Note: Tapestry’s FY’23 ended July 1, 2023.
Tapestry (NYSE: TPR), a luxury goods retailer of handbags, shoes, and accessories, currently trades at $27 per share, nearly down from the $49 level (pre-inflation shock high) seen on May 7, 2021. 45% less, and there is profit potential. TPR’s stock was trading at around $28 on October 2, 2022, when the Fed continued raising rates, and is now about 5% below those levels. Tapestry’s organic improvements have not resulted in share price increases due to compression of valuation multiples. To add to this, the company announced the acquisition of Capri Holdings, formerly known as Michael Kors, in a transformational deal. But the market did not consider this deal good. Tapestry plans to finance the $8.5 billion debt deal, whose own net debt is reported to be around $900 million, for a $9.4 billion pro forma net debt load. Upon the announcement of the deal, TPR shares fell from the low forties to $35, and fell below $30 in the weeks that followed. As a result, we expect TPR’s share price to be under pressure in the short term due to a lot of uncertainty and debt concerns for the upcoming period. As stated, the Tapestry-Capri deal will create a larger portfolio of luxury brands as Tapestry’s Coach, Kate Spade and Stuart Weitzman brands will be combined with Capri’s Versace, Jimmy Choo and Michael Kors brands. Additionally, Coach has a more significant physical presence in China – where the luxury market is rapidly recovering from the pandemic with greater strength and resilience. This is expected to reach approximately $112 billion by 2025, or about 25% of total global spending.
TPR stock has seen a 15% decline from the $30 level in early January 2021 to its current level, compared to a roughly 15% rise for the S&P 500 over this nearly 3-year period. However, the drawdown in TPR stock has not been consistent. Returns for the stock were 31% in 2021, -6% in 2022, and -29% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 12% in 2023 – indicating that TPR underperforms S&P In 2023. In fact, Consistently beating the S&P 500 Individual stocks have had it tough in recent years – in good times and bad; To giants in the consumer discretionary sector including AMZN, TSLA and TM, and even to megacap stars GOOG, MSFT and AAPL. In contrast, the Trefis High Quality Portfolio is a collection of 30 stocks. Outperformed the S&P 500 every year At the same time. Why so? As a group, HQ Portfolio stocks provided better returns with less risk than the benchmark index; Clearly less of a roller-coaster ride in HQ portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and high interest rates, could TPR face a 2023-like situation and S&P’s performance is poor Over the next 12 months – or will it see an improvement?
Returning inflation to pre-shock levels means TPR would have to gain about 82% from here. However, we estimate that it has the potential to reach those levels TPR evaluation About $41 per share, about 51% above the current market price. Our detailed analysis of Tapestry reverse shock after inflation Captures trends in a company’s stock during the turbulent market conditions seen in 2022 and compares these trends to the stock’s performance during the 2008 recession.
2022 inflation shock
Timeline of inflation shocks so far:
- 2020 – early 2021: Increase in money supply to mitigate the impact of lockdowns led to higher demand for goods; Manufacturers were unable to keep up.
- Early 2021: Shipping disruptions and labor shortages due to the coronavirus pandemic are impacting supplies
- April 2021: Inflation rate crosses 4% and increases rapidly
- Early 2022: Energy and food prices rise due to Russian invasion of Ukraine. Fed begins its rate hike process
- June 2022: Inflation levels reach 9% – the highest level in 40 years. The S&P 500 index fell more than 20% from the high.
- July-September 2022: The Fed raises interest rates aggressively – resulting in an initial correction in the S&P 500 followed by another sharp decline.
- October 2022 – July 2023: The Fed continues its rate hike process; Improving market sentiment helped the S&P500 recoup some of its losses
- Through August 2023: The Fed has kept interest rates unchanged to reduce recession fears, although another rate hike remains a possibility.
By contrast, here’s how TPR stock and the broader market performed during the 2007/2008 crisis.
Timeline of the 2007–08 crisis
- 10/1/2007: Estimated pre-crisis peak in the S&P 500 index
- 9/1/2008 – 10/1/2008: Market decline accelerates in line with Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Estimated bottom of the S&P 500 index
- 12/31/2009: Initial recovery to levels before rapid decline (circa 9/1/2008)
Performance of TPR and S&P 500 during the 2007–08 crisis
TPR stock declined from approximately $47 in October 2007 (pre-crisis peak) to approximately $14 in March 2009 (as the market bottomed), meaning that TPR stock lost approximately 70% of its pre-crisis value. have lost. It recovered from the 2008 crisis to reach a level of around $37 in early 2010, increasing by approximately 161% between March 2009 and January 2010. The S&P 500 index saw a 51% decline, falling from a level of 1,540 in September 2007 to 757 in March 2009. After this, between March 2009 and January 2010, it increased by 48% to the level of 1,124.
Basics of TPR in recent years
Due to the impact of COVID-19, TPR revenues increased from approximately $5.0 billion in FY2020 (year ending July 2020) to approximately $5.7 billion in FY2021. Additionally, sales are expected to reach $6.7 billion in FY2022 due to increased demand. It should be noted that the company’s sales remained flat in FY23, mainly due to Covid-related pressure in Greater China in H1FY23. Earnings per share increased from approximately -$2.34 in FY2020 to $3.00 in FY2021 and $3.24 in FY22. Earnings increased to $3.96 in FY23 due to continued buybacks.
With the Fed’s efforts to control runaway inflation rates helping market sentiment, we believe TPR stock has the potential for strong gains once fears of a potential recession fade away.
It’s helpful to see how its counterparts fare. TPR Peers shows how Tapestry’s stock compares to peers on the metrics that matter. You’ll find other useful comparisons for companies in different industries on Peer Comparisons.
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