Earnings preview: Will Tapestry overcome tough market conditions in Q4?

Tapestry (NYSE: TPR), a retailer of luxury accessories and lifestyle brands, will be publishing its fourth-quarter numbers Thursday before the opening bell, after reporting mixed results for the previous quarter. Since the company is on a transformation path, the market will be following the event closely.

Estimates

Analysts’ consensus earnings estimate is $0.61 per share, which is broadly unchanged from the prior-year period. Revenues are seen growing around 3% to $1.53 billion. The company has a good track record of beating the estimates.

The new store concept, with focus on luxury brands, and aggressive marketing initiatives are expected to enhance store traffic. Of late, store footfall has been negatively impacted by unfavorable market conditions such as rising competition and pricing pressures. The efforts to grow to new markets and add more brands, combined with the expansion of the e-commerce platform, will drive growth in the long term.

Mixed Outlook

The company had issued optimistic views about its comparable-store performance in the to-be-reported quarter, encouraged by the positive response to the new store model revamped product portfolio. While predicting positive full-year comparable-store sales growth for the leading brands Coach, Kate Spade and Stuart Weitzman, the management had forecast double-digit operating profit growth for fiscal 2020.

Also read: Under Armour Q2 loss narrows

The June-quarter performance will depend a lot on the effectiveness of the management’s efforts to maintain margin growth. On the downside, the steady uptick in selling, general and administrative expenses, partly owing to investments in technology and regional distributor buyback activity, might weigh down on profitability. The company has been repurchasing shares aggressively.

Though the problems that cropped up after Tapestry kicked off the rebranding process eased, the changed market scenario demands more promotional offers to maintain the sales momentum, especially for the Coach brand.

Third-quarter Show

In the third quarter, earnings dropped 22% annually to $0.42 per share but topped the consensus forecast. Sales, meanwhile, edged up 1% to $1.33 billion, beating the estimates. Then, the management predicted positive earnings and revenue performance for the fourth quarter and 2019, backed by strong comparable-store performance.

Related: Tapestry Q2 2019 Earnings Conference Call Transcript

Shares of Tapestry, which witnessed severe volatility in recent years, this week traded at the lowest level in nearly four years. The stock has lost 48% in the past twelve months and 22% since the beginning of the year.

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