17% Gains Left For Tapestry’s Stock?

[Updated: 09/29/21] TPR Stock Update

Tapestry (NYSE: TPR) recently released its Q4 report, wherein revenues came in 2% ahead and adjusted earnings per share (EPS) were 3% above our estimates. 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 company’s adjusted earnings per share also came in at 74 cents compared to a loss of 25 cents in the year-ago quarter. All in all, the company had a stellar fourth quarter.

The important takeaway from these earnings 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.

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. We have updated our model following the fiscal 10-K release. 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. Given the changes to our revenues and earnings forecast, we have revised our Tapestry’s Valuation at $47 per share, based on $3.37 expected EPS and a 13.9x P/E multiple for fiscal 2022 – 17% higher than the current market price.

[Updated: 08/18/21] TPR Q4 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 fourth-quarter results on Thursday, August 19. We expect the apparel retailer stock to trade higher post the fiscal Q4 release with revenues and earnings beating market expectations. The achievement of triple-digit growth on the company’s digital channels, making it approximately one-third of total revenue, and significant growth in China in the fiscal nine months – has helped the company partially recover from the business disruptions in fiscal 2020 (year ended June 2020). We expect the company to navigate well based on these trends in the upcoming Q4. For the full-year FY 2021, the company expects revenues to increase at a mid-teens rate year-over-year (y-o-y), including the expectation for 2021 operating income and earnings per share to rise compared with the 2019 fiscal year.

Our forecast indicates that Tapestry’s valuation is around $50 a share, which is 18% higher than the current market price of $42. Look at our interactive dashboard analysis on Tapestry’s pre-earnings: What To Expect in Fiscal Q4? for more details.

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

Trefis estimates TPR’s Q4 2021 revenues to be around $1.59 Bil, slightly ahead of the consensus estimate of $1.56 Bil. While the retailer’s total sales grew by 19% to $1.27 billion in Q3. The improved demand from digital helped offset much of the Covid-related store closures at the beginning of FY 2021, leading to a sales decline of only 3% year-over-year (y-o-y) in the nine months to $4.1 billion. Tapestry drove strong e-commerce growth, with the company’s digital sales increasing in triple digits so far this year. These led digital sales to grow to approximately 30% of total revenue as compared to just mid-teens percentage last year. The company’s consistent investment in its technology infrastructure to capture the growing number of millennial and generation Z customers online seems to be paying off.

2) EPS likely to come in ahead of consensus estimates

TPR’s Q4 2021 ear1nings per share (EPS) is expected to be 72 cents per Trefis analysis, 6% higher than the consensus estimate of 68 cents. Tapestry reported an adjusted profit of $0.51 per share, a significant increase compared to a loss in the prior year and 21% ahead of pre-pandemic EPS levels in Q3. Through the first nine months of fiscal 2021, Tapestry’s earnings per share improved by 83% to $2.23. E-commerce sales generally have higher operating margins and, as a result, the company’s operating margin grew 790 basis points y-o-y during the first nine months of fiscal 2021. In addition, the retailer’s efforts to drive higher average selling prices and reduce promotional sales activity significantly improved profitability, as well.

For the full year, we expect Tapestry’s net margin to grow to 13.5% in fiscal 2021. This coupled with a 10% growth in Tapestry’s revenues, could lead to growth in net income to $739 million in 2021. All this could result in a possible EPS increase from -$2.34 in FY 2020 to around $2.65 in FY 2021 (year ending June 2021).

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

Going by our Tapestry’s Valuation, with an EPS estimate of around $2.65 and a P/E multiple of close to 19x in fiscal 2021, this translates into a price of $50, which is 18% higher than the current market price of around $42.

For further comparison among peer groups, it is helpful to see how they stack up. TPR Stock Comparison With Peers shows how Tapestry compares against peers on metrics that matter.