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Tapestry (TPR) Likely to Sustain Bull Run in 2022: Here's Why

The year 2022 might be a bit challenging for the stock market, thanks to rising inflation, supply chain bottlenecks and the new Omicron variant that may decelerate the speed of the economic recovery at least in the first half. So, you need to be smart when it comes to investment. The right choice of stock may fetch you higher returns even amid changing market dynamics. We present you with one such stock, Tapestry, Inc. TPR that looks well-poised, given its sound fundamentals and growth efforts.

Tapestry, one of the widely recognized names in the apparel and footwear industry, has exhibited a decent run on the bourses in the past year. Thanks to its operational initiatives — strengthening of omni-channel solutions, expanding customer reach and focus on brand innovation — the stock has outpaced the Zacks Retail - Apparel And Shoes industry. In the said period, shares of this New York-based company have risen about 13.8% against the industry’s decline of 20.7%.

Additionally, an uptrend in the Zacks Consensus Estimate echoes the same sentiment. The consensus estimates for the current and next financial year have increased about 4.8% and 6.8% to $3.50 and $3.90, respectively, over the past 60 days. This Zacks Rank #1 (Strong Buy) stock’s long-term earnings growth rate of 12.3% highlights its inherent strength. You can see the complete list of today’s Zacks #1 Rank stocks here.

Key Growth Drivers

Tapestry has been benefiting from the effective implementation of the Acceleration Program. The program is aimed at transforming the company into a leaner and more responsive organization. It intends to build significant data and analytics capabilities with a focus on enhancing digital and omni-channel capabilities, and operating with a clearly defined path and strategy for each of its brands namely Coach, Kate Spade and Stuart Weitzman.

The company continued with its sturdy e-commerce performance during the first quarter of fiscal 2022 with digital sales rising about 50% compared with prior-year period and more than 275% compared with pre-pandemic levels. Digital sales rose more than 60% at Coach, over 15% at Kate Spade and more than 30% at Stuart Weitzman.

North America has been one of the key contributors to Tapestry’s upbeat performance. During the first quarter of fiscal 2002, the company added more than 1.6 million new customers across channels in North America, representing an increase of over 20% year over year. Sales in North America surged more than 40% versus the prior-year quarter.

Image Source: Zacks Investment Research

Meanwhile, Tapestry's focus on optimizing its cost structure, and attempts to lower promotional activity and improve Average Unit Retail across brands remain noteworthy. These provide a cushion to margins. Tapestry is on track to realize about $300 million in gross run-rate savings in fiscal 2022. It has attained $200 million of gross expense savings in fiscal 2021.

From the growth perspective, China remains one of the prominent markets for Tapestry. The company has been accelerating growth in the region through tailored and innovative product assortments, enhanced marketing and expanded reach across direct channels and third-party online distribution. Impressively, Tapestry registered revenue growth of more than 25% year over year in Mainland China during the first quarter and approximately 65% compared with pre-pandemic levels.

Wrapping Up

Tapestry’s long-term growth drivers include deepening engagement with consumers, creating innovative and compelling products, venturing into under-penetrated markets and enhancement of digital and data analytics capabilities. Management envisions revenues to be approximately $6.6 billion for fiscal 2022. This suggests mid-teens growth versus the prior year on a 52-week, comparable basis. The company anticipates earnings to be $3.45-$3.50 per share. The current projection suggests a sharp increase from adjusted earnings of $2.97 per share reported in fiscal 2021.

This house of modern luxury accessories and lifestyle brands has been benefiting from a resurgence in demand. The company’s Coach brand continued to perform well. Strength in e-commerce and China has been acting as a tailwind.

3 More Stocks Looking Red Hot

Here are three more favorably ranked stocks —The Children's Place PLCE, Target TGT and Capri Holdings CPRI.

The Children's Place, a pure-play children’s specialty apparel retailer, flaunts a Zacks Rank #1. PLCE’s bottom line has outperformed the Zacks Consensus Estimate in the last reported quarter by a margin of 19.6%.

The Zacks Consensus Estimate for The Children's Place’s current financial year sales and EPS suggests growth of 27.8% and 469.9%, respectively, from the year-ago period.

Target, a general merchandise retailer, sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 19.7%, on average.

The Zacks Consensus Estimate for Target’s current financial year sales and EPS suggests growth of 13.9% and 40%, respectively, from the year-ago period. TGT has an expected EPS growth rate of 14.4% for three-five years.

Capri Holdings, a global fashion luxury group, carries a Zacks Rank #2 (Buy). The company’s bottom line has outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters.

The Zacks Consensus Estimate for Capri Holdings’ current financial year sales and EPS suggests growth of 33.2% and 181.1%, respectively, from the year-ago period. CPRI has an expected EPS growth rate of 32.2% for three-five years.

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Target Corporation (TGT): Free Stock Analysis Report
The Children's Place, Inc. (PLCE): Free Stock Analysis Report
Tapestry, Inc. (TPR): Free Stock Analysis Report
Capri Holdings Limited (CPRI): Free Stock Analysis Report
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