Needham Sticks To Buy After Tapestry Tops 4Q Results

Needham reiterated a Buy rating on Tapestry’s stock with a price target of $18 (13% upside potential) after the company exceeded 4Q earnings expectations and provided “conservative” revenue guidance for fiscal 2021 (ending in June 2021).

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Needham analyst Rick Patel said that Tapestry’s (TPR) “Acceleration Program” during 4Q entailed “an increased emphasis on each of its brand’s roots and core customers, a greater focus on digital (customer-facing and back-end), store rationalization, accelerating China, increasing AUR [average unit retail] and GM% [gross margin], and cutting opex [operational expenditure]. Patel expects “revenue to decline in F1H21 and increase in F2H21.” However, the analyst views Tapestry’s in-line revenue guidance for fiscal 2021 as conservative.

Last week, the owner of Coach and Kate Spade brands reported a 4Q loss of $0.25 per share versus the Street consensus of a loss of $0.57 per share. Its revenues of $714.8 million exceeded analysts’ expectations of $663 million. Sales were fueled by strong online business, offsetting the negative impact of store closures tied to the coronavirus pandemic. The company anticipates flat revenue growth in fiscal 2021 year-over-year and expects a gradual recovery ahead.

Following 4Q results, Evercore ISI analyst Omar Saad upgraded Tapestry to Buy from Hold on Aug. 14. Saad said that “the market is too worried about how ugly the profit & loss could be in FY21 given initial below-consensus sales guidance, and is missing the many bold changes this interim management team is making to strengthen the TPR platform for after the pandemic.” The analyst maintained a price target of $25 (57% upside potential).

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is equally divided between 5 Buys and 5 Holds. The average price target of $18.89 implies upside potential of about 18.6%. (See TPR stock analysis on TipRanks).