TPR Tapestry Inc

By Suzanne Kapner 

Tapestry Inc. swung to a profit on stronger sales in its latest quarter, as its acquisition of the Kate Spade brand began to pay off.

Net sales grew 7% to $1.38 billion in the three months to Sept. 29, compared with $1.29 billion a year ago. The company earned $122 million, versus a loss of $18 million a year ago.

Profits were helped by fewer promotions at brands including Kate Spade, which lifted gross margins to 67.7% from 59.2% the prior year.

American handbag makers have been racing to make acquisitions to create holding companies to rival European conglomerates such as LVMH Moët Hennessy Louis Vuitton SE and Kering SA, which own labels as diverse as Christian Dior, Fendi, Gucci and Saint Laurent.

In September, Michael Kors Holdings Ltd. announced a deal to acquire the Italian fashion house Gianni Versace SpA and rename itself Capri Holdings Ltd. That followed deals by Tapestry, previously called Coach Inc., to buy shoemaker Stuart Weitzman in 2015 and lifestyle brand Kate Spade last year.

But Tapestry has struggled to integrate those acquisitions.

While sales excluding newly opened or closed stores at its Coach brand grew 4% in the period, Kate Spade's same-store sales declined 5%, and sales at Stuart Weitzman fell 1%.

Tapestry Chief Executive Victor Luis attributed the drop in Kate Spade's sales to a lull in new products as it transitions to a new creative director. Analysts said the brand's big improvement in gross margin, to 63.8% from 27.8% the prior year, is a sign that its strategy of curtailing promotions is leading to more full-priced sales.

Mr. Luis said the issues that have plagued Stuart Weitzman, mainly product development and distribution problems, were largely behind the brand and that it should start growing later this year.

The company's shares traded down 0.7% to $40.49 in morning trading.

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com

(END) Dow Jones Newswires

October 30, 2018 11:30 ET (15:30 GMT)

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