Shares in luxury handbag maker Tapestry Inc. (TPR) tumbled 15% after it reported a bigger quarterly loss than estimated as the coronavirus-related lockdown orders kept stores closed and costs soared.
Tapestry posted an adjusted 27 cents per share loss, excluding special items, in the third quarter ended March 28, compared with the 12 cents per share loss analysts were estimating. Net sales declined 19.4% to $1.07 billion during the same comparative period. It reported a quarterly loss of $677.1 million, compared to a profit of $117.4 million a year earlier as 90% of its stores were either closed or operating on shortened hours.
Shares plunged 15% to $14.56 in U.S. trading on Thursday taking this year’s drop to 46%
“We entered the calendar year with strong underlying momentum. As the novel coronavirus expanded across the globe, our results materially weakened,” said Jide Zeitlin, Chairman and Chief Executive Officer of Tapestry. “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 normalize.”
The company, which makes Coach handbags announced that it will suspend both its quarterly cash dividend and share repurchase programs to save about $700 million annually as compared to fiscal 2020. In addition, it expects $500 million of working capital savings by tightly managing inventories.
Tapestry is also planning to cut capital expenditure by at least $100 million in fiscal 2021 and draw down $700 million from its $900 million revolving credit facility in an effort to boost its cash balance.
Looking ahead, the company which also makes Kate Spade handbags said that it is not providing guidance for its fiscal fourth quarter and full year 2020, citing the dynamic nature of the Covid-19 crisis and lack of visibility on the potential financial impact to its business
Tapestry reported that by the end of the quarter, the vast majority of its stores in China had re-opened, though traffic remained muted. Starting on May 1, the company hopes to reopen about 40 stores in North America for contactless curbside or storefront pickup service only. In Europe, it has opened five locations in Germany and Austria.
Wall Street analysts have a Moderate Buy consensus rating on the stock divided into 12 Holds and 7 Buys. The $21.80 average price target implies 46% potential upside should the target be met in the coming 12 months. (See Tapestry stock analysis on TipRanks).
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