Note: Tapestry’s 2024 fiscal year ended in July 2024.

Tapestry (NYSE: TPR), a luxury goods retailer of handbags, shoes and accessories, is set to report its fiscal fourth quarter results on Thursday, August 15. We expect the clothing retailer’s stock to trade higher following the fiscal fourth quarter release, with revenue and earnings beating expectations. Tapestry plans to acquire Capri Holdings, formerly known as Michael Kors, by financing the $8.5 billion deal with debt, with its own net debt standing at around $900 million, for a pro forma net debt load of $9.4 billion. The deal is expected to close before the end of calendar year 2024. That said, the Tapestry-Capri deal will create a massive 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 the third quarter, the Coach business reported flat year-over-year revenue of $1.15 billion. However, Kate Spade revenue declined 6% to $281 million and Stuart Weitzman revenue declined 18% to $56 million. The Coach brand accounts for approximately 75% of the company’s revenue. Geographically, U.S. revenue declined 3% year-over-year and international revenue increased 3% year-over-year on a currency-neutral basis (primarily driven by 19% growth in Europe and 15% in Asia excluding China). The company’s international revenue growth was tempered by 2% weakness in Greater China. Coach has a significant physical presence in China, where the luxury market is recovering stronger and more resilient from the pandemic. It is expected to reach around $112 billion by 2025, or approximately 25% of total global spending.

TPR stock has seen strong gains of 35% from $30 in early January 2021 to around $38 now, compared to a roughly 40% rise for the S&P 500 over that roughly 3-year period. However, TPR stock’s rise has been far from consistent. The stock’s returns were 32% in 2021, -3% in 2022, and 0% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that TPR lagged behind the S&P in 2023. In fact consistently beats the S&P 500 – for better or for worse – has been difficult for individual stocks in recent years; for heavyweights in the consumer discretionary sector such as AMZN, TSLA and HD and even for megacap stars GOOG, MSFT and AAPL. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ Portfolio stocks delivered better returns with less risk compared to the benchmark index; less of a rollercoaster ride as shown by the HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TPR experience a similar situation as in 2023 and perform worse than the S&P in the next 12 months – or will there be a sharp jump?

Our forecasts show Tapestry valued at around $46 per share, which is 23% above the current market price. Check out our interactive dashboard analysis at Tapestry’s earnings preview: What can we expect in the fourth fiscal quarter? for further details.

(1) Sales revenues are expected to exceed consensus estimates

Trefis estimates TPR’s fourth-quarter 2024 revenue will be about $1.6 billion, slightly above the consensus estimate. In the third quarter of 2024, TPR reported revenue of $1.5 billion – a 2% decline year-over-year. Excluding currency headwinds of about 160 basis points, revenue was roughly flat year-over-year. Looking ahead, Tapestry expects annual revenue of $6.6 billion and earnings per share of $4.20-$4.25 (up nearly 8-9% year-over-year).

(2) Earnings per share are expected to exceed consensus estimates

TPR’s earnings per share are expected to be 92 cents in the fourth quarter of 2024, slightly above the consensus estimate, according to Trefis analysis. The company’s operating margin improved 110 basis points year-over-year to 16.1% in the third quarter. Third quarter adjusted earnings per share of $0.81 beat market expectations and was positively impacted by a favorable expense timing shift valued at approximately $0.06. The company’s diluted earnings per share fell 24% year-over-year to 60 cents.

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

Based on our Tapestry valuation with an EPS estimate of around $4.24 and a P/E ratio of nearly 10.9 in fiscal 2024, this equates to a price of $46, which is 23% above the current market price.

It’s helpful to see how the competition is doing. TPR Peers shows how Tapestry stock compares to other companies on key metrics. For more useful comparisons for companies in different industries, see Peer Comparisons.

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