On Friday, Telsey Advisory Group adjusted its outlook for Tapestry Inc. (NYSE: NYSE:TPR), increasing the price target to $58 from the previous $54, while reaffirming an Outperform rating on the stock. The firm highlighted Tapestry's robust performance amidst difficult economic conditions, noting a significant first-quarter earnings beat propelled by gross margin expansion and solid sales growth, which balanced higher marketing expenses.
Tapestry's Coach brand demonstrated consistent top-line growth, with a 2% increase in constant currency terms, bolstered by mid-single-digit average unit retail (AUR) gains. Stuart Weitzman delivered an unexpected year-over-year sales increase, despite representing a smaller portion of the overall business. Kate Spade, on the other hand, saw a dip in sales but contributed to enhanced profitability.
The company has also updated its fiscal year 2025 (FY25) guidance, surpassing previous consensus estimates. Although the increase in FY25 earnings per share (EPS) guidance was modest, Telsey considers this move cautious but appropriate, given the three remaining quarters in the fiscal year and the uncertain global economic landscape. Tapestry's decision to contest the injunction blocking the acquisition of Capri Holdings (NYSE:CPRI) was also noted, with Telsey suggesting that Tapestry might benefit from a more streamlined business model and the possibility of resuming share buybacks, which had been halted due to the acquisition announcement.
The new price target reflects an 11.9x multiple on Telsey's two-year forward EPS estimates for Tapestry, which is a shift from the historical next twelve months (NTM) multiple of 13.1x and the recent NTM multiple of 10.9x. The adjustment comes in the wake of Tapestry's first-quarter results, which not only beat expectations but also demonstrated the company's operational momentum and the resilience of the Coach brand in a challenging market.
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