Tapestry Inc, formerly Coach, reported a first-quarter profit that beat estimates on lower-than-expected costs and a smaller tax bill, and said savings from its Kate Spade acquisition would be more than double its previous forecast.
Tapestry bought Kate Spade in May to tap millennials who are drawn to the company’s quirky satchels and colorful tote bags. The deal also turned Coach into a multi-brand fashion house, a strategy that European counterparts such as Louis Vuitton have built their businesses on. Shares of the company, which also houses shoemaker Stuart Weitzman, were up 1.3 percent at $42 before the bell on Tuesday.
The New York-based company said it now expects to achieve synergies of about $100 million to $115 million in fiscal 2019, compared with its previous forecast of $50 million.
Overall sales, however, missed estimates due to a surprise drop in same-store sales in its legacy Coach unit, partly because of store closures due to hurricanes in the United States and the shift of a key Chinese festival to the next quarter.
Same-store sales at the Coach business fell 2 percent, while analysts had expected a 2 percent rise, according to research firm Consensus Metrix.
Kate Spade’s comparable sales also fell 9 percent as it reduced online flash sales and pulled back inventory at department stores, as part of a broader strategy to limit discounting and regain the brand’s prestige.
Analysts had expected Kate Spade sales to fall 8.8 percent, according to Consensus Metrix.
Still, Chief Executive Victor Luis was upbeat about the holiday quarter. “We have returned to growth thus far in the second quarter and are well positioned for holiday,” Luis said in a statement, adding that the company was keeping its full-year profit and sales forecast intact.
Tapestry’s net revenue rose 24.2 percent to $1.29 billion, while analysts on average had expected $1.31 billion, according to Thomson Reuters I/B/E/S.
The company posted net loss of $17.7 million, or 6 cents per share, in the quarter ended Sept. 30, compared with a profit of $117.4 million, or 42 cents per share, a year earlier, mainly due to a $188 million charge related to its acquisition of Kate Spade.
Excluding one-time items, the company earned 42 cents, beating analysts’ average estimate of 36 cents. The results were helped by a 17 percent tax rate in the quarter, much below the 26 percent expected by some analysts.
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