TPR - Embedded Expectations Analysis - 2019 08 26
Tapestry, Inc. (TPR:USA) currently trades below historical averages relative toUAFRS-based (Uniform) Earnings, with a 12.0x Uniform P/E, implying expectations for profitability to fall to historically low levels. Despite management's concerns in the near-term about e-commerce growth, portfolio breadth, and free cash flow, these expectations are overly bearish, and upside is likely warranted
Specifically, management may lack confidence in their ability to act upon opportunities in the North American market, and may be concerned about providing a seamless experience for Chinese consumers. Furthermore, they may lack confidence in their ability to drive e-commerce growth, and may be concerned about the breadth of their wearables portfolio. Moreover, they may be exaggerating the evolution of their satchel design, and may lack confidence in their ability to drive consumer interest through marketing. In addition, they may lack confidence in their ability to enter the sneaker business, and may be exaggerating the distinction between their Coach and Kate Spade brands. Finally, they may be concerned about further contraction in free cash flow
That said, market expectations are overly bearish, and even with potential near-term headwinds, long-term outperformance remains warranted should TPR maintain profitability near current levels
Tapestry is a lifestyle company. The company's primary product offerings, manufactured by third-party suppliers, include women's and men's bags, small leather goods, footwear, ready-to-wear including outerwear, watches, weekend and travel accessories, scarves, eyewear, fragrance, jewelry and other lifestyle products. The company has three reportable segments: Coach, which includes sales of Coach brand products to customers through Coach operated stores; Kate Spade, which includes sales primarily of Kate Spade New York brand products to customers through Kate Spade operated stores; and Stuart Weitzman, which includes sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores.
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