New lines of Coach handbags helped Tapestry Inc beat holiday quarter expectations on Thursday, sending its shares up 6%, even as the fashion house warned the coronavirus outbreak could dent its sales by up to $250 million.
Tapestry has closed a majority of its stores in mainland China and became the latest company to cut its earnings outlook following the epidemic that has killed more than 500 people. Michael Kors owner Capri Holdings, Ralph Lauren and Levi Strauss have all closed outlets in the world’s second-largest economy - a critical market for luxury goods makers.
Like its peers, Tapestry has invested heavily in the region and said sales were strong before the outbreak, driven by the launch of its products on Alibaba Group Holding Ltd’s Tmall.
Coach sales rose 2% to $1.27 billion in the second quarter, driven by higher prices, its new “Tabby” handbag line and a Star Wars-themed collection of fanny packs and bags. To keep shoppers, especially millennials and Gen Z, walking into stores, the high-margin brand also tapped actor Michael B. Jordan to design a limited edition Naruto line of apparel.
Excluding certain items, Tapestry earned $1.10 per share in the quarter, beating analysts’ average estimate of 99 cents, according to IBES data from Refinitiv. Tapestry’s total quarterly net sales rose nearly 1% to $1.82 billion, also helped by an improvement in sales at Kate Spade. The company on Thursday named Liz Fraser, president of New York-based women’s fashion brand Lafayette 148, as the new chief executive officer of Kate Spade, which it bought in 2017.
Analysts at Bernstein said the appointment would be perceived as a positive change at the struggling fashion label.
Second-half financial results could be hit by about $200 million to $250 million in sales and 35 cents to 45 cents in earnings per share, Tapestry said. Tapestry said China represents a low to mid-teens percentage of the company’s total revenue. It has also lowered its supply chain exposure to the country by shifting production to other regions.
“Investors appear to be relieved that the impact from the coronavirus wasn’t as bad as they had feared to go into the print,” said Karan Gujadhur, an equity analyst at Woozle Research in London. However, he said based on the impact of the outbreak spreading to regions outside China, the hit to Tapestry appears “to be far more bearish that management is suggesting in their update.”