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Factors Likely to Decide Tapestry's (TPR) Fate in Q1 Earnings

Zacks Equity Research

Tapestry, Inc. TPR is likely to register marginal decline in the top line when it reports first-quarter fiscal 2020 numbers. The Zacks Consensus Estimate for revenues is pegged at $1,376 million, indicating a decline of 0.7% from the prior-year quarter figure.

The bottom line is also expected to fall year over year. We note that the Zacks Consensus Estimate for first-quarter earnings has been stable over the past 30 days at 36 cents, which suggests a decline of roughly 25% from the year-ago reported figure.

Notably, this house of lifestyle brands, and designer and marketer of fine accessories and gifts has outperformed the Zacks Consensus Estimate by an average of 2% in the trailing four quarters. In the last reported quarter, the company reported an in-line earnings.

Key Factors to Note

Tough retail backdrop in North America, unfavorable currency movements, soft margins and weakness in Kate Spade brand are likely to have impacted Tapestry’s top and bottom-line performance in the first quarter.

In the last earnings call, management projected first-quarter revenues and earnings per share to be below the prior-year period. Tapestry envisions decline in comparable-store sales at high-teens rate at Kate Spade brand based on soft traffic trend and product and merchandising challenges. However, a low-single digit growth is anticipated in the metric at Coach brand. Management expects operating loss at Stuart Weitzman for the quarter under review.

Further we note that SG&A expenses have been increasing for quite some time now. Management expects an increase in SG&A expenses for the first quarter on account of store openings and higher depreciation related to systems investments. Clearly, any deleverage in SG&A expenses is likely to reflect on margins.

Nonetheless, Tapestry is leaving no stone unturned to tackle prevailing headwinds in the retail landscape — soft store traffic, stiff competition from online retailers and aggressive pricing strategy. The company has undertaken transformational initiatives revolving around products, stores and marketing to counter these challenges. Further, the company is undergoing a brand transformation and introducing modern luxury concept stores in key markets. These endeavors are likely to get reflected in the company’s first-quarter results.

We note that the Zacks Consensus Estimate of sales for Coach and Stuart Weitzman brands suggests improvement of 0.8% and 5.3% to $969 million and $100 million, respectively, for the quarter under discussion. The consensus mark for Kate Spade brand indicates a decline of 6.5% to $304 million.

Tapestry, Inc. Price, Consensus and EPS Surprise


Tapestry, Inc. Price, Consensus and EPS Surprise

Tapestry, Inc. price-consensus-eps-surprise-chart | Tapestry, Inc. Quote

What the Zacks Model Unveils?

Our proven model doesn’t conclusively predict an earnings beat for Tapestry this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Tapestry carries a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With Favorable Combination

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

Boot Barn Holdings BOOT has an Earnings ESP of +4.13% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target TGT has an Earnings ESP of +1.79% and a Zacks Rank #3.

Children's Place PLCE has an Earnings ESP of +17.24% and a Zacks Rank #3.

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