Tapestry, a luxury goods retailer known for its handbags, shoes, and accessories, is set to release its fiscal third-quarter results on May 9. Analysts anticipate that the company’s stock will increase following the release due to expected revenue and earnings exceeding expectations. Tapestry is in the process of acquiring Capri Holdings, formerly Michael Kors, through an $8.5 billion deal financed by debt. This acquisition will combine Tapestry’s Coach, Kate Spade, and Stuart Weitzman brands with Capri’s Versace, Jimmy Choo, and Michael Kors brands, creating a robust portfolio of luxury brands.
In the previous quarter, Coach experienced a strong performance with a 6% increase in sales year-over-year. However, both Kate Spade and Stuart Weitzman saw declines of 6% and 4% respectively. The Coach brand contributes approximately 75% of Tapestry’s total revenues. Geographically, sales remained flat in the U.S. but grew by 11% in Europe, with significant growth of 19% in Greater China. The Chinese luxury market is expected to reach $112 billion by 2025, accounting for about 25% of global spending in this sector.
Despite a positive performance in recent years, Tapestry’s stock returns have been inconsistent, with a decline of 3% in 2023 compared to the S&P 500’s 24% increase. Beating the S&P 500 consistently has been challenging for many stocks, including TPR, in recent years. The Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year during the same period, suggesting a more stable return profile. Uncertainties in the macroeconomic environment, such as high oil prices and elevated interest rates, may impact Tapestry’s performance going forward.
Trefis estimates Tapestry’s valuation to be around $47 per share, which is 21% higher than the current market price. Revenue for the third quarter of 2024 is expected to be approximately $1.6 billion, slightly above consensus estimates. Tapestry anticipates full-year revenue of $6.7 billion and earnings per share of $4.20 to $4.25, representing an increase of 8-9% year-over-year. The company’s operating margin improved by 220 basis points in the second quarter, leading to a 20% increase in earnings per share.
With an anticipated earnings per share of $4.23 and a price-to-earnings multiple of around 11.2x in fiscal 2024, Trefis suggests a price target of $47 for Tapestry’s stock. This valuation indicates a 21% premium over the current market price. Investors can compare Tapestry’s stock performance to its peers using the TPR Peers tool provided by Trefis. Overall, Tapestry’s upcoming fiscal Q3 results are expected to surpass consensus estimates, potentially driving the stock price higher post-release.