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Why Shares of Tapestry Are Down 12% After Topping Estimates

By Daniel Miller - May 1, 2018 at 1:09PM

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Production issues weighed on the company's Stuart Weitzman brand and will continue through the fourth quarter.

What happened

Shares of Tapestry, Inc. (TPR 1.24%), a designer and retailer of handbags, apparel, and footwear under well-known brands such as Coach, Kate Spade, and Stuart Weitzman, are down 12% as of 11:20 a.m. EDT after the company released fiscal 2018 third-quarter results.

So what

Net sales jumped 33% to $1.32 billion, fueled by its Kate Spade acquisition and 3% comparable sales growth at Coach. Adjusted earnings per share checked in at $0.54, topping analysts' estimates calling for $0.50, per Thomson Reuters.

"Kate Spade contributed to our overall performance, as we made continued progress on our integration efforts including the realization of synergies and the execution of strategic initiatives. Most importantly, we were delighted to announce the appointment of Anna Bakst as CEO and Brand President, Kate Spade who officially joined us in late March. Together with Creative Director Nicola Glass, we now have the leadership team in place to drive the brand forward globally." Victor Luis, chief executive officer of Tapestry, Inc., said in a press release.

Blue, orange, and purple handbags on display.

Image source: Getty Images.

Now what

Despite reporting a sound quarter that topped estimates on the top and bottom line, investors appear to have concern about the company's Stuart Weitzman brand. Stuart Weitzman results were negatively impacted by production issues and poor sell-through of carryover styles, which weighed on sales and margins. Management noted the issues are likely to continue through the fall and winter. For long-term investors who believe in the company's ability to continue generating high-margin sales through its well-known brands, this is a short-term speed bump.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tapestry. The Motley Fool has a disclosure policy.

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