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The analysts told investors that they like the long-term investment case for Tapestry and believe the previous weakness they forecasted has now played out.
“We like Tapestry as a long-term compounder with a strong brand, category and channel mix at an attractive price,” they said.
“The Coach brand (75% of sales, 90% of brand EBIT) has 30+% margins, 90% channel control (10% wholesale), 20% China exposure and a seasonless category. Current mgmt has shown 3 yrs of progress on trimming SKUs, raising AURs and improving margins, but past errors (under different mgmt) and COVID disruptions have kept the stock severely undervalued (9x NTM P/E) vs. lower-performing peers,” the analysts added.
They said the firm’s near-term concerns about PR are dissipating, with China demand also surging.
“China is poised to grow +50% in Q4 on reopening handbag demand,” the analysts wrote.
“We raise FY24 numbers and expect multiple expansion to follow. Strong China / Asia rebound will drive growth in FY24 despite flat/declining N.Am demand, and good promo discipline & channel control will protect margins.”
