JPMorgan Likes Tapestry After Chat With Coach Parent Company

JPMorgan analysts hosted Tapestry Inc TPR CEO Joanne Crevoiserat, interim CFO Andrea Resnick and VP/IR Christina Colone, and the main takeaway was management's "clear confidence" in a growth profile.

The Tapestry Analyst: Matthew Boss upgraded Tapestry's stock from Neutral to Overweight with a price target lifted from $25 to $35.

The Tapestry Thesis: Tapestry's management spoke at JPMorgan's Global Consumer, Retail/Luxury Conference and the analyst highlighted six key points from the presentation.

1. Management expects a mid-to-high-single digit growth profile in both men's and women's categories and product lines like handbags and small leather. Tapestry is also "encouraged" by new customer acquisition rates during the lockdown.

2. Digital sales accounted for 25% of total revenue in the first quarter and could rise to 50% of holiday revenue. Tapestry's CFO noted that higher digital sales are accretive to the bottom line.

3. Management believes the Coach brand can sustain 30% EBIT margins over time amid a "reset" moment for the brand. The brand is undergoing business changes, including SKU reduction, greater productivity, improved leverage of data analytics, fewer but more targeted promotions and selective price increases.

4. Management acknowledged strategic missteps in its Kate Spade brand in 2017, as the brand became too "elevated" and "serious" as it shifted away from its core brand DNA. But under Liz Frazer's leadership, Kate Spade is working toward a return to its core "fun, feminine, joyous, optimistic, colorful and fashionable" profile.

5. Executives are focused on returning the Stuart Weitzman brand back to profit through expense control, exiting unprofitable markets and store closures.

6. Debt reduction is management's top financial priority, and once $1.1 billion is allocated towards debt, the company will allocate excess cash flow towards shareholder returns in August 2021. The research firm expects a dividend to be reintroduced in the second quarter of 2022.

TPR Price Action: Shares of Tapestry were trading higher by nearly 4% Monday afternoon at $27.32.