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

Coach and Kate Spade parent company Tapestry Inc TPR showed "healthy progress" in its third-quarter report, but still has "lots of boxes to check" when it issues its next quarterly report Thursday, according to Baird.

The Analysts

Mark Altschwager maintained an Outperform rating on Tapestry with an unchanged $43 price target.

The Thesis

Tapestry's third-quarter report showed upside performance in the Kate Spade business, in-line comps at Coach a new share buyback authorization and a reaffirmation of the company's prior outlook, Altschwager said in a Sunday note. (See his track record here.) 

Yet the stock failed to hold on to any momentum as the company's path toward double-digit earnings growth faded amid soft industry traffic and a highly promotional environment, the analyst said. 

Heading into Tapestry's fourth-quarter report, the company needs to check off three boxes to usher in positive sentiment in the stock, he said.

They are: continued comp and margin stability at Coach, positive comps at Kate along with no large gross margin downside and signs that Tapestry is aggressively buying back its stock at current levels.

Progress on these three fronts will support the case for earnings growth and warrant a higher valuation multiple, Altschwager said.

The stock is trading at less than 11 times on the assumption of zero growth next year, the analyst said.

Combined with the current dividend yield of 5% and a $1-billion share buyback authorization, the stock is trading at an attractive risk-to-reward profile, according to Baird. 

Price Action

Shares of Tapestry hit a new 52-week low of $25.98 Monday afternoon and finished the session down 4.23% at $26.25. 

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