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 third-quarter results on Thursday, May 6. We expect the apparel retailer stock to see little to no movement post the fiscal Q3 release with revenues beating expectations marginally and earnings coming in line. 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 first half – 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 Q3 as well.
Our forecast indicates that Tapestry’s valuation is around $50 a share, which is 2% higher than the current market price of $49. Look at our interactive dashboard analysis on Tapestry’s pre-earnings: What To Expect in Fiscal Q3? for more details.
(1) Revenues expected to be marginally ahead of consensus estimates
Trefis estimates TPR’s Q3 2021 revenues to be around $1.25 Bil, slightly ahead of the consensus estimate of $1.22 Bil. The holiday quarter (Q2) is much stronger for the retailer as it saw sequential improvement in revenues from $1.17 billion in Q1 to $1.68 billion in Q2. The improved demand from digital helped offset much of the Covid-related store closures, leading to a sales decline of 10% year-over-year (y-o-y) in the fiscal first half to $2.9 billion. 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 line with consensus estimates
TPR’s Q3 2021 ear1nings per share (EPS) is expected to be 31 cents per Trefis analysis, in line with the consensus estimate. Through the first six months of fiscal 2021, Tapestry’s earnings per share improved by 72% to $1.96. E-commerce sales generally have higher operating margins and, as a result, the company’s operating margin grew 760 basis points y-o-y during the first half. 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 2% 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 2% higher than the current market price of around $49.
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