Coach owner Tapestry cuts profit forecast on coronavirus hit

Earnings

Customers walk past a Coach store at Shanghai New World Daimaru department store on August 12, 2019 in Shanghai, China.

VCG | Visual China Group | Getty Images

Coach handbag maker Tapestry on Thursday became the latest company to forecast a hit to its profit from the coronavirus outbreak in China, warning its sales could be dented by up to $250 million.

The weak outlook took some shine off the company’s strong holiday quarter earnings, which were powered by a rise in online demand for Coach products in North America. Shares of the fashion house were up 2% in premarket trading.

Tapestry has closed a majority of its stores in mainland China, joining a growing list of companies that have been forced to curtail operations in the country following the epidemic that has killed more than 500 people.

Michael Kors owner Capri Holdings, Ralph Lauren, and Levi Strauss have all closed stores in the world’s second largest economy – a critical market for luxury goods makers.

Second-half financial results could be hit by about $200 million to $250 million in sales and 35 cents to 45 cents in earnings per share, Tapestry Chief Executive Officer Jide Zeitlin said.

Tapestry cut its fiscal 2020 earnings forecast to about $2.15 to $2.25 per share, compared with its previous outlook of $2.57 per share.

Karan Gujadhur, an equity analyst at Woozle Research in London said the hit could have been even worse given that the outbreak is spreading beyond China.

“Investors appear to be relieved that the impact from the coronavirus wasn’t as bad as they had feared going into the print,” Gujadhur said.

Higher prices for Coach handbags and demand for new designs, pushed Tapestry’s second-quarter net sales nearly 1% higher to $1.82 billion, marginally above analysts’ average estimate of $1.81 billion, according to IBES data from Refinitiv.

Excluding certain items, Tapestry earned $1.10 per share, beating analysts’ average estimate of 99 cents, helped by the high margins on Coach products.

Tapestry on Thursday also named Liz Fraser, president of New York-based women’s fashion brand Lafayette 148, as the new chief executive officer of its Kate Spade brand.

Analysts at Bernstein said the appointment would be perceived as a positive change at the struggling fashion label.

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