Strong 2Q for Tapestry, though China outbreak takes its toll

The luxury brand Tapestry is reporting quarterly earnings that are much better than expected, but warned that the virus outbreak in China is “significantly impacting” its business there

The luxury brand Tapestry handily beat quarterly profit expectations but warned that the virus outbreak in China is “significantly impacting” its business.

The owner of Coach and Kate Spade said Thursday that the majority of its stores in China are now closed.

Chinese health authorities have reported 563 deaths from the outbreak and the number of confirmed cases jumped sharply to 28,018. Outside mainland China, at least 260 cases have been confirmed, including two deaths in Hong Kong and the Philippines.

The outbreak has constrained global companies across the spectrum, particularly cruise operators, hotels, casinos, airlines and retailers.

Tapestry expects sales in the second half of the year could be clipped by $200 million to $250 million because of the outbreak. Per share profits may be reduced by 35 and 45 cents.

The New York company cautioned that the impact could be more significant if the situation worsens or the outbreak affects demand outside of China.

“We are confident in our ability to effectively navigate through this period of uncertainty,” said Chairman and CEO Jide Zeitlin in a prepared statement. “We are managing our response to best protect our people, our brands and every aspect of our business.”

Tapestry Inc. earned $298.8 million, or $1.08 per share, for the period ended on Dec. 28, which includes the critical holiday season.

Removing one-time costs, earnings were $1.10 per share. Analysts surveyed by Zacks Investment Research were looking for 98 cents per share.

Revenue totaled $1.82 billion, beating the $1.8 billion Wall Street expected.

Tapestry said Thursday that it now anticipates annual earnings of about $2.15 to $2.25 per share on revenue of approximately $5.9 billion. That, the company said, also accounts for the potential negative impact from the spreading coronavirus.

Industry analysts polled by FactSet had been projecting 2020 earnings of $2.51 per share on revenue of $6.1 billion.

Tapestry also announced Thursday that Liz Fraser has been named CEO and brand president of Kate Spade; Giorgio Sarné will become CEO and brand president of Stuart Weitzman, and Yann Bozec will become president of Tapestry Asia Pacific.

Tapestry’s strong quarterly results helped push shares up 3% before the market opened.


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