Tapestry plummets with tariff costs weighing on profit outlook
The owner of Coach and Kate Spade said it's expecting earnings per diluted share between $5.30 to $5.45 in the current fiscal year. That would be a 4% to 7% increase versus the prior year. Analysts in a Bloomberg survey were expecting the profit metric to reach $5.49.
The difference likely lies in tariffs. Tapestry's EPS outlook includes a negative impact of 60 cents from higher duties, the company said in a statement Thursday. It's not clear that Wall Street has fully accounted for those costs.
Shares of Tapestry fell 17% in premarket trading. The stock had gained about 74% this year through Wednesday's close. That hit tariffs represents about $160 million in extra costs in the current fiscal year, Chief Financial Officer Scott Roe said in an interview.
The 'new information' on tariffs, he said, will have a 'significant' effect in the current fiscal year. Still, Tapestry has 'strong confidence in our ability to mitigate the impact of tariffs over time.' The handbag maker's outlook for the year is 'prudent given the backdrop,' Roe added.
Tapestry is forecasting revenue of nearly $7.2 billion in the current fiscal year that's expected to end in June, slightly above analysts' expectations of $7.12 billion. That excludes sales from shoe brand Stuart Weitzman, which Tapestry sold after it didn't generate much revenue. That figure would be a mid-single-digit percentage increase in sales versus the prior year, the company said.
Offloading Stuart Weitzman will enable Tapestry executives to spend more time and resources on increasing sales at Coach and turning around Kate Spade. Revenue at Coach rose 13%, excluding currency fluctuations, and fell 13% at Kate Spade in the most recent quarter that ended on June 28.
'Coach outperformance continues,' Tapestry Chief Executive Officer Joanne Crevoiserat said in the interview. 'We're well ahead of the industry and we're doing that at exceptional margins.' Sales at Coach have accelerated in the current quarter, she added. At Kate Spade, Crevoiserat said, 'the work to reset the brand is underway.'
Coach was listed as the fifth hottest fashion brand as of June, according to the closely watched Lyst Index. Its Tabby and Brooklyn bags are top sellers and have been spotted on celebrities, while its cherry bag charm is a popular and less expensive purchase for shoppers.
Most of the brands at the top of the Lyst Index are European fashion houses such as Miu Miu, Loewe, Prada and Moncler. Coach and Ralph Lauren, at No. 11, are among the few US names on the list and have been able to successfully compete with more expensive European luxury labels even as the two companies have consistently raised prices in recent years.
Both brands' prices are cheaper than many of their European peers, which makes their high-end products more accessible to a wider range of shoppers, helping to boost sales, executives have said.
The brands' popularity 'suggest a healthy outlook to support market-share gains and operating margin via full-price sales, even amid increased price sensitivity, low consumer confidence and tariff risk,' Bloomberg Intelligence analysts Deborah Aitken and Andrea Ferdinando Leggieri wrote in a recent research note.
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