Tapestry Outperforms Q2 Expectations Backed by Strong Holiday Season

Tapestry Inc. (NYSE: TPR) outpaced second-quarter revenue and earnings expectations on the heels of a strong holiday season. The company even raised its full-year fiscal 2022 guidance pushing the shares up 3.5% in intraday trading.  

Tapestry is a luxury accessories and lifestyle brand operator running famous retail chains including Coach, Kate Spade, and Stuart Weitzman. TPR stock closed almost flat at $40.72 on February 10, and its shares are down more than 1% in the pre-market trading today at the time of writing.  

Strong Results

Tapestry’s Q2FY22 revenue grew 27% year-over-year to $2.14 billion, outpacing Street estimates of $2 billion. What’s more, the figure even surpassed the pre-pandemic levels by 18%.

Revenue growth was driven by solid growth across all three brands. Coach’s revenue leaped 24% to $1.52 billion, Kate Spade’s revenue advanced 33% to $500.4 million, and Stuart Weitzman’s revenue climbed 37% to $115.8 million.

Similarly, adjusted earnings per share (EPS) stood at $1.33, 15 cents higher than the analyst estimates of $1.18, and also came in better than the prior-year EPS of $1.15 per share.

CEO Comments

Tapestry CEO, Joanne Crevoiserat, said, “The combination of bold initiatives, compelling product, and effective execution enabled us to win with consumers across our brands.”

“Our performance over the last 18 months has demonstrated the advantages of our globally diversified, consumer-centric, and data-driven platform. Through the Acceleration Program, we’ve made foundational changes that have successfully accelerated our growth at stronger margins, while making strategic investments to drive customer engagement and lifetime value. As we look ahead, we see significant growth opportunities and remain committed to creating value for all stakeholders,” the CEO added.

Increased FY22 Guidance

Based on the ongoing business momentum and solid quarterly performance, Tapestry increased its fiscal 2022 full-year guidance.

Tapestry now expects annual sales of $6.75 billion, meaningfully higher than the consensus estimate of $6.59 billion. If achieved, this would also mark the highest sales figure in the company’s history.

Additionally, FY22 adjusted earnings are now projected higher in the range of $3.60 per share to $3.65 per share, while the consensus estimate is pegged at $3.52 per share.

Moreover, the company increased its shareholder returns to over $1.5 billion in FY22, an increase from the prior outlook of $1.25 billion. This includes a share repurchase of $1.25 billion and a common stock dividend of around $270 million.

Analysts’ View

Responding to the solid results, Guggenheim analyst Robert Drbul reiterated a Buy rating on the stock with a price target of $60, implying 47.4% upside potential to current levels.

Commenting on the company’s performance, Drbul said, “Tapestry experienced ongoing momentum at Coach as it achieved its highest quarter of revenue and profitability in nearly 10 years, while Kate Spade delivered an inflection in sales.”

“We believe Tapestry’s strong performance this quarter and outlook in both China and digital, with approximately 30% growth, bode well for getting to pre-COVID revenue levels of $6.0 billion and over $4.00 of EPS next year,” Drbul concluded.

Target Price

Overall, the TPR stock has a Moderate Buy consensus rating based on 11 Buys and 6 Holds. At the time of writing, the average Tapestry price target was $53.24, which implies 30.7% upside potential to current levels. Its shares have gained 16.7% over the past year.

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