Tapestry, which agreed to buy rival Capri in August, cut its annual sales forecast and missed the estimates for first quarter on Thursday, taking a hit from weak demand for its luxury handbags and shoes in North America.
Shares of the Coach parent fell 1.7 percent before the bell despite its profit exceeding market expectations. They have lost nearly 30 percent of their value this year.
Tapestry’s sales of shoulder bags, apparel and footwear, seen as “accessible luxury”, has struggled as stubborn inflation and rising borrowing costs in the United States strain consumer budgets.
The company said revenue in North America was in line with prior year, citing a “difficult consumer demand environment”, while sales in Greater China grew 9 percent.
Reduced promotions, easing freight costs and a tighter inventory along with the sale of high-margin Tabby totes and shoulder bags at full price lifted gross margin by 250 basis points in the quarter.
The company is in the middle of a buyout of Michael Kors owner Capri, as they look to compete for a bigger share of the global luxury market by bringing more affordable luxury brands Stuart Weitzman, Jimmy Choo and Versace labels under one roof.
Tapestry said it expects to close the Capri deal in 2024, following the U.S. Federal Trade Commission’s requests for more information on their planned $8.5 billion deal.
The company expects 2024 revenue in the range of $6.7 billion compared to a prior forecast of close to $6.9 billion.
Its net sales were flat at $1.51 billion in the quarter ended Sept. 30 from last year. Analysts on average had expected $1.54 billion, according to LSEG data.
Adjusted earnings per share of 93 cents exceeded estimates of 90 cents.
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Coach Parent Tapestry Forecasts Weak 2024 on Soft US Demand