(Reuters) - High-end handbag maker Tapestry Inc (TPR.N) reported lower third-quarter margins and a steeper-than-expected decline in same-store sales at its newly-absorbed Kate Spade business, sending its shares down as much as 14 percent.
Tapestry bought smaller rival Kate Spade last year in the hope of luring more millennial customers to complement its luxury Coach handbag business, which it had been struggling to reposition without losing sales.
Under that strategy the company pulled inventory from department stores and cut back on flash discounted online sales, worried that it had harmed the image of Coach and the prices the company received for the bags.
The numbers for its fiscal third-quarter ended March 31, however, suggest the same strategy so far has hurt Kate Spade sales, with consumers unwilling to pay full price for the bags.
Kate Spade same-store sales fell 9 percent, a much bigger drop than the 7.24 percent analysts had projected, according to Thomson Reuters I/B/E/S.
“We do think (Kate Spade) has great products, it’s just that it needs to be fixed,” Jane Hali & Associates Research analyst Jessica Ramirez said.
Speaking after results, Chief Executive Victor Luis said the “purposeful reduction” of promotions had hit sales at the brand and that the overall strategy would reduce full-year sales at Kate Spade by $100 million.
The handbag and accessories maker also said it had faced production delays and weak sales of older styles at Stuart Weitzman, its high-end footwear brand, which it expected to continue through the critical fall/winter season.
Sales of Coach handbags and accessories, however, were a bright spot in the quarter - rising nearly 6 percent on the back of a 3 percent rise in global same-store sales. Demand was especially strong in North America, its biggest market, Luis said.
Net income overall at the company rose to $140.3 million, or 48 cents per share, in the quarter, from $122.2 million, or 43 cents per share, a year earlier.
Excluding one-time items, the fashion house reported a profit of 54 cents, beating estimates by 4 cents, according to Thomson Reuters I/B/E/S. Net sales rose by a third to $1.32 billion, also beating estimates.
The New York-based company’s shares were down 11 percent at $48 an hour into trading in New York and were among the top losers on the New York Stock Exchange.
Reporting by Nivedita Balu and Jaslein Mahil in Bengaluru; Editing by Saumyadeb Chakrabarty