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BUSINESS NEWS
But other costs are escalat-
ing. It is spending more on sales
and marketing to find the next
person or company to rent a
desk or floor. Those costs more
than doubled in the first half
and make up about 21% of reve-
nue, up from about 10% in 2016.
Only 30% of WeWork loca-tions have been open for more
than two years—the time at
which offices reach stable occu-
pancy and generate steady rev-
enue, the company says.
We’s growing losses suggest
the company will need large
sums of cash for years as it
builds out offices, which couldJune 29, and the brand’s mar-
gins contracted on higher dis-
counting.
“While there have been
some green shoots, we clearly
need more time to drive an in-
flection to positive comps, es-
pecially given the brand’s ex-
posure to the competitive and
traffic-challenged North Amer-
ican market,” Tapestry CEO
Victor Luis told analysts on
Thursday.
Kate Spade’s performance
was particularly disappointing
given that management previ-
ously had said it hoped its
same-store sales would turn
positive in the recently com-
pleted period, said PaulLejuez, a Citi analyst.
Tapestry’s other two
brands, Coach and the much
smaller Stuart Weitzman, per-
formed better. Sales at Coach
stores open at least a year
rose 2% in the period. The
company doesn’t disclose
same-store sales for Stuart
Weitzman, but net sales rose
17% to $85 million.
Overall, Tapestry’s sales for
the period rose 2% to $1.51 bil-
lion. Net income fell to $149
million from $212 million a
year ago.
Tapestry expects earnings
for its current fiscal year to be
roughly flat, and sales to grow
in the low-single-digit range.TapestryInc. is showing
that creating a house of
brands to rival European lux-
ury conglomerates isn’t so
easy.
The company lowered its
earnings guidance for the cur-
rent fiscal year, mainly due to
slowergrowthatitsKate
Spade brand. Following the
news, Tapestry shares
dropped 22% Thursday to
$19.45. The stock has lost 63%
of its value over the past year.
Sales at Kate Spade stores
open at least a year fell 6% in
the three months that endedBYSUZANNEKAPNER
ANDKIMBERLYCHINKate Spade Brand Drags Down
Bag Maker Tapestry’s Results
affect its valuation. The com-
pany was last valued in a fund-
ing round from SoftBank Group
Corp. at $47 billion, making it
the most highly valued, ven-
ture-backed company in the U.S.
The company has long tried
to make a significant dent in
its losses. As far back as 2015,
co-founder and Chief Execu-
tive Adam Neumann said in an
interview he didn’t expect We-
Work to raise any more money
before an IPO and yet he has
raised more than $9 billion
since. A 2014 financial plan
predicted the company would
be highly profitable by now.
We’s operating losses
jumped 135% in 2017, and an
additional 81% to $1.69 billion
last year. Its revenue followed
a similar trajectory, growing
by 103% in 2017 and 106% to
$1.82 billion last year.
For the first half We’s reve-
nue grew by 101% to $1.54 bil-
lion, nearly matching its widen-
ing rate of losses for the period.As WeWork heads toward an
initial public offering, the office-
space company faces a funda-
mental problem: Its losses are
growing as fast as its revenue.
WeWork’s parent company,
WeCo., whose main business is
renting and remodeling offices
to sublease to other companies,
disclosed in its IPO filing on
Wednesday operating losses
that ballooned 102% to $1.37
billion for the first six months,
compared with a year earlier.
We’s losses are also doubling
along with its revenue, which
suggests the company isn’t
wringing out enough cost sav-
ings as it gets bigger. The lack
of scaling is a potentially trou-
bling sign for a company that
has commanded a valuation
more akin to a tech company.
“If [the losses] keep going
up, it’s a problem,” said Alex
Castelli, managing partner of
emerging markets at financial-
advisory firm CohnReznick. “At
the end of the day, they need to
move toward profitability.”
Much of We’s costs go to-
ward leasing and renovating of-
fice space and outfitting it with
furniture. As it grows, the com-
pany expects to gain economies
of scale—a phrase We mentions
nine times in its IPO filing.
While software companies
can cut the cost of adding and
retaining new users as they
grow, We doesn’t enjoy this
type of scale. With each new
office, We has certain fixed
costs, such as putting in desks.
