Can Tapestry’s Stock Trade Higher Following Q4 Results?

+11.77%
Upside
42.32
Market
47.30
Trefis
TPR: Tapestry logo
TPR
Tapestry

Note: Tapestry’s FY’23 ended July 2023.

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 17. We expect the apparel retailer’s stock to trade higher post the fiscal Q4 release with revenues and earnings beating expectations. Tapestry is seeing growth in China and among Gen Z customers but faces challenges in the U.S., its biggest market, due to potential interest rate hikes and softening demand. Coach has a more significant physical presence in China, which is expected to be the key beneficiary of China’s reopening. China’s luxury market is rapidly recovering from the pandemic with greater strength and resilience. It is expected to reach around $112 billion by 2025, or approximately 25% of the total global spending.

Our forecast indicates that Tapestry’s valuation is around $44 a share, which is 15% higher than the current market price. Look at our interactive dashboard analysis on Tapestry’s Earnings Preview: What To Expect in Fiscal Q4? for more details.

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Notably, TPR stock had a Sharpe Ratio of 0.1 since early 2017, which is lower than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

(1) Revenues expected to be ahead of consensus estimates

Trefis estimates TPR’s Q4 2023 revenues to be around $1.7 Bil, ahead of the consensus estimate. In Q3, TPR reported sales of $1.5 billion, up 5% year-over-year (y-o-y). North American softness was offset by China’s outperformance in the third quarter. For the full year, we now forecast Tapestry Revenues to be around $6.6 billion for fiscal 2023, down marginally y-o-y. The company set some ambitious targets for FY 2025, forecasting $8 billion in revenue by that time along with over $5 in EPS by that period. Each of its three brands is also expected to retain strong margins through the next three years for an overall operating margin in the area of 19%, 100 basis points above FY 2022 levels.

2) EPS likely to beat the consensus estimates

TPR’s Q4 2023 earnings per share (EPS) is expected to be 98 cents per Trefis analysis, above the consensus estimate. TPR’s earnings of $0.78 per share were up 70% y-o-y during the third quarter.

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

Going by our Tapestry’s Valuation, with an EPS estimate of around $3.76 and a P/E multiple of close to 11.8x in fiscal 2023, this translates into a price of $44, which is 27% higher than the current market price.

It is helpful to see how its peers stack up. TPR Peers shows how Tapestry’s stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

Returns Aug 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 TPR Return -20% -9% -1%
 S&P 500 Return -3% 16% 100%
 Trefis Multi-Strategy Portfolio -6% 21% 290%

[1] Month-to-date and year-to-date as of 8/11/2023
[2] Cumulative total returns since the end of 2016

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