Coach owner Tapestry cuts forecasts on China hit, signs of U.S. weakness

(Reuters) -Coach handbag maker Tapestry Inc cut its annual sales and profit forecasts on Thursday, blaming persistent COVID-19 restrictions in China and an expected slowdown in demand in North America.

Shares of the company, which also owns the Kate Spade and Stuart Weitzman brands, fell 2.5% in premarket trading.

The more dour outlook follows a similar warning from Michael Kors owner Capri Holdings Ltd on Wednesday, when the company trimmed its forecasts for the holiday quarter also citing a slow recovery in China.

The key luxury goods market has been a sore spot for high-end fashion companies this year, as sporadic business and movement restrictions due to Beijing’s “dynamic zero-COVID” policy prevent consumers from returning to stores.

Although U.S. luxury sales have held up well, with companies able to pass on higher prices more easily than cheaper brands, recent data from three credit-card companies has shown that inflation-weary Americans are also now starting to cut back on designer clothing and accessories.

Tapestry cut its fiscal 2023 revenue forecast to between $6.5 billion and $6.6 billion, from about $6.9 billion, pointing to a “more modest revenue outlook in North America and Greater China”.

Greater China, which accounted for more than 15% of Tapestry’s total sales in its last fiscal year, posted an 11% revenue decline in the quarter, while revenue in North America increased slightly.

The company expects 2023 earnings of $3.60 to $3.70 per share, compared with its previous forecast of $3.80 to $3.90 per share, also hurt by the stronger dollar.

The company earned 79 cents per share in the first quarter to Oct. 1, beating estimates of 75 cents, Refinitiv IBES data showed.

(Reporting by Deborah Sophia and Uday Sampath in Bengaluru; editing by Milla Nissi)