Tapestry (NYSE: TPR) is scheduled to report its fiscal second-quarter results on Thursday, February 4. We expect Tapestry to likely beat the revenue and earnings expectations, driven by improved demand in digital retail. The achievement of triple-digit growth on the company’s digital channels and significant growth in China in the fiscal first quarter helped the company partially recover from the business disruptions due to Covid-19. We expect the company to navigate well based on these trends in the upcoming Q2 as well.
Our forecast indicates that Tapestry’s valuation is around $29 a share, which is 7% lower than the current market price of around $32. Look at our interactive dashboard analysis on Tapestry’s Pre-Earnings: What To Expect in Fiscal Q2? for more details.
(1) Revenues expected to be ahead of consensus estimates
Trefis estimates TPR’s Q2 2021 revenues to be around $1.69 Bil, 4% ahead of the consensus estimate of $1.62 Bil. While in-store revenue was heavily impacted due to Covid-related store closures, the improved demand from digital helped offset much of this headwind, leading to a sales decline of 14% year-over-year (y-o-y) in Q1 2021 to $1.2 billion. Tapestry did grow its e-commerce sales by triple digits, and its e-commerce sales accounted for nearly 25% of its quarterly sales – driven by the company’s consistent investment in its technology infrastructure to capture the growing number of millennial and generation Z customers online. 2) EPS also likely to be ahead of consensus estimates
TPR’s Q2 2021 ear1nings per share (EPS) is expected to be $1.00 per Trefis analysis, almost 2% above the consensus estimate of 98 cents. E-commerce sales generally have higher operating margins and, as a result, the company’s operating profit almost tripled from $51.6 million to $150.6 million during fiscal Q1. Also, net income surged more than 11-fold from $20 million in Q1 2020 to $231.7 million in Q1 2021. The company has reduced its global corporate headcount expenses by 20% to streamline its costs and further improve its operating margin.
For the full-year, we expect Tapestry’s net margin to grow to 12.3% in fiscal 2021. This coupled with a 6% growth in Tapestry’s revenues, could lead to growth in net income to $651 million in 2021. All this could result in a possible EPS increase from -$2.34 in FY 2020 to around $2.34 in FY 2021 (year ending June 2021).
(3) Stock price estimate lower than the current market price
Going by our Tapestry’s Valuation, with an EPS estimate of around $2.34 and a P/E multiple of close to 13x in fiscal 2021, this translates into a price of $29, which is 7% lower than the current market price of around $32.
Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year.
While TPR stock may be attractive in the long run given its growth prospects through the digital channel, 2020 has created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Amazon vs Etsy.