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Here’s Why Tapestry Is Crashing despite Earnings Beat

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Tapestry reports top- and bottom-line beat

The New York-based Tapestry (TPR) reported its third-quarter 2018 results before the opening bell today. The company cruised ahead of Wall Street’s top- and bottom-line expectations but still failed to please investors. Its stock fell as much as 14% in the first hour of trading, and the company saw one of the biggest losses on the New York Stock Exchange.

Let’s discuss the company’s quarterly performance first and then turn to the reasons behind today’s slaughter.

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The good news first

Tapestry reported a 33% YoY (year-over-year) increase in 3Q18 total sales to $1.32 billion, ~$20 million more than the consensus expectations. Growth was fueled by the acquisition of Kate Spade and a 6% YoY increase in the company’s Coach business.

“Results were driven by continued growth at Coach, where comparable store sales rose, led by outperformance in North America,” commented Victor Luis, CEO

The bottom line was also strong, and the company reported adjusted earnings per share of 54 cents, 4 cents more than the Thomson Reuters I/B/E/S estimates.

So why is the stock being punished?

The company’s Kate Spade and Stuart Weitzman acquisitions could be to blame for today’s thrashing.

Kate Spade, which Tapestry acquired in July, reported a 9% drop in sales comps. Analysts, in comparison, were predicting a decline of ~7%. Fewer promotional days hit the brand’s sales during the quarter.

The handbag and accessories maker also reported weakness in its Stuart Weitzman business. Tapestry acquired Stuart Weitzman in 2015. While sales increased 5% YoY for this high-end footwear brand, it reported an operating loss of $12 million during the quarter.

“Results were negatively impacted by execution issues including production delays and lower sell-through of key carryover styles, which pressured sales and margins,” said Luis on the performance of Stuart Weitzman. He added, “Some of these issues will continue through the Fall/Winter season.”

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