On Friday, Telsey Advisory Group updated their financial outlook for Tapestry Inc. (NYSE:TPR) shares, a New York-based luxury fashion holding company, by increasing the price target to $58 from the previous $54, while maintaining an Outperform rating on the company's shares.
The adjustment follows Tapestry's first-quarter earnings, which surpassed expectations due to significant gross margin expansion and strong sales that compensated for increased marketing expenses.
Tapestry's Coach brand reported a 2% rise in top-line growth in constant currency terms, backed by mid-single-digit average unit retail (AUR) gains. Stuart Weitzman, another brand under Tapestry's umbrella, delivered a surprising year-over-year sales increase, albeit representing a smaller fraction of the overall business. Meanwhile, Kate Spade contributed to enhanced profitability despite recording a decline in sales.
The company has also revised its fiscal year 2025 (FY25) earnings per share (EPS) guidance upwards by $0.05, following a $0.07 EPS beat in the first quarter. This conservative forecast accounts for the remaining three quarters of the fiscal year and the uncertain global economic climate.
Moreover, Tapestry aims to challenge the court injunction that is currently blocking its acquisition of Capri Holdings (NYSE:CPRI) Limited. Analysts suggest that operating without the added brands might present a "cleaner story" for Tapestry, and the capital that would be released could potentially be redirected towards share buybacks, a strategy that has been on hold since the acquisition announcement.
The revised price target of $58 reflects an 11.9x multiple on the firm's two-year forward EPS estimates. This is a comparison to Tapestry's historical next twelve months (NTM) multiple of 13.1x and the recent NTM multiple of 10.9x. The increase in the target price is a result of the company's strong quarterly performance and the positive outlook for the remainder of the fiscal year.
In other recent news, Tapestry Inc. reported first-quarter results that exceeded expectations, leading to an increase in its full-year revenue and earnings forecast. The company's revenue remained steady on a constant currency basis, with significant growth in Europe and an expansion of its customer base in North America.
However, it experienced a decline in Greater China. Tapestry also announced its plans to acquire Capri, which is currently delayed due to legal proceedings.
The company reported a 27% increase in total revenue in Europe and a 5% decrease in Greater China. In North America, Tapestry added approximately 1.4 million new customers, with digital sales accounting for over 25% of the total revenue. As a result, Tapestry raised its full-year revenue outlook to over $6.75 billion and its EPS guidance to $4.50-$4.55.
Despite a 5% drop in sales in Greater China and a 1% decrease in North American sales in Q1, the company is optimistic about its future. Tapestry aims to achieve a full-year revenue growth of 1-2% and expects to expand its gross margin by over 50 basis points by fiscal 2025. The company also plans to maintain a $0.35 quarterly dividend and may resume share repurchases if the acquisition of Capri does not proceed.
InvestingPro Insights
Tapestry Inc.'s recent performance aligns with several key metrics and insights from InvestingPro. The company's impressive gross profit margins, highlighted as an InvestingPro Tip, are reflected in the reported 73.91% gross profit margin for the last twelve months. This robust margin supports Tapestry's ability to expand profitability, as noted in the article's mention of significant gross margin expansion in the first quarter.
The article's discussion of Tapestry's strong sales and increased marketing expenses is complemented by InvestingPro data showing a revenue of $6.67 billion over the last twelve months. Additionally, the operating income margin of 18.83% suggests that the company is managing its expenses effectively while maintaining healthy profitability.
InvestingPro Tips also indicate that Tapestry has raised its dividend for 4 consecutive years and has maintained dividend payments for 16 consecutive years. This commitment to shareholder returns is further supported by a current dividend yield of 2.72%, which may be attractive to income-focused investors.
The market's positive response to Tapestry's performance is evident in the strong returns highlighted by InvestingPro, including a 94.39% price total return over the past year and a 37.07% return over the last three months. These figures align with the article's mention of the company's strong quarterly performance and the analysts' increased price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Tapestry Inc., providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.