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April 30, 2020

Tapestry moves to Q3 loss and cuts outlook

Tapestry Inc has moved to a loss in its third-quarter and recorded a sales decline of nearly 20% as coronavirus forced the company to close or reduce hours at 90% of its stores.

By Michelle Russell

Tapestry Inc has moved to a loss in its third-quarter and recorded a sales decline of nearly 20% as coronavirus forced the company to close or reduce hours at 90% of its stores.

In a trading update, the Coach and Stuart Weitzman brand owner said it expects to record pre-tax charges of up to US$70m starting in its fourth quarter due to measures taken by the company to mitigate the impact of Covid-19. This has included reducing its retail workforce in North America by approximately 2,100 part-time store associates across its three brands.

“We entered the calendar year with strong underlying momentum,” said CEO Jide Zeitlin. “As the novel coronavirus expanded across the globe, our results materially weakened. No one is immune to the effects of this one hundred year storm. We are taking aggressive actions to assure that Tapestry emerges a strong company when conditions normalise.”

In its third-quarter ended 28 March, Tapestry saw sales drop to $1.07bn from $1.33bn a year earlier. The company moved to a net loss of $677m, on a reported basis, compared to earnings of $177m a year period.

Tapestry said it has seen “a degree of normalcy” return to business in certain areas first impacted by Covid-19, including Mainland China and Korea, and expects to “apply lessons learned as, over time, additional countries and regions reopen”.

The company said its supply chain continued to operate “effectively” over the quarter given its globally diversified manufacturing and sourcing base, with relatively limited exposure to China. “Subsequent to quarter-end, the company has been successfully working with its service providers to balance changing levels of supply and demand,” it said.

Tapestry said it would not be providing guidance for its fourth-quarter and full-year “given the dynamic nature of the Covid-19 crisis and lack of visibility”.

Neil Saunders, managing director of GlobalData Retail, believes Tapestry’s sales will come back at some point but says the near-term outlook does not look good.

“This quarter was only partly affected by coronavirus; next quarter will be fully mired down by it. Moreover, even as the lockdown comes to an end and stores gradually start to reopen for curbside pickup – as 40 in North America will do in early May – there is a question mark over what demand will be like. Most of Coach’s core customers have been affected by this crisis, either financially or in terms of their social activities, and their need and desire to shop for handbags will be much reduced.”

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