Coach-owner Tapestry beats earnings estimates, but Kate Spade sales are still weak

The owner of the Kate Spade and Coach handbag brands on Tuesday reported fiscal first-quarter earnings that beat analyst estimates, but sales fell short due to weakness at Kate Spade.

Tapestry also gave a fresh outlook for fiscal 2020: It expects sales to rise at a low-single digit pace and flat earnings per share compared with this year.

Its shares rose 0.7% in early trading Tuesday. It had jumped 6% in the premarket.

Here’s how Tapestry performed for its first quarter compared with what analysts were expecting, based on Refinitiv data:

• Earnings per share: 40 cents, vs. 37 cents expected
• Revenue: $1.358 billion, vs. $1.371 billion expected

Net income fell to $20 million, or 7 cents per share, during the period ended Sept. 28, from $122.3 million, or 42 cents per share, a year ago.

Excluding $76 million in charges related to a change in how it accounts for leases, Tapestry earned 40 cents per share, 3 cents ahead of analysts’ forecasts.

Net sales fell to $1.36 billion from $1.38 billion a year ago, missing expectations for $1.37 billion.

Tapestry in September replaced CEO Victor Luis with Chairman Jide Zeitlin. Zeitlin said in a statement Tuesday that Kate Spade’s decline was “in line with expectations, reflecting the product and merchandising challenges … previously identified.”

Zeitlin had told CNBC when the transition was announced that one of his primary initiatives as CEO would be to work on “core growth drivers,” one of those being Kate Spade. He has said Kate Spade remains a $2 billion or larger opportunity for Tapestry.

During the quarter, global same-store sales at Kate Spade dropped 16%, while they were up 1% at Coach.

Tapestry has been hurt because its brands including Kate Spade are readily available at off-price shops, thus discouraging consumers to buy those goods at full price.

Tapestry, which also owns Stuart Weitzman, has a market cap of about $7.6 billion, compared with Michael Kors’ owner Capri Holdings‘ $5 billion. Tapestry’s stock is down 2% this year, while Capri’s has fallen 12% in 2019.