Tapestry, the parent company of retailers Coach and Kate Spade, has reported an 18 per cent drop in its shares in early trading as it slashed its full-year profit outlook.
The US luxury group missed expectations for its latest quarterly results and issued a surprise profit warning. The shares decline puts the stock on track for its third worst day on record, with the loss exceeding only by drops in July 2012 and September 2001.
The company said it now expects earnings for fiscal 2019 to come in at between $2.55 (£1.97) to $2.60 (£2.01) per diluted share — or 20 cents lower than the forecast it gave just three months ago.
It also predicted sales for the year to increase by low-to-mid single-digit, compared to its previous guidance for a mid-single digit increase. In a statement, Tapestry’s chief executive Victor Luis said the company was facing an “uncertain global environment and “an increasingly volatile macroeconomic and geopolitical backdrop” this year.
He also cited costs related to its ongoing efforts to turnround Kate Spade — the company it acquired for $2.4 billion (£1.8 billion) in 2017 for the guidance cut. Tapestry is currently competing with Capri, the company formerly known as Michael Kors, to build the American equivalent of a luxury conglomerate, and is looking to boost its growth in China.
The company said its flagship Coach brand, whose leather goods generated nearly 70 per cent of total group sales during the quarter, was gaining “increased traction” with Chinese consumers.
Meanwhile, Kate Spade, best known for its handbags, is continuing to struggle and is currently discounting its products heavily.
Same-store sales at the brand fell 11 per cent during the fiscal second quarter that ended on December 29. “Comparable store sales were below our expectations, impacted by the lack of distinctive newness in the final collections from the prior design team,” the company said about Kate Spade.
Stuart Weitzman, the luxury shoemaker, saw improvements. While sales rose slightly, margins remained under pressure. The retailer saw operating profit halved to $11 million (£8 million) for the quarter.
Coach reported a 1 per cent up tick in same-store sales. Overall, Tapestry took in $1.8 billion (£1.39 billion) in sales during the quarter, up from the $1.785 billion (£1.380 billion) reported in the prior year period but well below the $1.86 billion (£1.43 billion) the market was expecting. Net income, at $254.8 million (£197.1 million), was down nearly a third year-on-year.
