Should You Buy Tapestry’s Stock?

BRAZIL – 2021/07/14: In this photo illustration a Tapestry logo is seen on a smartphone and a pc … [+] screen. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)

SOPA Images/LightRocket via Getty Images

[Updated: 01/11/22] TPR Stock Update

Tapestry (NYSE: TPR) reported its Q1 report, wherein revenues were slightly higher and earnings were 7% above the Trefis estimates. The company surpassed market expectations on the top and bottom lines in its Q1 earnings with reported revenues of $1.5 billion, up 26.5% year-over-year (y-o-y), and operating income was up 46% y-o-y, leading to EPS of $0.80. The company’s revenue was up 9% compared to pre-pandemic Q1 2019 levels. Tapestry’s gross margin increased by approximately 140 basis points (bps) y-o-y and 450 bps from 2019 driven by higher average unit retail price at each brand. It is worth mentioning that revenue trends accelerated compared to pre-pandemic levels driven by North America revenues, as well as continued growth in Digital and China – two key drivers of a long-term opportunity.

After just a single quarter in this fiscal year, Tapestry raised its guidance – it increased its sales target from $6.4 billion to $6.6 billion, which would be a record number for the company. On the bottom line, the company increased its projected range for earnings per share from $3.30 to $3.35 up to a range of $3.45 to $3.50. We have updated our model following the Q1 release. We now forecast Tapestry Revenues to be $6.6 billion for the full year 2022, up 15% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $3.56. Given the changes to our revenues and earnings forecast, we have revised our Tapestry Valuation at $47 per share, based on $3.56 expected EPS and a 13.2x P/E multiple for fiscal 2022 – almost 18% higher than the current market price. We believe that the company’s stock appears cheap at the current levels.

Below you’ll find our previous coverage of Tapestry stock where you can track our view over time.

Updated: 11/10/21] TPR Q1 Pre-Earnings

Tapestry (NYSE: TPR), a luxury goods retailer of handbags, shoes, and accessories under the Coach, Kate Spade, and Stuart Weitzman brands, is scheduled to report its fiscal first-quarter results on Thursday, November 11. We expect the apparel retailer stock to trade higher post the fiscal Q1 release with revenues and earnings beating market expectations. The company’s digital channel growth and significant growth in China have helped the company partially recover from its pandemic-driven business disruptions last year. We expect the company to navigate well based on these trends in the upcoming Q1. For the fiscal year 2022 (ending June 2022), Tapestry expects revenue of approximately $6.4 billion and earnings per diluted share of $3.30 to $3.35. The company also plans to buy back $500 million in stock and intends to grow its dividend faster than earnings growth.

Our forecast indicates that Tapestry’s valuation is around $47 a share, which is 11% higher than the current market price of $42. Look at our interactive dashboard analysis on Tapestry’s pre-earnings: What To Expect in Fiscal Q1? for more details.

(1) Revenues expected to be marginally ahead of consensus estimates

Trefis estimates TPR’s Q1 2021 revenues to be around $1.47 Bil, slightly ahead of the consensus estimate. In fiscal Q4, the company’s revenues grew a strong 126% year-over-year (y-o-y) to $1.62 billion, driven by an easy comparison to last year. That said, the company’s revenue exceeded pre-pandemic levels in Q4, driven by high sales growth for Coach. In addition, the luxury retail company’s digital sales grew 35% y-o-y, expanding its digital presence despite the reopening of retail stores. Also, sales in Mainland China grew 60% y-o-y, as compared to a 40% growth compared to the pre-pandemic quarter.

The important takeaway from the Q4 report was that Tapestry increased its revenue despite lower promotional activity and a higher average unit retail. The retailer benefited from the exclusive appeal of its products that attract status-seeking consumers. In addition, Tapestry reduced SKU counts by almost 40% during the quarter, which resulted in higher gross margins and increased inventory. This further expands on the idea that reduction in supply created scarcity which, in turn, led to product exclusivity for the consumers.

2) EPS likely to come in well ahead of consensus estimates

TPR’s Q1 2021 ear1nings per share is expected to be 75 cents per Trefis analysis, 7% higher than the consensus estimate of 70 cents. In Q4, Tapestry’s adjusted earnings per share came in at 74 cents compared to a loss of 25 cents in the year-ago quarter.

For the full year, we now forecast Tapestry’s Revenues to be $6.5 billion for fiscal 2021, up 12% y-o-y, compared to a prior forecast of a 10% y-o-y growth in revenues. We also expect EPS to come in at $3.37, up 14% y-o-y, compared to our prior estimate of $2.65.

(3) Stock price estimate higher than the current market price

Going by our Tapestry’s Valuation, with an EPS estimate of around $3.37 and a P/E multiple of close to 13.9x in fiscal 2022, this translates into a price of $47, which is 11% higher than the current market price of around $42.

TPR Stock Comparison With Peers shows how it compares against other peers on metrics that matter.

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