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Strong Q4 Results and Optimistic Guidance Boost Tapestry Stock

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Tapestry’s stock market performance

Tapestry (TPR) delivered better-than-expected results in the fourth quarter of 2018. The company also provided optimistic guidance for fiscal 2019. The management expects earnings per share to lie in the $2.70 to $2.80 range in fiscal 2019 versus analyst forecasts of $2.84 per share. These projections are based on a mid-single-digit rate increase in total revenue, which is expected to range between $6.1 billion and $6.2 billion. Operating income is forecasted to grow faster than sales, driven by the incremental synergies from the Kate Spade acquisition, organic growth, and the impact of distributor consolidations and buybacks.

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Share price movement

Better-than-expected results and positive guidance boosted Tapestry’s share price on August 14. Its stock soared as much as 14.5% on August 14 before finally closing at $53.16, 12% above the previous day’s closing. The company is now sitting at YTD (year-to-date) gains of ~20%. It has outperformed the S&P 500 Index with 6.2% YTD returns.

However, most of the branded apparel and accessories stocks have delivered strong returns this year. The seven-company S&P 500 Apparel and Accessories Index has soared 20% YTD. Apparel players Ralph Lauren (RL) with 33% returns, Michael Kors (KORS) with 16% returns, PVH Corp (PVH) with 12% returns, and VF Corp (VFC) with 27% returns are among the strong performers so far this year.

Valuations

Tapestry is currently trading at a one-year forward price-to-earnings ratio (or PE) of 19x. The company is trading towards the upper end of its 52-week PE range of 15.6x to 20.2x. It has traded at an average of 17.7x over the last three years.

The company also trades at a premium to close competitor Michael Kors, which is valued currently at 14.5x. However, a closer look reveals Tapestry’s valuations are more appealing than those of KORS since the company has better earnings potential. Tapestry’s earnings per share are projected to rise 5.9% over the next 12 months, while KORS’s EPS are expected to remain flat during the period.

In the next article, we’ll discuss recent analyst action on the company.

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