Tapestry Inc.’s weaker-than-expected fourth-quarter results have UBS analysts worried that the Kate Spade turnaround investors were hoping for is not in the offing.
Tapestry TPR, -14.83% shares plummeted 18.3% in Thursday trading after the company reported earnings that missed expectations. Coach sales increased 2% and Stuart Weitzman sales were up 3%, but Kate Spade fell 1%. Moreover, Kate Spade’s comparable sales took an 11% nose dive.
“The comp softness reflected a lack of distinctive newness in the final season from the brand’s previous design team,” said Tapestry’s Chief Executive Victor Luis on the earnings call, according to a FactSet transcript.
“Given the lack of newness for holiday and our excitement about the new creative direction, we made a deliberate decision to shift marketing dollars from both Q2 and Q4 into the current quarter to support of the launch of Nicola Glass’ new collection.”
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UBS analysts think Kate Spade is now giving investors a reason to be concerned.
“This likely causes the market to increasingly doubt that Tapestry can execute the brand turnaround and lower its long-term earnings expectations for the brand,” analysts led by Jay Sole wrote.
UBS rates Tapestry shares buy with a $56 price target.
The report could also renew fears about the global retail market.
Tapestry’s Luis called out the “increasingly volatile macroeconomic and geopolitical backdrop” in his commentary.
GlobalData Retail’s Managing Director Neil Saunders was a bit more forgiving about the Kate Spade decline owning to the strategy of pulling back on promotions and wholesale distribution. However, Saunders also said that the quarter’s problems at both Kate Spade and Coach were attributable to the merchandise. Saunders called the Coach lineup “lackluster” and said Kate Spade “fizzled.”
“In a market where consumers had money to spend and were actively shopping around, such an approach was not good enough,” Saunders wrote. “In our opinion, the range of gifting options was also poor: not nearly enough effort was put into producing holiday lines to appeal to different price points and types of consumer.”
Tapestry shares have lost 36% over the past year while the S&P 500 index SPX, -0.94% is up 0.5% for the period.
