Tapestry owns two handbag brands. Coach is booming. Kate Spade is not. On Thursday the stock fell as much as 16.9%, to $127.78 — about a sixth of the company’s value gone in one morning.
The split between the two brands is stark. Last quarter Coach sold $1.64 billion worth of goods, up 15% from a year ago. Kate Spade sold $235 million, down 7%. Out of every $8 the company took in, roughly $7 came from Coach.
The profits tell it even better. Coach made $546 million. Kate Spade lost $29 million.
The odd part is that the quarter was good. Sales rose 9%. Profit beat what Wall Street expected. For the full year, sales hit $8 billion and profit per share jumped 38%. The company raised its dividend 16%.
So why did the stock get hammered?
Because of the forecast for next year. Tapestry said it expects sales of $8.4 billion to $8.5 billion. Analysts wanted about $8.46 billion. The middle of the company’s range landed roughly $10 million short — about one-tenth of one percent.
One-tenth of one percent cost the company a sixth of its value. That happens when a stock is priced for everything to go right. Shares had already climbed about 20% this year and were expensive by any measure. At that price, a rounding error is enough to knock it over.
Worth noting: the profit forecast was actually a touch better than expected. Investors ignored it and focused on the sales line.
Kate Spade’s trouble is not new. Sales fell 11% over the past year. Chief Executive Joanne Crevoiserat said progress came slower than planned. Last month the company hired Scottish designer Jonathan Saunders to lead the brand’s look, and it has already cut about 30% of Kate Spade’s handbag styles. The idea is to do for Kate Spade what worked at Coach a few years ago: fewer styles, better design, less discounting. That takes seasons to show up, not weeks.
There is a quieter worry in the numbers. Sales in North America grew 7% last quarter. A year ago they grew 8%. The quarter before, about 20%. American shoppers are slowing down. Overseas is the opposite — China up 28%, Europe up 19%. Tariffs are taking a small bite too.
What is clearly working: Tapestry picked up about 11 million new customers over the year, and roughly 1 in 3 were Gen Z. Young shoppers buying Coach is the whole engine behind these results. The company also brought in nearly $2 billion in cash from operations.
For anyone watching the stock, the question is simple. Is this a company growing 14% a year with one weak brand it is fixing? Or a company where the good half has to carry the bad half forever? Thursday’s drop was not a judgment on the business. It was a judgment on the price.
JBizNews Desk | New York
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