Aug 16, 2018
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Kate Spade sales drive strong Tapestry forecast, shares jump

Aug 16, 2018

The publicity around the untimely death of designer Kate Spade drew shoppers back to the handbag brand this summer, driving a 31 percent jump in fourth-quarter sales for its new owner Tapestry Inc that sent shares up 12 percent on Tuesday.

Kate Spade New York - Fall-Winter2017 - Womenswear - New York - © PixelFormula

Tapestry, formerly known as Coach, also issued a better-than-expected forecast, banking on strong demand for the colorful and quirky handbags as well as gains from a reduction in discounts and promotions.

Spade, who built a fashion empire selling accessories that offered affordable luxury to younger working women, committed suicide in her New York apartment in June at the age of 55. She was last associated with the brand in 2006 when she sold her remaining stake in the firm.

“Our e-commerce site as well as our store sales reflected the strong and immediate heartfelt response to loyal customers to the tragic news of our founder’s passing,” Anna Bakst, the brand’s Chief Executive Officer said on a call with analysts.

The Kate Spade acquisition helped Tapestry broaden the reach of its handbag business that traditionally focused on older women.

The company has been pulling back flash sales promotions on its website and limiting inventories at department stores to sell more items at full price, a strategy that helped revive sales of its signature Coach brand.

“From what we saw in the stores is there had been promotions up until the time of her passing and then it leveled off ... I think there was a renewed interest in the brand and they were able to benefit from it,” said Gabriella Santaniello, founder of retail research firm A-Line Partners.

In the fourth quarter, Kate Spade brand’s sales rose about 4 percent to $312 million on a proforma basis, the company said, topping analysts’ estimate for the brand’s revenue and comparable-store sales.

Kate Spade sales are expected to rise at a double-digit rate in 2019, Chief Financial Officer Kevin Wills said, adding that the comparable store sales at the brand are expected to return to growth in the second half of the year.

Sales at its signature Coach brand, however, missed analysts’ estimates even though they rose nearly 5 percent to $1.10 billion.

For the full year, Tapestry forecast sales in the range of $6.1 billion to $6.2 billion, beating the average analyst estimate of $6.08 billion, according to Thomson Reuters I/B/E/S.

Wills said Tapestry was closely monitoring the impact of potential tariffs on Chinese imports, but noted that less than 5 percent of the company’s handbags were produced in the region.

Excluding one time items, the fashion house reported a profit of 60 cents, 3 cents more than the polled estimate.

Shares of the company were up as much as 12 percent at $53.38, putting them on track for their best day in nearly eight years.

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