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Bear of the Day: Tapestry (TPR)

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Formerly known as Coach, Inc., Tapestry (TPR - Free Report) is a luxury retailer that owns and operates the Coach, Kate Spade & Company, and Stuart Weitzman brands. All three offer popular lifestyle products like handbags, clothes, shoes, and fragrance.

How the Coronavirus Crisis is Impacting TPR

Tapestry reported fiscal 2020 third quarter results at the end of April, and the coronavirus pandemic has hit the business hard.

Adjusted net loss was 27 cents a share, much wider than what analysts were expecting and down significantly compared to the $0.42 per share in Q3 2019. Revenue totaled $1.07 billion compared to $1.33 billion in the prior year period.

Brand-wise, Coach reported operating income of $38 million, falling over 84% year-over-year. Kate Spade posted an operating loss of $91 million, while Stuart Weitzman’s operating loss was $531 million.

During the quarter, 90% of the company’s stores were either closed or operating on reduced hours, though a degree of normalcy has returned to areas like Korea and Mainland China.

Tapestry is now ultra-focused on conserving cash and reducing spending. The company has slashed orders for later in the year, suspended its quarterly dividend and share buyback programs, and drew down $700 million (of $900 million total) of its revolving credit facility.

Management provided no guidance for the current quarter because of the overall economic uncertainty, but TPR is moving to adapt to a changing retail landscape.

“We are accelerating key elements of the transformational work we began prior to the crisis, notably driving outsized growth in digital and creating a more streamlined and data-driven organization,” said CEO Jide Zeitlin.

Bottom Line

Shares have plummeted over 43% year-to-date. TPR is now a Zacks Rank #5 (Strong Sell). 11 analysts have cut their full year earnings outlook, and the consensus estimate has fallen $1.55 from $2.21 to $0.66 a share.

For nearly all economic sectors, the real damage from the coronavirus is still uncertain.

Tapestry’s future revenue, earnings, and cash flow are still up-in-the-air, and won’t be able to be determined until and the length of the outbreak is figured out. It’s probably best to avoid retail stocks like TPR for the time being.

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