By Suzanne Kapner 

Kate Spade & Co. shares tumbled about 20% Wednesday after the company reported disappointing earnings and slashed its financial forecasts for the year.

Chief Executive Craig Leavitt said results were weighed down by lower spending by tourists, a transition to new handbag styles and an extremely promotional retail environment that has conditioned shoppers to hunt for deals.

Comparable-store sales, a key retail metric that includes stores open at least a year, grew just 1% in the three months to July 2 from the year prior. When e-commerce sales are included, comparable sales grew 4%, well below Wall Street forecasts of a 13% increase.

"Key sale events fell short of our expectations as customers look for deeper discounts, a trend which negatively affected both total sales and comps this quarter," Mr. Leavitt told analysts.

The company also underestimated demand for a new group of handbag styles called Cameron Street and didn't have enough in stock, which also hurt sales in the period, he said.

Kate Spade's disappointing results raised concern among investors that rivals Coach Inc. and Michael Kors Holdings Ltd. could come up short when they report financial results next week.

But Neil Saunders, the chief executive of research firm Conlumino, suggested the opposite might be happening. He wrote in a note to clients that a comeback at Coach, which has dialed back promotions, upgraded products and revamped stores, could be taking share from Kate Spade.

While the shares of Coach and Kors recovered most of their earlier losses Wednesday, the shares of Kate Spade were down 19% in recent trading at $16.25. Shares of Kors were down 2.9%, while Coach was off just 0.3%.

Kate Spade's Mr. Leavitt said the company's factory outlet stores were particularly challenged. Average spending per transaction continued to decline in its 65 North American outlet stores, forcing the company to increase promotions to maintain market share.

Although the company tried to hold the line on promotions in its full-priced retail stores, gross profit as a percentage of sales fell to 59.7% compared with 61.6% a year earlier, mainly due to heavier promotions at the outlet stores.

The company, which operates 397 retail stores world-wide and sells its products in department stores, now expects full-year earnings to total 63 cents a share to 70 cents a share, down from an earlier forecast of 70 cents to 80 cents per share.

Net income was $26.8 million, compared with $8.5 million a year earlier. The year-earlier period was hurt by the closing of its Kate Spade Saturday and Jack Spade stores. Kate Spade's net sales climbed 13.7% to $320 million.

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

 

(END) Dow Jones Newswires

August 04, 2016 02:48 ET (06:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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