Coach handbag maker Tapestry cut its annual sales forecast and missed third-quarter revenue estimates on Thursday, signaling weak demand for its tote bags and accessories in North America and China.

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Shares of the Kate Spade owner fell 2% as the company also forecast fourth-quarter profit below expectations.
Reduced discretionary spending in North America owing to rising prices and a fragile post-pandemic recovery in China have led to weak demand for Tapestry’s leather handbags and footwear brands.

“Consumer confidence is low in North America, likely impacted by sticky inflation. And so we are seeing an overall more cautious consumer,” CEO Joanne Crevoiserat said.

Revenue in North America, which accounted for 61% of 2023 revenue, fell 3% in the quarter, while sales in Greater China dipped 2%.

“It will take time for sales in mainland China to recover – but brands may be able to benefit from rebounding demand for international travel,” said Rachel Wolff, an analyst with Emarketer

Still, Tapestry beat profit expectations on a 190 basis point margin growth from selling products at full price, lower freight costs and tighter control on expenses.

Tapestry’s $8.5 billion buyout of Michael Kors owner Capri is being sued by the antitrust regulator, saying it would eliminate “direct head-to-head competition” between the flagship brands.

Tapestry said it was “confident in the merits and pro-competitive, pro-consumer nature” of the transaction and was working to close the deal in calendar year 2024.

Its third-quarter net sales came in at $1.48 billion, compared to expectations of $1.50 billion. It earned 82 cents per share on an adjusted basis, above estimates of 67 cents.

Tapestry forecast 85 cents per share profit in the fourth quarter, compared with estimates of $1.01.

It expects fiscal 2024 revenue of more than $6.6 billion, down from prior expectations of about $6.7 billion even as it maintained profit forecast in the range of $4.20 to $4.25 per share.