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Tapestry (TPR) Up More Than 20% YTD on Operational Strength

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Tapestry, Inc. (TPR - Free Report) , one of the widely recognized names in the apparel and footwear industry, has displayed an impressive run on the bourses so far in 2021. In the said period, shares of this New York-based company have surged about 23.3% compared with the industry’s rally of 20.9%.

Markedly, the stock has been gaining following the company’s impressive performance that continued in second-quarter fiscal 2021 despite a challenging backdrop. This house of modern luxury accessories and lifestyle brands witnessed significant improvement in sales trends on a sequential basis.

Management highlighted that strength in e-commerce and sales growth in Mainland China acted as tailwinds. Also, the company attained a meaningful improvement in earnings per share owing to gross margin expansion and lower SG&A expenses. Tapestry’s impressive results validate significant progress on previously announced Acceleration Program.

Let’s Introspect

Tapestry is benefiting from the successful execution of Acceleration Program. The program is aimed at transforming the company into a leaner and more responsive organization. It also intends to build significant data and analytics capabilities with focus on enhancing digital and omnichannel capabilities, and operating with a clearly defined path and strategy for each brand namely Coach, Kate Spade and Stuart Weitzman.

Notably, the company continued with its sturdy e-commerce performance during the second quarter of fiscal 2021 with digital sales rising in triple digits compared with the year-ago period.

Meanwhile, Tapestry's focus on optimizing cost structure and attempt to lower promotional activity and improve Average Unit Retail across brands also remain noteworthy. These are providing cushion to margins. Notably, the company has been targeting reductions in SG&A expenses and right sizing store fleet. Management remains on track to realize about $300 million in gross run rate expense savings, including $200 million projected for fiscal 2021.

The company’s long-term growth drivers include deepening engagement with consumers, creating innovative and compelling products, and venturing into under-penetrated markets. Notably, the company’s compelling pricing strategy, smaller format locations and cost-effective global sourcing model have been enhancing store productivity.

From 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, the company registered year-over-year increase of 30% in sales in Mainland China during the second quarter of fiscal 2021.

Again, given stronger-than-expected results in the first half and anticipating a sustained recovery, Tapestry now envisions revenues for fiscal 2021 to improve at a high-single digit rate on a 52-week basis and around 10% on 53-week basis. The company continues to expect top-line inflection and robust bottom-line growth during the second half of the fiscal year.

Additionally, an uptrend in the Zacks Consensus Estimate also echoes the same sentiment. The consensus estimates for earnings for the current and next financial year have increased about 11.5% and 7.3% to $2.53 and $2.80, respectively, over the past 30 days. Notably, this Zacks Rank #2 (Buy) stock’s long-term earnings growth rate of 10% reflects its inherent strength.

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