Analyzing prospects of Tapestry’s (TPR) stock beyond the epidemic crisis

Luxury apparel firm Tapestry, Inc. (NYSE: TPR) has been facing challenges in the US market even as it continued to expand market share in the international market. The company, which owns popular handbag brand Coach, recently disappointed shareholders by issuing weak outlook for the latter half of 2020, spurring a stock selloff.

Also read: Tapestry Q2 2020 Earnings Conference Call Transcript

Obviously, the market was not impressed by the second-quarter results that outperformed the estimates. The company, with a strong presence China, is struggling with disruptions caused by the Coronavirus outbreak. The situation is unlikely to improve in the near future as several stores have been closed in China and other overseas markets.

Ever since the post-earnings pullback, the stock has been in a downward spiral, losing about 14% and slipping to the lowest level in six months. At $22.22, it closed the last trading session close to the multi-year lows seen in mid-2019.

Wait and Watch

Experts call for caution and recommend holding the stock, in view of the market headwinds. However, a section of analysts are optimistic about Tapestry’s recovery in the foreseeable future – a prediction that complements the average target price of $30.

Strong Foothold

With renowned brands like Coach and Kate Spade in its fold, Tapestry’s brand power is immense. And, that is enough reason for the market to look beyond the current crisis and see the long-term value the company offers. Going forward, aggressive promotional activities, supported by Tapestry’s underlying strength, should drive growth in key markets, especially in the US where sales have not been up to the mark.

Future Perfect

The stable demand for its brands bodes well for Tapestry – as far as future prospects are concerned – which reflects the effective merchandising actions and improvements in the assortment. However, the high inventory levels, due to supply disruptions, could be a cause for concern. The management had cautioned that the impact of epidemic-related slump might persist beyond 2020 if the situation did not improve as expected.

Related: G-III Apparel Group Q3 2020 Earnings Snapshot

In the second quarter of 2020, earnings dropped 3% to $1.10 per share, on net sales of $1.82 billion, which was up 1%. An increase in overseas revenues more than offset weakness in the domestic market. Earnings topped expectations, while revenues matched the view.

Listen to publicly listed companies’ earnings conference calls along with the edited closed caption text