Tapestry reported that sales fell nearly 20% during its third-quarter as 90% of its global stores were either closed or open with reduced hours amid the COVID-19 pandemic.
The parent company of Coach, Kate Spade and Stuart Weitzman also revealed its strategy for reopening stores. Starting Friday, May 1st, Tapestry will reopen approximately 40 stores in North America for contactless curbside or storefront pickup service only. The company is planning a “phased approach” to welcome shoppers back into its stores, which will follow enhanced safety measures. It will provide gloves and masks to employees, offer sanitizers and wipes at the cash-wrap and limit the number of customers in line with recommended social distancing practices.
Tapestry said it has already reopened most of its stores across China and South Korea. The company’s stores in Japan have been closes since mid-April, and most of its stores in other Asia Pacific regions remain closed, with the exception of Australia, where 12 locations have been reopened. In Europe, the company has opened five locations in Germany and Austria.
Tapestry reported a net loss of $677.1 million, or $2.45 per share, for the quarter ended March 28, compared with a profit of $117.4 million, or $0.40 a share, in the year-ago period. Excluding special items, the company lost $0.27 per share. Analysts had expected a loss of $0.12 cents per share (adjusted).
“The impact of the COVID-19 pandemic transcends near-term results,” stated Jide Zeitlin, Tapestry’s chairman and CEO. “Consumer behaviors are changing and secular trends are accelerating.”
Net sales dropped to $1.07 billion from $1.33 billion a year ago, topping estimates of $1.03 billion. By brand, net sales at Coach fell to approximately $772 million from $965 million, while net sales at Kate Spade fell to $250 million from $281. Net sales at Stuart Weitzman fell to $51 from $85 million.
Tapestry’s e-commerce platforms and related distribution centers across all brands and regions remained operational almost continuously during the quarter. But the company said its strong digital growth did not offset the loss of revenue due to store closures.
“We entered the calendar year with strong underlying momentum,” stated Zeitlin. “As the novel coronavirus expanded across the globe, our results materially weakened. In navigating this unprecedented crisis, we are guided by our values and have continued to prioritize our community — our people, their families and our customers.”
Tapestry ended the third quarter with about $900 million in cash and cash equivalents on hand, and $900 million available on its credit revolver. As previously announced, the company has reduced operating expenses and capital expenditures to help curb costs during the pandemic, including canceling or delaying new store openings, furloughing store employees, reducing inventory by canceling inventory receipts for late summer and early fall, limiting the use of third-party services and decreasing rent payments. It also announced a workforce reduction of approximately 2,100 part-time in-store employees across all three banners.
To cut costs further, Tapestry said it plans to further streamline its organization, including reductions in its corporate and retail workforce. It said it expects these actions to result in pretax charges of roughly $55 million to $70 million, primarily related to cash severance costs, which will be reflected starting in its fiscal fourth quarter.
“No one is immune to the effects of this 100 year storm,” Zeitlin said. “We are taking aggressive actions to assure that Tapestry emerges a strong company when conditions normalize. We have powerful brands with deep consumer connections and a long history of successfully navigating global challenges and macroeconomic shocks. In addition, we have a strong balance sheet, we benefit from a multi-channel international distribution model with only modest exposure to wholesale and a diversified supply chain.”
Tapestry said it is not able to forecast fourth-quarter or full-year earnings due to the pandemic.
“Given the dynamic nature of the COVID-19 crisis and lack of visibility, the potential financial impact to our business cannot be accurately projected,” the company stated.