Why Tapestry Could Be an Undervalued Gem: Key Insights for Investors

Tapestry, Inc. TPR stands out as a compelling value play within the Retail-Apparel and Shoes industry, trading at a forward 12-month price-to-earnings ratio of 12.08, down from the industry and the Retail-Wholesale sector average of 13.61 and 20.75, respectively. This undervaluation highlights its potential for investors seeking attractive entry points in the retail space. Moreover, TPR's Value Score of A underscores its appeal as an investment option.TPR Looks Attractive From a Valuation StandpointImage Source: Zacks Investment ResearchThe stock has seen an impressive surge of 47.6% over the past year, sharply outperforming the broader industry, which declined 14%. This strong performance is largely attributed to improved operational efficiency and strategic growth initiatives. The company surpassed the sector’s modest 3.5% growth. The S&P 500 declined 2.1% during the same timeframe. Closing at $62.99 as of yesterday, TPR stock is inching toward its 52-week high of $90.85, attained on Feb. 18, 2025.TPR Stock Past-Year PerformanceImage Source: Zacks Investment ResearchCoach: Driving Tapestry’s MomentumCoach continues to be the cornerstone of Tapestry’s growth strategy, fueling consistent gains in revenues. In the second quarter of fiscal 2025, the brand posted an 11% increase in reported revenues and a 10% gain in constant currency, alongside a 270-basis-point improvement in gross margin.On Feb. 19, Tapestry revealed that it reached a definitive agreement to divest the Stuart Weitzman brand to Caleres for $105 million in cash. This transaction supports Tapestry’s sharpened focus on its key brands, Coach and Kate Spade.With standout collections like the Tabby, Brooklyn and Empire lines, Coach continues to capture a larger share of the handbag market. The pricing power on a global scale reinforces its stature in the accessible luxury segment and highlights the appeal as a long-term investment.International Growth Propels Tapestry ForwardTapestry’s global initiatives are paying off, with international markets playing a pivotal role in revenue growth. Europe stood out in the fiscal second quarter with a remarkable 42% year-over-year revenue jump, fueled by strong consumer demand and successful customer acquisition strategies.Greater China returned to positive territory with a 2% rise in sales, demonstrating resilience amid macroeconomic headwinds. Elsewhere in the Asia-Pacific region (excluding China), revenues climbed 11%, led by strong results in South Korea, Malaysia, Australia and New Zealand. These performances highlight the company’s effective international strategy and growth potential.Digital and DTC Channels Strengthen TPR’s Brand ReachTapestry continues to invest in its digital and direct-to-consumer (“DTC”) platforms, which delivered solid growth in the fiscal second quarter. DTC sales were up 4%, supported by a strong increase in digital revenues and moderate gains from physical stores. Profit margins improved across all distribution channels.Leveraging AI-driven customer engagement tools, the company has enhanced pricing precision and reduced reliance on discounting. The ability to resonate with younger consumers, especially Gen Z and Millennials, further strengthens its market position.TPR’s Revised Fiscal 2025 OutlookReflecting its strong momentum, Tapestry has upgraded its fiscal 2025 forecast. The company now expects full-year revenues to exceed $6.85 billion, indicating a 3% year-over-year increase despite currency fluctuations. This surpasses its earlier projection of $6.75 billion, which estimated 1-2% growth in both reported and constant currency terms.The company expects a 100-basis-point improvement in operating margin, an upgrade from the previously projected expansion of more than 50 basis points. Projected earnings per share (EPS) have been raised to a range of $4.85 to $4.90, signaling a 13-14% increase over the prior year and outpacing the earlier forecast of $4.50 to $4.55.Upward Estimate Revisions Favor TPR StockAnalysts have responded positively to Tapestry’s prospects, indicated by upward revisions in the Zacks Consensus Estimate for EPS. In the past 60 days, analysts have increased their estimates for the current fiscal year by 27 cents. The consensus estimate for earnings is pegged at $4.91 per share. The consensus estimate for the next fiscal year has also been raised 26 cents to $5.30 per share. This indicates year-over-year growth of 14.5% and 8%, respectively.The Zacks Consensus Estimate for the current and the next fiscal year’s sales is pegged at $6.87 billion and $7.11 billion, respectively, implying year-over-year growth of 3% and 3.4%.Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Image Source: Zacks Investment ResearchFinal Thoughts on TapestryTapestry offers a unique blend of brand strength, global reach and operational momentum, all at a relatively modest valuation compared with its industry counterparts. With Coach at the helm, the company is capturing greater market share while expanding internationally and enhancing its digital capabilities. The recent upward revisions in earnings expectations, along with improved profitability and consistent demand across key regions, highlight TPR’s potential for continued growth. For investors seeking a promising pick in the retail and fashion space, Tapestry may be a hidden opportunity with room to run. The company currently sports a Zacks Rank #1 (Strong Buy).Other Key PicksSome other top-ranked stocks are The Gap, Inc. GAP, Stitch Fix SFIX and Deckers Outdoor Corporation DECK.The Gap is a premier international specialty retailer offering a diverse range of clothing, accessories and personal care products. It sports a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.The Zacks Consensus Estimate for The Gap’s fiscal 2025 earnings and revenues indicates growth of 7.7% and 1.6%, respectively, from fiscal 2024 reported levels. GAP delivered a trailing four-quarter average earnings surprise of 77.5%.Stitch Fix delivers customized shipments of apparel, shoes and accessories for women, men and kids. It currently has a Zacks Rank of 2 (Buy).The Zacks Consensus Estimate for Stitch Fix’s fiscal 2025 earnings implies growth of 64.7% from the year-ago actuals. SFIX delivered a trailing four-quarter average earnings surprise of 48.9%.Deckers is a leading designer, producer and brand manager of innovative, niche footwear and accessories. It carries a Zacks Rank #2 at present.The Zacks Consensus Estimate for Deckers’ fiscal 2025 earnings and revenues implies growth of 21% and 15.6%, respectively, from the year-ago actuals. DECK delivered a trailing four-quarter average earnings surprise of 36.8%.Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Deckers Outdoor Corporation (DECK): Free Stock Analysis Report The Gap, Inc. (GAP): Free Stock Analysis Report Tapestry, Inc. (TPR): Free Stock Analysis Report Stitch Fix, Inc. (SFIX): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks