Tapestry shares nosedive after disappointing sales from Kate Spade

Key Points
  • Same-store sales were down 9 percent globally at Kate Spade.
  • Tapestry also said margins were under pressure at Stuart Weitzman due to production delays and lower sales of some items.
  • The company reported the strongest growth at Coach, which boosted overall sales and earnings results for the fiscal third quarter.
A Kate Spade handbag on display at Macy's in New York City.
Scott Mlyn | CNBC

Tapestry shares tumbled Tuesday morning as investors focused on a steep decline in same-store sales for the retailer's Kate Spade division during its fiscal third quarter.

The parent company of Coach and Kate Spade posted earnings and sales that topped quarterly targets. But with the same-store sales decline at Kate Spade and an uncertain outlook for its Stuart Weitzman brand, Tapestry's stock skidded down more than 14 percent in early trading, on pace for its worst day since last August when shares lost more than 15 percent.

Same-store sales for Kate Spade fell more than 9 percent globally, while analysts surveyed by Thomson Reuters were projecting a decline of about 7 percent.

Tapestry also saw weakness in its Stuart Weitzman business and said the trend could drag out through the holidays.

"At Stuart Weitzman, results were negatively impacted by execution issues including production delays and lower sell-through of key carryover styles, which pressured sales and margins," CEO Victor Luis said in a statement.

Here's how Tapestry performed for the period ended March 31:

  • Earnings: 54 cents a share, adjusted, vs. 50 cents per share expected by analysts surveyed by Thomson Reuters
  • Revenues: $1.32 billion vs. $1.31 billion expected

"Results were driven by continued growth at Coach, where comparable store sales rose, led by outperformance in North America," Luis said.

Tapestry reported net income of $140 million, or 48 cents a share, compared with $122 million, or 43 cents per share, a year ago.

Excluding one-time items, the company earned 54 cents, 4 cents better than what analysts were expecting.

Sales climbed 33 percent to $1.32 billion from $995 million a year ago, fueled by the company's acquisition of Kate Spade last July and again topping analysts' expectations.

Same-store sales for the Coach brand climbed 3 percent globally. Tapestry doesn't break out the same-store sales performance for Stuart Weitzman.

Looking ahead, Tapestry said it expects sales for fiscal 2018 to be up about 30 percent, with the Kate Spade acquisition adding more than $1.2 billion in sales. The company said earnings should fall within a range of $2.57 to $2.60 per share, which would be an increase of as much as 20 percent from a year earlier.

The company is still seen trimming promotional activity at Kate Spade, which is known for its flash sales and for having an abundance of discounted merchandise at off-price chains and department stores.

"The next step in the evolution of Kate Spade is to rebuild the brand with a much more distinct image and to ensure that collections align with this," GlobalData Retail managing director Neil Saunders said.

With respect to Coach, Saunders said the division "deserves credit for having a product lineup and marketing efforts that persuaded people to spend some of their [tax refund] windfalls with the brand."

Including Tuesday's losses, Tapestry shares are up about 5 percent so far this year.