Tapestry Stock Soars Amid Upbeat Q2 Results and Revised Guidance

Note: Tapestry’s FY’24 ended on June 29, 2024.

Tapestry Outshines Peers with Impressive Year-to-Date Growth

Tapestry (NYSE: TPR) has experienced remarkable momentum, with its stock price more than doubling since January 2024. It has outperformed the S&P 500’s 27% gain during the same period. Year-to-date, TPR shares have grown by 30% as of January 14, easily surpassing Ralph Lauren’s (NYSE: RL) 20% increase. This strong showing indicates a broader positive trend in retail as 2025 begins, bolstered by efficient AI-powered supply chains and a resilient labor market. Tapestry’s solid financial performance in Q2 and improved full-year guidance offer further evidence of the company’s growth trajectory.

Solid Q2 Performance with Growth in Coach Brand Sales

In its Q2 earnings report, Tapestry posted revenues of $2.2 billion, buoyed by a 10% increase in sales for the Coach brand. This growth offset declines of 10% at Kate Spade and 15% at Stuart Weitzman. Coach’s success was driven by innovative product offerings and a 4% rise in direct-to-consumer sales, alongside strong performance in digital channels. The company achieved a record non-GAAP diluted EPS of $1.02, reflecting a 10% year-over-year increase, and experienced a significant gross margin expansion of 280 basis points to 74.5%. Notably, Tapestry welcomed over 2.7 million new customers in North America, largely from Gen Z and Millennial demographics.

Guidance Raised for FY 2025

Tapestry has increased its financial outlook for fiscal year 2025, now projecting an EPS between $4.85 and $4.90, up from a previous forecast of $4.50 to $4.55. The company anticipates full-year revenue to reach $6.85 billion, marking a 3% increase from the previous year, compared to earlier growth estimates of 1% to 2%. This guidance accounts for an additional 10% tariff on Chinese imports, effective February 4, which is not expected to significantly impact Tapestry due to its limited manufacturing in China.

Strong Potential in the Chinese Market

Tapestry’s Coach brand stands to benefit from the economic growth in China, where the luxury market is recovering robustly after the pandemic. Forecasts suggest that by 2025, China’s luxury segment may reach $178 billion, representing approximately 30% of total global spending.

Stock Performance Shows Volatility but Strong Returns

Over the past four years, TPR stock has experienced fluctuating returns; it rose by 32% in 2021, dropped by 3% in 2022, remained flat in 2023, and surged by 83% in 2024. In comparison, the Trefis High Quality (HQ) Portfolio, featuring a collection of 30 stocks has delivered steadier performance with less volatility. The HQ Portfolio outperformed the S&P 500 in terms of returns with comparatively lower risk.

Updated Revenue and EPS Forecasts

Forecasts indicate that Tapestry’s revenues may reach $6.9 billion in FY 2024, reflecting a 4% year-over-year increase, while EPS estimates are now at $4.85. Based on these projections, Tapestry’s valuation has been revised to $75 per share, using a P/E multiple of 15.5x for the upcoming fiscal year. This valuation is almost 14% below the current market price.

Comparative Insights on Industry Peers

To better understand the landscape, insights on Tapestry’s peers are readily available, providing valuable comparisons across the industry.

[1] Returns as of 2/13/2025
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.