Needham Sees Growth Opportunities For Tapestry Despite Tariff Concerns

From a sell-off to a new brand name and the purchase of Kate Spade, Tapestry, Inc. TPR, formerly known as Coach, has had a year of transition. On Tuesday, the luxury apparel conglomerate picked up a new sell-side bull. 

The Analyst

Needham analyst Rick Patel upgraded Tapestry from Hold to Buy with a $50 price target. 

The Thesis

The negative impact from tariffs will primarily affect handbags — a market that makes up 70 percent of Tapestry's sales — as roughly 5 percent are sourced from China, Patel said in the upgrade note. (See his track record here.)

Chinese sales, however, represent a long-term opportunity for Tapestry, the analyst said. 

“Despite the China slowdown cited by LVMH, we believe the region remains an attractive long-term opportunity for Tapestry given its brands are still in the early innings of growth compared to European luxury players," Patel said. Coach has 180 stores in China, while Kate Spade has only 30, he said. 

Coach has four key growth drivers, Patel said: 

• Posting higher comps due to new product initiatives in both full-price and retail locations.
• Remaining on track with a Kate Spade turnaround, including new leadership, products and operations.
• Setting expectations relatively low following recent execution changes.
• Remaining favorable in the accessories business.

Price Action

Tapestry shares were 2.37 percent higher at $44.08 at the time of publication Tuesday. 

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Photo by Fashionmouse/Wikimedia.