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Check Out Tapestry's (TPR) Probability to Beat in Q2 Earnings

Zacks Equity Research

Tapestry, Inc. TPR is slated to release second-quarter fiscal 2019 results on Feb 7. In the trailing four quarters, this house of lifestyle brands as well as designer and marketer of fine accessories and gifts has outperformed the Zacks Consensus Estimate, recording average positive earnings surprise of 11.7%. In the last reported quarter, the company delivered a positive earnings surprise of 9.1%.

After registering bottom-line increase of 14% in the first quarter of fiscal 2019, Tapestry is likely to deliver year-over-year growth of about 3.7% in the second quarter of fiscal 2019. The Zacks Consensus Estimate for the quarter under review is pegged at $1.11 compared with $1.07 reported in the year-ago quarter. We note that the Zacks Consensus Estimate has remained stable in the last 30 days.

The Zacks Consensus Estimate for revenues stands at $1,860 million, up from $1,785 million in the year-ago quarter. If all goes well, this will be the fifth straight quarter of top-line beat.

Factors Likely to Influence Tapestry’s Performance

Multi-Brand Strategy Likely to Lift Top Line

Tapestry looks quite disciplined in its approach to adapt to the changing retail landscape. Management has undertaken transformation initiatives revolving around product, stores and marketing, which are likely to have a favorable impact on second-quarter results. The company is undergoing a brand transformation and introducing modern luxury concept stores in key markets. Acquisitions of Stuart Weitzman and Kate Spade are a significant step toward becoming a multi-brand company.

The Zacks Consensus Estimate of sales for Coach, Kate Spade and Stuart Weitzman brands reflects likely growth of 1.6%, 12.3% and 1.9% to $1,249 million, $488 million and $123 million, respectively.

Direct Control Over International Distribution to Play Crucial Role

Management has undertaken initiatives to have direct control over international distribution. The company concluded the buybacks of the Kate Spade operations in Singapore, Malaysia and Australia. It also completed the buyback of the Stuart Weitzman business in Southern China. The company had earlier hinted that it has entered into a deal to acquire the Stuart Weitzman business in Australia from its distribution partner. Such moves aid the company to directly operate these businesses, look for growth opportunities in international markets and enhance brand development.

Tapestry, Inc. Price, Consensus and EPS Surprise

 

Tapestry, Inc. Price, Consensus and EPS Surprise | Tapestry, Inc. Quote

Other Factors Likely to Impact Results

The company is aggressively expanding its e-commerce platform. Tapestry also plans to undertake strategic measures involving the upgrade of core technology platforms and enhancement of international supply chain. However, sluggish mall traffic, increased online competition and aggressive pricing strategy are affecting the industry, and the company is not fully immune to it. Moreover, the trade war between the United States and China poses a threat. Tapestry continues to focus on Asian markets, primarily China for long-term growth. Nonetheless, the company informed that its production of handbags and other leather goods remain less than 5% in China.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Tapestry is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Tapestry has a Zacks Rank #3 but an Earnings ESP of -0.07%, which makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

3 Stocks With Favorable Combination

Here are three companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Foot Locker FL has an Earnings ESP of +2.90% and a Zacks Rank #2.

Five Below FIVE has an Earnings ESP of +0.45% and a Zacks Rank #2.

Dillard's, Inc. DDS has an Earnings ESP of +14.44% and a Zacks Rank #3.

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