Coach handbag maker Tapestry has today cut its annual sales forecast and missed third-quarter revenue estimates, signaling that demand for its handbags and accessories would remain weak in North America and China.
Shares of the Kate Spade owner pared some of its early losses to trade 1.4% down before the bell as the company's quarterly profit exceeded estimates.
Reduced discretionary spending in North America owing to rising prices and a fragile post-pandemic recovery in China have led to sagging sales for Tapestry's leather handbags and footwear brands.
Revenue in North America, which accounted for 61% of 2023 revenue, fell 3% in the quarter, while sales in Greater China dipped 2%.
But Tapestry still beat profit expectations on margin growth from selling products at full price. Its quarterly gross margin expanded 190 basis points from last year, benefiting from lower freight cost, tighter control on expense and lower promotions.
The company's proposed $8.5 billion buyout of Michael Kors owner Capri is facing hurdles as the US Federal Trade Commission has sued to block it on grounds that the deal would eliminate "direct head-to-head competition" between the flagship brands of the two luxury handbag makers.
Tapestry said it was "confident in the merits and pro-competitive, pro-consumer nature of this transaction and ... working expeditiously to close the transaction in calendar year 2024".
The company said its net sales came in at $1.48 billion in the quarter ended March 30, compared to analysts' average estimate of $1.50 billion, according to LSEG data.
It now expects fiscal 2024 revenue of more than $6.6 billion, down from previous expectations of about $6.7 billion even as it maintained profit forecast in the range of $4.20 to $4.25 per share.
It earned 82 cents per share on an adjusted basis, compared to estimates of 67 cents.
