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Kate Spade's holiday season stumble is just a 'blip,' Tapestry CEO says

Brian Sozzi
Editor-at-Large

Better days are ahead for the Kate Spade brand, Tapestry CEO Victor Luis says.

Investors are unsure of that right now, however, despite Luis’s successful track record leading Tapestry since 2014.

Kate Spade, which Tapestry bought in 2017 for $2.4 billion, saw its second fiscal quarter same-store sales plunge 11%. Luis tells Yahoo Finance consumers didn’t respond well to the brand’s offerings, which were the last under the design team that was in place at the time of the acquisition. Overall, Kate Spade’s sales under-performed Tapestry’s expectations.

To right the ship, Tapestry brought in Nicola Glass as Kate Spade’s new creative director in September 2018. Glass’s fresh take on the whimsical Kate Spade has only recently started to hit stores. Luis told Yahoo Finance the early product is performing very well, giving him confidence Kate Spade will be back to posting same-store sales growth by year end.

By the fourth fiscal quarter, the stores are poised to reflect 50% of Glass’s new products. Luis believes Kate Spade’s performance during the holidays were a “blip” ahead of a possible turnaround in sales.

It’s important that Tapestry fixes Kate Spade (as Luis did with the Coach brand), and fast, as to avoid another quarter like the one delivered on Thursday. Second fiscal quarter earnings missed Wall Street forecasts by 4 cents a share. Total sales came in at $1.8 billion versus forecasts for $1.86 a share.

The good

  • Global same-store sales at the Coach brand rose 1%. The division’s operating profit margins gained 40 basis points from the prior year.

  • Gross profit margins increased 10 basis points from the prior year, despite the wide sales miss at Kate Spade. Luis told Yahoo Finance the company decided not to aggressively liquidate slow-selling Kate Spade product in the quarter. That likely helped protect margins in the quarter.

The not so good

  • Full-year earnings outlook slashed.

  • Kate Spade same-store sales down 11%. The division’s profit margins dropped 100 basis points year over year.

  • Operating profits at the Stuart Weitzman brand fell to $13 million from $24 million a year ago.

Tapestry slashed its full fiscal year earnings outlook to $2.55 a share to $2.60 a share from $2.75 to $2.80. Analysts were looking for $2.78 a share.

Tapestry shares fell as much as 19% on Thursday.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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