Analyst Blasts Tapestry For 'Lack Of Innovation'

Coach and Kate Spade parent company Tapestry Inc TPR saw its stock lose nearly one quarter of its value Thursday in reaction to a poor fiscal fourth-quarter earnings report. Two analysts debated if investors should buy the dip or stay clear.

Tigress: Where's The Innovation?

The Kate Spade brand is suffering from a "lack of innovation" and the acquired brand isn't contributing growth, Tigress Financial Partners' Ivan Feinseth said. Kate Spate posted a "surprisingly big" decline in the quarter within the "very crowded and fickle" luxury goods industry. The Coach brand performed only slightly better-than-expected in the quarter and shows "some level" of resilience.

Referring to both Coach and Kate Spade as a luxury good is a bit of a stretch as both brands are more mid-market and lack the level of prestige other upscale and inspirational brands boast.

The problem for Tapestry moving forward is how will the company perform in an economic downturn if it can't show strong results during a booming economy and strong stock market, he wrote.

"I do not feel the pullback is a buying opportunity and believe Tapestry will continue to struggle," Feinseth wrote in his daily newsletter.

Related Link: Tapestry Analyst Says Fashion Retailer Has 'Lots Of Boxes To Check' In Q4 Report

KeyBanc: Long-Term Health

Tapestry's fourth-quarter report was impacted by a heavy promotional environment and challenges at the Kate Spade Brand, KeyBanc Capital Markets analyst Edward Yruma said. The Coach brand, which accounted for 71% of total sales, showed an acceleration in comps from 1% in the prior quarter to 2%. This suggests the brand has seen a successful transformation and speaks to its resiliency.

Yruma said Coach's international and online channels were also strong as all international regions showed positive comps and the e-commerce segment accounted for 150 basis points of comps.

However, the Kate Spade brand showed a 6% decline in comps, which was worse than expected. The brand did see an increase in conversion, likely from consumer acceptance of new products from the new Creative Director Nicola Glass. Management can chose to slow down its Kate Spade store growth and protect gross margins as a means to stabilize results and turn the brand around.

"A Kate turn will take time, but we think that the decision to protect margin/brand will ensure LT health," the analyst wrote in a note.

Yruma maintains an Overweight rating on Tapestry with a price target lowered from $42 to $30.

Price Action

Shares of Tapestry were trading higher by 2% Friday at $19.86.

Photo credit: Laws Laws ZOIT G, from Wikimedia Commons