Tapestry Posts Q3 Beat Despite Chinese Slump; Shares Up 15.5%

Tapestry (NYSE: TPR) reported stronger-than-expected fiscal Q3 results, topping both earnings and revenue estimates driven by robust demand and double-digit growth for each of its brands: Coach, Kate Spade, and Stuart Weitzman.

Shares of the leading New York-based house of modern luxury accessories and lifestyle brands gained 15.5% on May 12 to close at $30.63.

Q3 Beat

Adjusted earnings of $0.51 per share were flat year-over-year but easily beat analysts’ expectations of $0.41 per share. Furthermore, net sales jumped 13% year-over-year to $1.44 billion and exceeded consensus estimates of $1.41 billion.

The increase in sales reflected double-digit growth in each of its brands, with growth of 20% in Digital.

Region-wise, growth of 22% in North America fully offset a mid-teens decline in Mainland China revenues due to the resurgence of COVID in the region.

Lowered FY2022 Outlook

Based on an estimated headwind of $0.25 to $0.30 due to COVID-related pressure in China, management modified financial guidance for FY2022.

The company now forecasts FY2022 adjusted earnings of $3.45 per share, lower than the consensus estimate pegged at $3.62 per share and also lower than the prior guided range of $3.60 to $3.65 per share.

Meanwhile, revenues are forecast to grow in the high teens to $6.7 billion, versus the consensus estimate of $6.75 billion.

Increased Buybacks

Tapestry has approved a new share repurchase program of $1.5 billion during the fiscal year 2022, which the company expects to begin utilizing in fiscal 2023.

At the end of the quarter, $350 million remained on the existing authorization, which is intended to be utilized in the fiscal fourth quarter.

Overall, Tapestry now forecasts that it will buy back $1.6 billion in common stock in the fiscal year, $350 million higher than the prior guidance of $1.25 billion.

CEO’s Comments

Tapestry CEO, Joanne Crevoiserat, said, “We are harnessing our unique blend of magic and logic – distinctive brands amplified by an agile and data-rich platform. These differentiators enable us to deliver the continuous innovation necessary to build lasting customer relationships in the context of a rapidly evolving landscape.”

She further added, “We remain confident in our long-term growth opportunities and steadfast in our commitment to enhance value for our customers and shareholders.”

Wall Street’s Take

Following the results, UBS analyst Jay Sole decreased the price target on Tapestry to $36 from $48 and reiterated a Hold rating.

Turning to Wall Street, the analyst consensus is optimistic about Tapestry, with a Strong Buy rating based on eight Buys and one Hold. At the time of writing, the average Tapestry stock forecast was $51.78, which indicates an upside potential of 69.05%.

Key Takeaway

Like many of its peers, luxury brand Tapestry has been hit by rising raw material prices and a sudden drop in demand in China due to the lockdown situation.

Despite the slump in its key Chinese growth market, Tapestry delivered quarterly beat boosted by demand for its products in the U.S. as people returned to parties and other social events.

Resurgence in demand in China once the situation normalizes may further boost the revenues and profitability for the maker of the Coach bags.

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