Apparel Accessories and Luxury Goods

Coach owner Tapestry cuts forecast, and shares dive

Key Points
  • Tapestry blamed falling tourist spending and a slowing global economy for a cut in its forecast for full-year adjusted profit on Thursday.
  • The company formerly known as Coach reported disappointing holiday numbers and a fall in sales at Kate Spade handbags.
Victor Luis, CEO of Tapestry
Adam Jeffery | CNBC

Handbag maker Tapestry cut its full-year profit forecast and reported its first quarterly earnings miss in at least two years, as its millennial-focused Kate Spade brand failed to impress shoppers with a lack of new designs.

Shares of Tapestry, which also blamed falling tourist spending and a slowing global economy for its lackluster performance, were last down 16.4 percent, their worst day in more than six years.

Kate Spade, the brand Tapestry bought over a year ago, did not have a special collection for the holidays and Chief Executive Officer Victor Luis blamed the 11 percent drop in the brand's comparable store sales to a "lack of newness".

"It did worse than we expected and I believe that was due to the whole market moving on and Kate Spade not having moved on as much," Luis told Reuters in an interview.

Kate Spade hired Nicola Glass, a Gucci and Michael Kors alumnus, as its creative director last year. Her first collection was showcased in September, but arrived in stores only this year after the key holiday months.

"That's the main reason. It was just the time required for us to develop newness with the new creative direction," the CEO said.

Like other retailer, Tapestry relies heavily on the holiday season as it makes up almost a third of its annual sales.

"They missed a very important quarter," said Jane Hali, chief executive officer of investment research firm Jane Hali & Associates. "It was promotional and the atmosphere in the stores hadn't changed."

Tourists crimp spending

New York-based Tapestry called out "uncertain" macroeconomy and geopolitical tensions for a drop in tourism, especially with Chinese tourists, whose thirst for Coach and Kate Spade handbags had been a reliable revenue driver for the company.

Chinese customers are instead buying Tapestry products at their local stores in China.

The company said on a conference call that it would continue to invest in the world's most populous country at a time when the Chinese government is pushing for higher domestic spending.

Tapestry now expects full-year adjusted earnings in a range of $2.55-$2.60 per share, down from its previous forecast of $2.75-$2.80.

Similarly, Michael Kors handbag maker Capri Holdings gave a disappointing full-year profit forecast, after its holiday collection also failed to impress.

Tapestry earned $1.07 per share in the second quarter, excluding certain one-time items, missing the average estimate of $1.11.

Global same-store sales at Coach stores rose just 1 percent, short of analysts' estimate of 1.7 percent.