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Tapestry's (TPR) Multi-Brand Strategy to Aid Top-Line Growth

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Sluggish store traffic, stiff competition from online retailers, aggressive pricing strategy and changing consumer spending patterns are the headwinds plaguing the retail sector. Nevertheless, Tapestry, Inc. (TPR - Free Report) looks quite disciplined in its approach when it comes to tackling prevailing hurdles.

The company has undertaken transformational initiatives revolving around products, stores and marketing. These are likely to fuel top-line growth in fiscal 2018. Analysts polled by Zacks expect second-quarter and fiscal 2018 revenues to come in at $1.77 billion and $5.82 billion, reflecting an increase of roughly 33.7% and 29.7%, respectively.

Catalysts

As one of the leading American marketers of fine accessories and gifts, Tapestry boasts a proven strategy of investing in stores to enhance sales output through product innovation, a compelling pricing strategy, new merchandise assortments and a cost-effective global sourcing model. We believe that these strategies will help drive comparable-store sales and operating margins in the long term. The company’s growth drivers include expansion of global distribution model and venturing into under-penetrated markets.

Tapestry is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman and Kate Spade has been accretive to performance and is being viewed as a significant step toward becoming a multi-brand company. Management now expects to attain run-rate synergies of approximately $100-$115 million from Kate Spade buyout in fiscal 2019 compared with the prior view of $50 million. Management expects fiscal 2018 revenue to increase approximately 30% year over year to $5.8-$5.9 billion.

Additionally, the company is aggressively expanding e-commerce platform. It also plans to undertake strategic measures involving, upgrading of core technology platforms and enhancement of international supply chain.

Obstacles

Although, Tapestry reported 15th straight quarter of positive earnings surprise when it reported first-quarter fiscal 2018 results, the bottom line declined 6.7% year over year due to higher SG&A expenses. Even an increase in the top line failed to act as a savior. We also noted that total sales fell short of the Zacks Consensus Estimate for the fifth successive quarter.

Analysts pointed that drop in comparable-store sales at Coach brand was the culprit behind lower-than-expected sales. Net sales for Coach declined 3% year over year.

Bottom Line

Despite the tough retail scenario, shares of Tapestry have surged 29.3% in a year compared with the industry’s growth of 4.6%. Further, this Zacks Rank #3 (Hold) stock’s long-term earnings per share growth rate of 11.3% portray its inherent strength.

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