Note: Tapestry’s FY’23 ended July 1, 2023.

Tapestry (NYSE: TPR), a luxury goods retailer of handbags, shoes, and accessories, is scheduled to report its fiscal third-quarter results on Thursday, May 9. We expect the apparel retailer’s stock to trade higher post the fiscal Q3 release with revenues and earnings beating expectations. Tapestry plans to acquire Capri Holdings, formerly known as Michael Kors, by financing the $8.5 billion deal in debt, with its own net debt reported at around $900 million, for a $9.4 billion pro forma net debt load. The deal is expected to close before the end of the 2024 calendar year. 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.

In Q2, the Coach nameplate had a strong quarter, with sales up 6% year-over-year (y-o-y). But sales at Kate Spade were down 6% y-o-y and Stuart Weitzman sales fell 4%. The Coach brand accounts for roughly 75% of the company’s revenues. Geographically, sales in the U.S. were flat y-o-y and grew 11% in Europe. The company’s international revenue growth was fueled by gains of 19% in Greater China. Coach has a 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.

However, the increase in TPR stock has been far from consistent. Returns for the stock were 31% in 2021, -6% in 2022, and -3% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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 strong jump?

Our forecast indicates that Tapestry’s valuation is around $47 a share, which is 21% higher than the current market price. Look at our interactive dashboard analysis on Tapestry’s Earnings Preview: What To Expect in Fiscal Q3? for more details.

(1) Revenues expected to be above consensus estimates

Trefis estimates TPR’s Q3 2024 revenues to be around $1.6 Bil, slightly above the consensus estimate. In Q2 2024, TPR reported sales of $2.1 billion – up 3% y-o-y. Looking ahead, Tapestry expects full-year revenue of $6.7 billion and sees EPS of $4.20 to $4.25 (up almost 8-9% y-o-y).

2) EPS likely to beat the consensus estimates 

TPR’s Q3 2024 earnings per share (EPS) is expected to be $1.45 per Trefis analysis, slightly below the consensus estimate. The company’s operating margin improved by 220 basis points y-o-y to 22.8% in Q2. Consequently, its earnings of $1.63 per share were up 20% y-o-y during the second quarter.

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

Going by our Tapestry’s Valuation, with an EPS estimate of around $4.23 and a P/E multiple of close to 11.2x in fiscal 2024, this translates into a price of $47, which is 21% 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.

[1] Returns as of 5/7/2024
[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.