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Tapestry Looks Well Poised for 2019 Despite Declining 26% YTD

Zacks Equity Research

Looking at Tapestry, Inc.’s TPR dismal run on the bourses may deter you from adding the stock to your portfolio. However, a closer introspection may change your mind or rather just delve deeper and find out the reasons why it is right time to buy the stock. We note that shares of this luxury accessories and lifestyle brands have fallen 25.8% so far in the year compared with the industry’s decline of 25.7%. But in spite of this you can’t ignore the stock’s sound fundamentals that is well reflected from Zacks Rank #2 (Buy).

Stock Looks Well Poised for 2019

Tapestry looks quite disciplined in its approach of tackling 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. These are likely to fuel top-line growth in fiscal 2019 and 2020. The Zacks Consensus Estimate for the current and next financial year reflects a year-over-year increase of 4.7% and 4.3% to $6.16 billion and $6.42 billion, respectively.

The company’s long-term growth drivers include expansion of global distribution model, venturing into under-penetrated markets, enhancement of digital and data analytics capabilities and cost containment. Tapestry is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman and Kate Spade has been accretive to its performance and is being viewed as a significant step toward becoming a multi-brand company. These are expected to facilitate the company to return to double-digit operating income and earnings per share growth in fiscal 2020.



Further, 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 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.

However, analysts pointed concerns related to escalating trade war between the United States and China. 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.

Clearly, you can see from above that there are plenty of reasons to be optimistic about the stock going into 2019.

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