.
• The company also named Giorgio Sarne to lead its Stuart Weitzman shoe brand.

Market Reaction

• Tapestry shares climbed about 5% in premarket trading. They had gained 5.3% this year through Wednesday’s close after losing 20% last year.
• 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: Sally Bakewell at sbakewell1@bloomberg.net, Lisa Wolfson

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