Coach owner Tapestry's sales top Wall Street estimates

Key Points
  • Tapestry's earnings, sales top analysts' expectations for the second quarter of fiscal 2018.
  • Same-store sales of the Coach brand rose 3 percent globally.
  • Kate Spade's same-store sales dropped 7 percent, hurt by past online flash sales.
Adam Jeffery | CNBC

Tapestry on Tuesday reported earnings and sales that topped expectations, fueled by global growth of the Coach brand and an encouraging holiday season.

The parent company of Coach, Kate Spade and Stuart Weitzman said net sales for the second quarter of fiscal 2018 jumped 35 percent to $1.79 billion. Analysts were calling for revenue of $1.77 billion, a Thomson Reuters survey said.

Tapestry's net income fell to $63 million, or 22 cents per share, from $200 million, or 71 cents a share, a year earlier, due to charges related to new tax legislation. Excluding one-time items, Tapestry earned $1.07 a share, topping analysts' forecast of 89 cents.

Tapestry shares were climbing more than 7 percent by Tuesday afternoon on the news.

"Our second quarter performance exceeded our expectations, driven by a return to growth for Coach, sales gains at Stuart Weitzman and the contribution of Kate Spade as we continued to make progress on the brand's integration," CEO Victor Luis said in a statement.

Tapestry added that the "anticipated benefits" from a lower corporate tax rate should allow it to exceed a prior full-year earnings outlook.

The company now expects earnings-per-share for fiscal 2018 to fall within a range of $2.52 to $2.60, an increase of as much as 21 percent for the year. The company is also anticipating annual revenue to rise about 30 percent after its acquisition of Kate Spade, which is expected to contribute more than $1.2 billion in revenue.

During the latest quarter, global same-store sales of the Coach brand rose 3 percent, while Kate Spade's total same-store sales dropped 7 percent. The company said fewer sales of Kate Spade-branded products were made online, as it continues to cut back on wholesale distribution and flash sales of that particular banner.

"The intention is clear: Tapestry wants to take Kate Spade through the same process used to rebuild Coach," GlobalData Retail Managing Director Neil Saunders said. "In our view, this is a necessary step to bolster brand value as Kate Spade had become too value-oriented and overly reliant on excessive, and margin depleting, promotions to drive results."

"Coach's game plan of becoming less ubiquitous and selling more at higher price points is now delivering," Saunders added.

Luis said Tapestry is giving its brands more control in international markets. For example, the company is acquiring the Stuart Weitzman business in northern China from its distributor and is buying back the Coach business in Australia and New Zealand.

"As a result, we will be creating a Tapestry hub ... in Sydney to drive growth across our portfolio," he said.

Including Tuesday's gains, Tapestry shares have climbed more than 28 percent from a year ago.