With growth, We has
brought down the cost of
building out and designing new
workspaces by streamlining its
construction and design opera-
tions. The amount it spends for
a new desk has come down by
half from 2014. The company
also says it is trying to find
more landlords willing to pay
for renovations in exchange for
some revenue from the space.BYELIOTBROWN
ANDHEATHERSOMERVILLEWeWork’s Revenue Doubles,
But Its Losses Grow in Step
Much of the company’s costs go toward leasing and renovating office space and providing furniture.DAVID ‘DEE’ DELGADO/BLOOMBERG NEWSExpansion Beyond
Leasing Seen CrucialWeCo.’s core business of
leasing office space provides a
consistent source of revenue,
but it has yet to find other
breakout hits, which will be es-
sential for long-term growth.
Adam Neumann, co-founder
of WeWork’s parent company,
has in the past called it a plat-
form from which it can sell
other services such as insur-
ance or software.
Sales of business services
purchased by its members,
such as providing conference
rooms, printing and parking,made up 5% of its revenue this
year. An additional 12% of reve-
nue comes from ancillary busi-
nesses, such as a custom of-
fice-design and construction
service it calls Powered by We.
Its upscale dormlike housing
business, WeLive, still hasn’t
expanded beyond two locations
despite Mr. Neumann’s hope
years ago that it would make
up one-fifth of the business.
The economics on the initial lo-
cations didn’t justify expansion
beyond the occasional project
like one in Seattle soon to
open, said former employees.
We reported doubling its
revenue, which gives it some
wiggle room for losses, say IPO
researchers. WeWork bonds get lift from
IPO filing..................................... B11areas as well as investing in
relatively new businesses, such
as cloud computing, and in in-
ternational expansion.
Alibaba on Thursday also
said it plans to repurchase up
to $6 billion in stock over two
years. The company’s shares
rose 3% to $166.97 in New York
trading.
Bernstein analyst David Dai
said the quarterly results
should give investors more
confidence in a post-Jack Ma
era. “This definitely marks a
good ending of his role as the
chairman and also signals a
very smooth transition.”
Alibaba’s sales grew to 114.9billion yuan ($16.3 billion) in
the fiscal first quarter ended
June 30, up 42% from a year
earlier and exceeding analysts’
expectations. Revenue in the
company’s core e-commerce
business rose 44% to 99.5 bil-
lion yuan.
Alibaba is China’s dominant
online retailer with about a
two-thirds market share. Hav-
ing largely saturated Beijing,
Shanghai and other relatively
affluent cities, it is targeting a
growing middle class elsewhere
in the country. Alibaba said
70% of its new customers in
the past quarter live in less de-
veloped areas.Alibaba is also charging into
the nascent business in China
of running computer systems
for other companies. It re-
ported 7.8 billion yuan in cloud-
computing sales for the latest
quarter, up 66% from a year
earlier.
The robust spending by both
consumers and businesses evi-
dent in Alibaba’s quarterly re-
sults suggest the Chinese econ-
omy remains resilient even as
it faces headwinds, analysts
said.
Alibaba Executive Vice Pres-
ident Joseph Tsai said the com-
pany’s cloud business is poised
to benefit from 5G, or fifth-gen-eration, mobile networks.
The superfast networks will
enable what is known as the In-
ternet of Things, where billions
of sensors in everyday objects
as microwave ovens and sneak-
ers will be internet-connected.
Mr. Tsai said Alibaba’s cloud
business could sell services
that let businesses analyze and
store the gobs of data collected
from such sensors.
Alibaba’s fiscal first-quarter
profit came in at 21.2 billion
yuan, more than doubling a
year-earlier result.BEIJING—Alibaba Group
HoldingLtd. reported a 42%
increase in sales and more than
doubled profit in its latest
quarter, as the Chinese online
retailer booms despite a satu-
rated e-commerce market and
an economy weakened by the
U.S.-China trade conflict.
The quarterly report, the
last before billionaire founder
Jack Ma steps down as chair-
man next month, suggests his
successor, Chief Executive Dan-
iel Zhang, can maintain a cor-
porate strategy focused on
boosting sales in China’s ruralBYSTUWOOAlibaba Sales Soar as It Expands Reach in China
Heard on the Street: No sign
of a slowdown........................ B12RevlonInc. has hiredGold-
man Sachs GroupInc. to help
review strategic alternatives,
including the sale of all or parts
of its business, as the cosmetics
maker copes with changing
consumer tastes, a person fa-
miliar with the matter said.
The New York-based com-
pany, which is controlled by bil-
lionaire Ron Perelman’s invest-
ment firm, is considering all its
options, including a sale of all
or some parts of its business,
the person said.
