By Imani Moise
Shares of Tapestry Inc., formerly Coach Inc., fell 12% Tuesday afternoon after the luxury handbag maker reported weakness in its Kate Spade and Stuart Weitzman businesses.
The segments overshadowed strength in the core Coach brand and raised questions about how quickly the company will benefit from its strategy of scooping up other brands.
Coach changed its name to Tapestry late last year to reflect Chief Executive Victor Luis's vision of creating a luxury conglomerate comparable to LVMH Moët Hennessy Louis Vuitton SE. The 77-year-old company made its first ever acquisition in 2015 when it bought Stuart Weitzman, an upscale shoe brand best known for its boots.
Stuart Weitzman sales suffered in its fiscal third quarter from delays in getting its new products into stores, the company said. Unlike, Kate Spade, which is now produced in the same facilities as Coach products, Stuart Weitzman has its own dedicated supply chain operation in Spain. Mr. Luis described the issues as challenges associated with transitioning from a founder-led business to one that can scale.
"While we are very proud of our team in Spain, it does lack the processes and the systems to deal with a level of complexity and innovation that the teams need and want to deliver," he said on a call Tuesday with analysts.
The New York-based company expects the production problems to continue through the fall and winter seasons and to improve by the second half of fiscal 2019.
Comparable sales at Kate Spade dropped 9% world-wide in the company's fiscal third quarter as it pulled back on promotional activity around the brand and exposure to department stores. Tapestry acquired the maker of handbags, shoes and accessories last year for $2.4 billion.
"As Tapestry pulls back on wholesale distribution and reduces flash sales, revenue is bound to suffer," said Neil Saunders, analyst at GlobalData Retail. "Nevertheless, we support the strategic direction and believe that this corrective action is ultimately necessary to strengthen the brand."
Mr. Luis made similar moves at the core Coach business to turnaround its results, pulling back on department stores and cutting back on discounts. Comparable sales for Coach rose 3% in the latest quarter.
Overall for the quarter, Tapestry reported a third-quarter profit of $140.3 million, up from $122.2 million, for the same period last year. Revenue jumped 33% to $1.32 billion from a year ago due to the inclusion of Kate Spade in the latest period.
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