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Tapestry Shares Rise on Q3 Beat on Adjusted Diluted EPS Estimate

On a day when most of Wall Street’s focus was on negativity and fear over concerns of trade tensions between the U.S. and China, Tapestry Inc. was one of the few outliers as shares rose on Thursday following a beat on third-quarter results.

In a Nutshell: Tapestry’s earnings for the quarter ended March 30 beat Wall Street’s consensus estimate for adjusted diluted earnings per share by 1 cent. There had been concern heading into the earnings report season that the Kate Spade brand was still struggling, but the latest report now suggests earnings growth for the brand next year. That, according Telsey Advisory Group’s Dana Telsey, helped give shares of Tapestry a bit of a “relief rally” in the day’s trading session.

In a telephone interview Thursday, Coach brand president Josh Schulman noted that the company has a pop-up shop at Neiman Marcus at Hudson Yards, where it offers made-to-order bags from the brand’s Rogue collection. They are selling well, he said, noting the customer preference has been for “exotic skins at between $1,200 and $8,000, representing the pinnacle of the Coach brand.”

Tapestry chief executive officer Victor Luis said that as the company continues innovating on the product side, it is also in the process of elevating the entire customer experience for all of its brands. One example is the new Stuart Weitzman store at Hudson Yards. That location exhibits the new store concept for the brand, which will be the representative look as new doors roll out. The company is also making adjustments where needed to its Coach and Kate Spade stores as well, the CEO said.

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Sales: For the third quarter ended March 30, sales rose nearly 0.7 percent to $1.33 billion from $1.32 billion. The company said gross profit for the quarter was $916 million, with gross margin at 68.8 percent.

By division, sales at Tapestry’s Coach brand slipped 0.4 percent to $965 million from $969 million, although global comparable store sales rose 1 percent and the gross margin increased slightly to 71.17 percent from 71.3 percent in the year-ago quarter. Net sales at its Kate Spade brand rose 4.5 percent to $281 million from $269 million. Global comparable store sales fell 3 percent, while the gross margin dipped slightly to 63.3 percent from 63.5 percent. And at Stuart Weitzman, net sales rose 1.2 percent to $85 million from $84 million. The company said that gross margin for the quarter rose slightly to 54.3 percent from 54.1 percent.

Earnings: Net income fell 16.3 percent to $117.4 million, or 40 cents a diluted share, from $140.3 million, or 48 cents, a year ago. On an adjusted basis, diluted EPS was 42 cents.

For fiscal year 2019, the company guided revenue estimates to increase at a low-to-mid-single-digit rate from fiscal 2018. It also projected diluted earnings per share in the range of $2.55 to $2.60. The guidance includes cost savings of between $100 million to $115 million from expected synergies connected to its Kate Spade acquisition, and the impact of distributor consolidation and stock buybacks. The company on Thursday said its board has authorized a $1 billion share repurchase program.

Tapestry shares in mid-afternoon trading were up 8.5 percent to $33.37 in Big Board trading.

CEO’s Take: Luis said: “Our model is distinctive–we are brand-led and consumer-centric–with a future built upon the values of optimism, innovation and exclusivity. Each of our brands has differentiated attitudes, bringing diversification to our portfolio. At the same time, each can leverage Tapestry’s core capabilities and infrastructure to drive meaningful synergies.”