Like other mainstream cos-
metics companies, Revlon has
struggled to keep its grip on
American shoppers. The com-
pany has faced multiple chal-
lenges, including competition
from startups by celebrity
founders such as Kylie Jenner,
as well as loss of market share
to larger competitors such as
L’Oréal SA and the failure to
reap benefits from its acquisi-
tion of Elizabeth Arden Inc. a
few years ago.
MacAndrews & ForbesInc.,
the investment vehicle con-
trolled by Mr. Perelman, has
stepped in twice in recent years
to lend the cosmetics maker
millions of dollars.
Revlon’s shares closed at
$15.36, up 5.5%. The New York
Stock Exchange briefly halted
trading of the shares because
of volatility. Revlon’s shares
have lost about 40% this year.
Last week, Revlon reported
quarterly results that fell short
of expectations, but it also said
it received a $200 million term
loan that it would use to invest
in its business. One analyst said
that capital infusion arrived
“just in time” as Revlon had
been cutting back on capital ex-
penditures and display pur-
chases.
—Sharon Terlep
contributed to this article.BYBECKYYERAKGoldman
To Advise
Revlon on
Strategies
An activist investor is urging
Care.comInc., the largest mar-
ketplace for online caregivers,
to pursue a sale, saying the
company is “at a crossroads.”
The push by hedge fundEn-
gine CapitalLP, disclosed in a
letter sent to the company’s
board Thursday, comes a week
after Care.com said its founder
and chief executive, Sheila
Lirio Marcelo, would step down
as CEO. The company said Ms.
Marcelo will become executive
chairwoman.
In March, a Wall Street
Journal investigation showed
that the online marketplace
provided limited vetting of its
caregivers, sometimes with
tragic results. Care.com’s stock
has fallen about 57% since the
article was published. The
shares rose 7.7% to $10.06 on
Thursday after the Journal re-
ported on the activist letter.
Care.com said its board and
management team maintain an
active dialogue with sharehold-
ers and values constructive in-
put. “We will consider Engine
Capital’s viewpoint in the con-
text of our ongoing efforts to
increase value for all share-
holders,” the company said.
Care.com, based in Wal-
tham, Mass., counts 34 million
families and caregivers in
more than 20 countries as us-
ers of its services.
Recently, Engine Capital, a
$250 million hedge fund known
for pushing change at retailers,
accumulated more than 3% of
the company’s shares, accord-
ing to a person familiar with
the matter. The hedge fund,
which says it has followed
Care.com for a number of
years, has negotiated board
representation or settlements
with 17 public companies.
In its letter, Engine Capital
said Care.com should explore a
sale in part because it has lost
the trust of users.
“A sale of the business
could go a long way towards
repairing these issues,” ac-
cording to the letter, signed by
managing member Arnaud
Ajdler and managing director
Brad Favreau. “Under new
ownership, it would be easier
to establish a clean break from
the past.”
The Wall Street Journal in-
vestigation in March found
some instances in which care-
givers hired through the
Care.com platform had police
records and were accused of
committing crimes while car-
ing for clients, including child
abuse, sexual assault and mur-
der. The investigation also
found that many day-care cen-
ters listed on the Care.com
website as holding state li-
censes didn’t actually possess
those licenses.
The company has taken
steps to address those issues,
and in May said it would over-
haul its business model to in-
clude in-depth background
checks and other screening
procedures for caregivers.
Engine Capital supports
those efforts, according to a
person familiar with the mat-
ter. Still, the company is “un-
derearning, misunderstood by
the market and significantly
undervalued,” Engine Capital’s
letter states. “The company has
miserably failed to create any
shareholder value.”
Engine Capital also took aim
at Care.com’s board, saying Ms.
Marcelo shouldn’t remain
chairwoman and should in-
stead be an outside adviser.
Engine noted that “certain di-
rectors” had received signifi-
cant “withhold” votes from
shareholders at the company’s
past two annual meetings.
Care.com is beginning a
search for a new chief execu-
tive to succeed Ms. Marcelo.
A former venture capitalist,
she founded the company about
13 years ago, based in part on
her experience seeking care for
her father and two children.
BYGREGORYZUCKERMAN
ANDKIRSTENGRIND
Care.com
Is Urged
To Court
ABuyer
An activist hedge
fund says the
company is greatly
undervalued.
Heard on the Street: Care.com
needs better supervision... B12
Sales at Kate Spade stores open at least a year fell 6% in the quarter, dashing hopes of a turnaround.HANNES MAGERSTAEDT/GETTY IMAGES