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How Tapestry’s Valuation Looked at the End of 2018

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12-month forward PE

As of December 28, Tapestry (TPR) was trading at a 12-month forward PE ratio of 11.9x. The company was trading at a higher valuation compared to its closest rival, Capri Holdings Limited’s (CPRI), most recently known as Michael Kors, at 7.4x, but lower than the S&P 500, which was trading at a 12-month forward PE of 14.8x.

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Analysts’ expectations

Analysts expect Tapestry’s adjusted EPS to rise 6.1% to $2.79 in fiscal 2019, which ends on June 29, 2019. Currently, analysts expect Tapestry’s adjusted EPS to rise 11.1% to $3.10 in fiscal 2020. Higher sales, lower taxes, and cost synergies are expected to drive the company’s bottom-line growth.

Tapestry is taking several initiatives to improve its sales. We discussed some of these efforts in part two of this series. The company is also trying to win more customers through its customization program, Coach Create. Tapestry offers its customization program in 110 stores and plans to extend it more than 150 stores by the end of fiscal 2019.

Tapestry is also trying to boost its sales through its marketing efforts and has been collaborating with celebrities like Selena Gomez and Michael B. Jordan. The company is taking several steps to generate synergies for the Kate Spade brand (acquired in 2017) by optimizing its supply chain. Tapestry’s strategic decision to reduce promotional sales and exposure to the wholesale channel in the Kate Spade brand is helping in improving margins.

Analysts expect rival Capri Holdings to generate adjusted EPS of $5.02 in fiscal 2019, which ends on March 30, 2019, reflecting growth of 11.1% compared to fiscal 2018. On December 31, Capri Holdings announced the completion of its acquisition of Italian fashion house Gianni Versace for $2.12 billion.

As of December 28, Tapestry had a strong dividend yield of 4.0%. In contrast, Capri Holdings does not pay any dividends.

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