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.
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.
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.