Shares of Tapestry (TPR) - Get Tapestry, Inc. Report , parent of the luxury Coach brand of handbags, dropped after UBS downgraded the stock to neutral from buy, citing multiple challenges, including a thriving resale market for luxury goods.
Tapestry's shares closed off 2.8% at $25.25 after Bloomberg reported the rating cut.
The $24 billion resale market for luxury items is emerging as a major threat to Tapestry's earnings, with used European luxury products available for the same prices as new Coach bags, the UBS analyst contends.
That's forcing Coach to lower prices, hurting Tapestry's bottom line and resulting in "little upward earnings-per-share revision or price-to-earnings expansion potential," the analyst wrote.
Also weighing on Tapestry's financial performance has been its 2017 acquisition of the Kate Spade brand, which has failed to produce anything like the results the luxury retailer had banked on.
While Kate Spade sales rose 6% in the fiscal 2019 fourth quarter, the more telling measure, same-store sales, fell 6%. That was double the 3% drop seen in the previous quarter, Zacks Investment Research wrote.
It "will take years" for Tapestry management to turn around the Kate Spade brand, UBS analyst Jay Sole wrote.