Tapestry, the parent company of Stuart Weitzman, Coach and Kate Spade, reported strong losses for its third fiscal quarter ended April 30. Net loss reached $677 million, against a net income of $117 million for the year-ago period. This is mainly due to impairment charges of $267 million and $211 million for Stuart Weitzman. The charges were the result of a decline in both current and future expected cash flows, exacerbated by the Covid-19 pandemic.

The group took several defensive measures, such as reducing marketing costs and drawing down $700 million from its $900 million revolving credit facility. It is also tightly managing inventories by rerunning late spring and early summer product introductions, while cancelling inventory receipts for late summer/early fall 2020. The management said this is expected to result in over $500 million of working capital savings. In addition, it is looking to reduce capital expenditure by at least $100 million in fiscal 2021, as well as suspending its dividend payments and share buyback program, saving about $700 million annually.

During the quarter, sales for Stuart Weitzman totaled $51 million, compared with $85 million reported in the same period in 2019, and the gross profit margin slumped to 35.4% from 54.3% in the prior year. On an adjusted basis, the gross margin narrowed to 54.7% from 55.2%

The operating loss for the footwear unit was $531 million against an operating loss of $14 million. On an adjusted basis, the operating loss was $35 million versus an operating loss of $13 million in the prior year.

Revenues for the group plummeted by 19.5 percent to $1,070 million, as 90 percent of its stores were either closed or operating with shortened hours. The gross margin dropped by 11.4 percentage points to 57.4 percent.

Tapestry’s e-commerce platforms and related distribution centers across all brands and regions remained operational almost continuously during the quarter, but because the company’s online business is smaller than the revenues generated in physical stores, strong digital growth did not offset the loss of revenues due to store closures.

Stores have now reopened in China, but are still closed in North America and Europe. However, beginning on May 1, the group is reopening approximately 40 stores in North America but for storefront pickup service only. In Europe, it has opened five locations in Germany and Austria.