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Tapestry misses revenue estimates on surprise drop in Coach sales

  • Tapestry is still integrating Kate Spade into its portfolio, which is acquired for $2.4 billion earlier this year.
  • In addition to Coach and Kate Spade, Tapestry owns the Stuart Weitzman moniker, which brought double-digit sales growth in the fiscal first quarter.
  • Same-store sales at Coach — the company's biggest unit — fell 2 percent.
A woman walks past Coach bags in a window of Macy's flagship store, May 12, 2017 in the Herald Square neighborhood in New York City.
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Tapestry, the luxury house of brands formerly known as Coach, posted weaker-than-expected revenue for its fiscal first quarter, also reporting a surprise drop in comparable sales at its legacy unit.

The retailer's shares were up more than 2 percent midmorning Tuesday after earlier falling around 1 percent on the news.

In the midst of a major rebranding and reorganization, though, some bumps in the road were expected, as Tapestry works to amass a portfolio of handbags, accessories, footwear and outerwear brands with global reach.

"The current period is one of transition for Tapestry" and "better numbers will come through over time," Neil Saunders, managing director at GlobalData Retail, wrote in a note to clients.

During the fiscal first quarter, Tapestry said the company began to implement strategic initiatives, such as cutting back on flash sales. The retailer is still integrating Kate Spade into its portfolio, which it acquired for $2.4 billion earlier this year. That deal turned Coach into a multibrand fashion house.

"While our Coach comparable store sales were impacted by both expected calendar shifts and inventory challenges as well as the effects of the unanticipated natural disasters — we have returned to growth thus far in the second quarter and are well positioned for holiday," Chief Executive Victor Luis said in prepared remarks.

Tapestry added that it remains on track to meet its full-year financial outlook, which was detailed in August.

On Tuesday morning, Tapestry posted a net loss of $17.7 million, or 6 cents per share, compared with a profit of $117.4 million, or 42 cents per share, one year ago.

Excluding one-time items, Tapestry earned 42 cents a share, outpacing analysts' average estimate of 36 cents, according to Thomson Reuters.

The retailer's total revenue climbed 24.2 percent, to $1.29 billion, while analysts were calling for sales of $1.31 billion, Thomson Reuters said.

During the latest quarter, Tapestry booked a $188 million charge related to its acquisition of Kate Spade. Looking ahead, however, the New York-based company said it now expects to achieve synergies of roughly $100 million to $115 million in fiscal 2019, compared with a prior forecast of $50 million.

"After only a few months since the close of the Kate Spade acquisition, we're even more excited about the opportunities for the brand, both in terms of revenue growth ... and other corporate functions," Luis said.

In addition to Coach and Kate Spade, Tapestry owns the Stuart Weitzman moniker, which brought double-digit sales growth in the fiscal first quarter.

Meantime, same-store sales at Coach — the company's biggest unit — fell 2 percent. The company called out a shift in timing of the Chinese Mid-Autumn Festival into October, coupled with "inventory mix issues," as a reason for the drop.

"The pullback from department stores and other channels that Tapestry considers to be detrimental are part of the reason for the slide in Coach's numbers," Saunders said. "They serve as a reminder of the fickleness of demand when it comes to higher-end brands — which is why Tapestry wants to move away from being reliant on just one label."

Tapestry shares have climbed 20 percent in 2017.