Strong Q2 Results, Upbeat Guidance, And Surging Stock

Introduction: Tapestry’s Stellar Stock Performance and Market Position

Tapestry Inc. (NYSE: TPR) has emerged as a standout performer in the retail sector, with its stock more than doubling since January 2024, surpassing the S&P 500’s 27% gain. This impressive growth underscores the company’s strategic resilience and market adaptability. As of January 14, TPR shares showed a 30% year-to-date increase, outpacing peer Ralph Lauren’s 20% growth. Despite challenges, Tapestry’s strong second-quarter results and revised fiscal 2025 outlook highlight its accelerating momentum, supported by AI-driven supply chain efficiencies and a robust labor market.

Second Quarter Performance: A Mixed Bag Across Brands

In Q2, Tapestry reported steady revenue of $2.2 billion, driven by a 10% year-over-year surge at Coach, offsetting declines at Kate Spade (-10%) and Stuart Weitzman (-15%). Coach’s success was fueled by innovative products, a 4% rise in direct-to-consumer sales, and strong digital performance. The company achieved a record non-GAAP diluted EPS of $1.02, marking a 10% increase, with a significant expansion in gross margin to 74.5%. Notably, Tapestry added over 2.7 million new North American customers, predominantly Gen Z and Millennials, showcasing its ability to attract younger demographics.

Financial Outlook for Fiscal Year 2025: Revised Projections and Tariff Impact

Tapestry has revised its FY2025 guidance, expecting EPS between $4.85 and $4.90, up from $4.50-$4.55, and projects revenue of $6.85 billion, a 3% year-over-year increase. Despite a new 10% tariff on Chinese imports, the impact is expected to be minimal due to limited manufacturing in China. This strategic insulation highlights Tapestry’s ability to navigate global trade dynamics effectively.

China’s Rebounding Luxury Market: A Strategic Opportunity for Coach

Coach’s strong presence in China positions it to capitalize on the country’s luxury market rebound post-pandemic. Projected to reach $178 billion by 2025, China’s luxury sector is primed for growth, with Tapestry well-placed to benefit from this expansion. The brand’s established reputation and strategic alignment with evolving consumer preferences underscore its potential for sustained success in this critical market.

Stock Performance and Investment Considerations: Balancing Volatility and Returns

TPR stock has exhibited volatility, with returns fluctuating from -3% in 2022 to 83% in 2024. In contrast, Trefis’ High Quality Portfolio offers lower volatility while outperforming the S&P 500, delivering 91% returns since inception. For investors seeking stability, this portfolio presents a compelling alternative, balancing risk and return effectively.

Conclusion:Projecting Future Growth and Investment Implications

Tapestry’s FY2024 revenue is projected at $6.9 billion, a 4% increase, with a 2025 valuation of $75 per share, 14% below current market price. These projections and the company’s strategic moves highlight its potential for continued growth. Investors must weigh the volatility of individual stocks against the stability of diversified portfolios, considering market trends and risk appetite. As Tapestry continues to navigate a dynamic retail landscape, its ability to adapt and innovate will be crucial for sustained success.