Here’s Where to Find the Bottom on Tapestry

Luxury consumer apparel and accessories producer Tapestry NYSE: TPR shares have been in a sharp sell-off along with the rest of the retail apparel makers despite the strong retail sales report. The maker of high-end Coach brand products is suffering from a sector-wide sell-off despite indices hitting highs. The luxury retail segment tends to have the widest moat and weather recessionary periods better. Tapestry has three brands: Coach, Kate Spade, and Stuart Weitzman. The Company produces everything from purses to wallets, backpacks, footwear, sunglasses, watches, charms, and ready-to-wear clothing. The Company is bolstering its e-commerce channel as a tool to gain new customers primarily focusing on the younger Millennials and Gen-Z demographic. The digital transformation is well underway as 30% of all sales are comprised from the digital channel. The acceleration of COVID-19 vaccinations is bolstering the rebound to normal shopping habits. This tailwind and impressive growth in China should drive both the top and bottom lines higher. Prudent investors seeking a reopening play can watch for opportunistic entries on TPR shares.

Q3 FY fiscal 2021 Earnings Release

On May 6, 2021, Tapestry released its third-quarter fiscal 2021 results for the quarter ending March 2021. The Company reported earnings-per-share (EPS) of $0.51 excluding non-recurring items versus consensus analyst estimates for a profit of $0.29, a $0.22 per share beat. Revenues rose 18.7% year-over-year (YoY) to $1.27 billion, beating consensus analyst estimates for $1.2 billion. The Company achieved triple digit global digital sales fueled by new customer acquisitions on track to exceed 2019 EPS for the fiscal year. The Company grew revenues 175% in Mainland China and mid-teens growth in the U.S. Tapestry generated $876 million of free cash flow in the quarter. The Acceleration program was able to recruit 700,000 new customers through the e-commerce channel in North America notably Millennials and Gen-Z consumers.

CEO Comments

Tapestry CEO Joanne Crevoiserat stated, “Through a sharpened focus on the consumer, we fueled new customer acquisition at Coach, Kate Spade, and Stuart Weitzman and delivered robust sales growth led by Digital and China. Importantly, for the third consecutive quarter, we achieved operating income gains – compared to both FY20 and FY19 – supported by a continued reduction in promotional activity, higher AUR, and disciplined expense management… Building on this momentum, we are increasingly optimistic about our ability to generate sustainable top and bottom-line growth. Looking forward, while the environment remains volatile, we see encouraging signs of recovery as vaccination efforts progress, resulting in increased consumer confidence, strong demand for our categories, and improving in-store traffic trends. In this context, we remain focused on driving brand relevance and customer engagement through product innovation and compelling marketing, supported by data-driven insights and a digital-first mindset. We will also continue to lean into our competitive advantages, including our globally diversified, direct-to-consumer model, and distort investments to high-growth opportunities.”

Conference Call Takeaways

CEO Crevoiserat set the tone, “And not only did we successfully recruit new customers, we also drove a higher purchase frequency versus prior year across brands. We also continued to reactivate lapsed customers across the portfolio. This reflects the work we have done to crystallize the unique positioning of our brands while strengthening our platform to better utilize data to support more targeted marketing campaigns.” She continued, “Overall, we remain incredibly excited by the digital opportunity and the scalable Tapestry omnichannel platform we are building. Digital is a key competitive advantage and a growth enabler for us long term, supporting both revenue growth and profit gains, particularly given that our digital business is accretive to our operating margin.” The Company plans to sharpen its focus on Chinese consumers where its brands are iconic and in high demand, “In fact, the strength of our results in Mainland China more than offset continued pressure from lower Chinese tourist spend with our sales-to-Chinese consumers globally increasing at a high single-digit rate compared to pre-pandemic levels.” 

TPR Opportunistic Pullback Price Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for TPR stock. The weekly rifle chart has a sharp downtrend with a falling 5-period moving average (MA) resistance at $41.65 and falling 15-period MA near the $44.50 Fibonacci (fib) level. The monthly formed a powerful market structure high (MSH) sell trigger when the $40.88 level broke down causing a strong sell-off. The weekly lower Bollinger Bands sit around $37.33. The daily rifle chart formed an inverse pup breakdown to the lower BBs at $39.11 testing a triple support level. The daily market structure low (MSL) buy triggers on a breakout through $42. The daily 5-period MA resistance is at $41.04 as the stochastic crossed back down. Despite the strong retail sales report, retailers are selling off. Prudent investors can monitor for opportunistic pullback levels sit at the $37.13 fib, $36.61 fib, $33.19 fib, $32.44 fib, $30.76 fib, $29.38 fib, and the $27.66 fib. Upside trajectories range from the $46.08 fib up towards the $60.53 fib.