Down 28% This Year, Where Is Tapestry’s Stock Headed Post Fiscal Q1?

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TPR: Tapestry logo
TPR
Tapestry

Note: Tapestry’s FY’23 ended July 1, 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 first-quarter results on Thursday, November 9. We expect the apparel retailer’s stock to trade higher post the fiscal Q1 release with revenues and earnings beating expectations. Tapestry’s organic improvements haven’t resulted in increased share prices due to the compression of valuation multiples. To add to this, the company announced the acquisition of Capri Holdings, formerly known as Michael Kors, in a transformative deal. But the deal was not taken well by the market. Tapestry plans to finance the $8.5 billion deal in debt, with its own net debt reported around $900 million, for a $9.4 billion pro forma net debt load. Upon the announcement of the deal, TPR shares fell from the low-forties to $35, and then further to below $30 in the weeks that followed. That said, the Tapestry- Capri deal will create a huge portfolio of luxury brands as Tapestry’s Coach, Kate Spade, and Stuart Weitzman brands will be combined with Capri’s Versace, Jimmy Choo, and Michael Kors brands. Also, Coach has a more significant physical presence in China – where the 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.

TPR stock has seen a decline of 15% from levels of $30 in early January 2021 to around $25 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. However, the decrease in TPR stock has been far from consistent. Returns for the stock were 31% in 2021, -6% in 2022, and -28% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 14% in 2023 (YTD) – indicating that TPR underperformed the S&P in 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TPR face a similar situation as it did in 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

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Our forecast indicates that Tapestry’s valuation is around $41 a share, which is 49% higher than the current market price. Look at our interactive dashboard analysis on Tapestry’s Earnings Preview: What To Expect in Fiscal Q1? for more details.

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

Trefis estimates TPR’s Q1 2024 revenues to be around $1.6 Bil, ahead of the consensus estimate. In fiscal 2023, TPR reported sales of $6.66 billion – flat year-over-year (y-o-y). For the full year 2024, the retailer expects revenue approaching $6.9 billion, up 3% to 4% versus the prior year on both a reported and constant currency basis.

2) EPS likely to beat the consensus estimates marginally

TPR’s Q1 2024 earnings per share (EPS) is expected to be 93 cents per Trefis analysis, slightly above the consensus estimate. TPR’s earnings of $3.88 per share were up 22% y-o-y during the year. Going forward, the retailer’s earnings per diluted share are expected to total between $4.10 to $4.15, representing approximately 6% to 7% growth compared to the prior year. The outlook assumes no revenue or earnings contribution related to the proposed acquisition of Capri Holdings, which is expected to close sometime in 2024.

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

Going by our Tapestry’s Valuation, with an EPS estimate of around $4.15 and a P/E multiple of close to 9.8x in fiscal 2024, this translates into a price of $41, which is 49% 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 Nov 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 TPR Return 0% -28% -22%
 S&P 500 Return 4% 14% 96%
 Trefis Reinforced Value Portfolio 3% 22% 524%

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

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