Tapestry, Inc. (TPR Quick QuoteTPR - Free Report) is gaining from its proven strategy of investing in stores to enhance store sales productivity. Moreover, it has undertaken transformation initiatives related to products, stores and marketing. However, dismal sales in Stuart Weitzman segment is a headwind. 

 

Let’s delve deeper.

 

 

In a bid to enhance store sales productivity, Tapestry is focused on product innovation, compelling pricing strategy, new merchandise assortments and a cost-effective global sourcing model. Such efforts are expected to drive comparable-store sales and operating margins in the long run. The company’s long-term growth drivers include expansion of global distribution model, venturing into under-penetrated markets, and enhancement of digital and data analytics capabilities. In this regard, it has launched Coach Create, which is a platform to customize bags and smart watches with Fossil. The company also relaunched Signature in retail and expanded offerings in sport category. 

 

The company is also undergoing brand transformation and introducing modern luxury concept stores in key markets. The acquisitions of Stuart Weitzman and Kate Spade have been accretive to its performance, and are being viewed as a significant step in making it a multi-brand company. The company also plans to undertake strategic measures, involving upgrading of core technology platforms and enhancement of international supply chain. These along with transformational initiatives are expected to facilitate the company to return to double-digit operating income and earnings per share growth in fiscal 2020. 

 

Management expects to attain run-rate synergies of approximately $100-$115 million from Kate Spade buyout in fiscal 2019. The company envisions Kate Spade brand sales to reach $2 billion over a period of three years. Tapestry now envisions fiscal 2019 sales to increase year over year at a mid-single-digit rate to $6.1-$6.2 billion.

 

Tapestry, which shares space with DSW , Boot Barn Holdings (BOOT Quick QuoteBOOT - Free Report) and Shoe Carnival (SCVL Quick QuoteSCVL - Free Report) , is also aggressively expanding its e-commerce platform. The company is introducing Coach own branded women's footwear. Also, management has undertaken initiatives to have direct control over international distribution. The company entered into purchase agreements to acquire Kate Spade’s operations in Singapore, Malaysia and Australia, and Stuart Weitzman’s business in Southern China. Such moves enable the company to directly operate these businesses, look for growth opportunities in international markets and enhance brand development.

 

 

Tapestry is concerned about soft sales in Stuart Weitzman segment, which declined 17% year over year during the fourth quarter of fiscal 2018. The segment’s gross margin also shrivelled considerably. Management expects the segment’s top line to return to growth in the second quarter of fiscal 2019.

 

 

We expect the above-mentioned initiatives to offset the headwinds and drive growth in the future.

 

 

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