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Tapestry vs Capri: Which Luxury Stock Has A Better Chance of Recovery?
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Tapestry vs Capri: Which Luxury Stock Has A Better Chance of Recovery?

The COVID-19 pandemic has led to significant job losses and impacted consumer spending on several discretionary categories, including fashion and luxury goods. As per Boston Consultancy Group, fashion retailer sales could decline as much as 35% Y/Y in 2020 and luxury store owners could face sales deficits of 45%. The consulting firm also estimates that 75% of fashion and luxury companies could suffer cash shortages.

Using the TipRanks Stock Comparison tool, we will place two popular companies in the luxury space—Tapestry and Capri Holdings alongside each other to see which stock has a better chance of recovery.

Tapestry (TPR)

Tapestry, owner of luxury brands Coach, Kate Spade, and Stuart Weitzman, was already under pressure due to continued weakness in its Kate Spade brand and the impact of COVID-19. To add to its woes, Jide Zeitlin resigned as the Chairman and CEO in July amid an investigation into his personal behavior. CFO Joanne Crevoiserat was appointed CEO of the company following Zeitlin’s departure. Andrea Shaw Resnick, Head of investor relations and corporate communications, was named the interim CFO and Todd Kahn, President, chief administrative officer and company secretary, was appointed as the interim CEO and brand president of Coach.

Meanwhile, the pandemic dragged down Tapestry’s revenue by about 53% Y/Y to $714.8 million in the fourth quarter of fiscal 2020, ended June 27. Sales of Coach, Tapestry’s largest brand by sales, plunged 53% while sales of Kate Spade and Stuart Weitzman tanked 51% and 61%, respectively.

On the positive side, 4Q digital sales grew by triple digits as more customers shopped online amid the pandemic. Notably, the company added 1 million new customers in 4Q on its digital platforms. Also, the company returned to growth in Mainland China.  

Overall, dismal store sales led to an adjusted loss per share of $0.25 compared to adjusted EPS of $0.61 in fiscal 2019’s fourth quarter. For fiscal 2021, the company expects revenue to be roughly even with the prior year assuming continued “slow and steady recovery” from the pandemic.

Last month, Tapestry announced its Acceleration Program, under which the company has three goals: sharpening its focus on the consumer by operating with a clearly defined strategy for each brand, leading with a digital-first mindset and optimizing store fleet, and transforming into a leaner organization. These initiatives are expected to generate about $300 million in gross run-rate expense savings, including an estimated $200 million in fiscal 2021.

Recently, Piper Sandler analyst Erinn Murphy upgraded Tapestry to Buy from Hold and increased the price target to $26 from $20. The analyst sees Tapestry as a “value recovery name into 2021.” Murphy sees potential for the company to capitalize on the 1 million new customers acquired last quarter and is encouraged that it is seeing lapsed consumers return to Kate Spade.

Also, Murphy notes that a recovery in China is likely a “substantial positive” for Tapestry. (See TPR stock analysis on TipRanks)

The Street has a cautious Moderate Buy consensus for Tapestry that breaks down into 8 Buys, 6 Holds and no Sell ratings. Tapestry stock has fallen 38.5% year-to-date. The average analyst price target of $19.85 reflects a 20% upside potential ahead.

Capri Holdings (CPRI)

Capri Holdings, formerly Michael Kors, strengthened its presence in the luxury fashion space with the acquisition of shoe and accessories brand Jimmy Choo in 2017 and Italian luxury house Versace in 2018. Prior to the pandemic, the company was heavily investing in Jimmy Choo and Versace as the Michael Kors brand faced weak demand.

A weak macro environment and lower discretionary spending due to COVID-19 caused a 66.5% fall in the company’s revenue to $451 million in the first quarter of fiscal 2021, ended June 27. The impact of the pandemic was prominent across the board with Versace, Jimmy Choo and Michael Kors revenue down about 55%, 68% and 69%, respectively. E-commerce sales grew 30%. The company posted an adjusted loss per share of $1.04 compared to adjusted EPS of $0.95 in 1Q of fiscal 2020.

Capri Holdings disclosed that it was experiencing sequential improvement in revenue trends through the first quarter and into July. In Mainland China, 1Q sales at Versace and Jimmy Choo were almost flat Y/Y while Michael Kors sales were still down. That said, the company predicts a 40% Y/Y fall in fiscal 2Q revenue and 35% decline in fiscal 2021 revenue.  

Over the long-term, Capri Holdings continues to be confident about the prospects of increasing Versace revenue to $2 billion by expanding accessories and footwear penetration to 60%, enhancing marketing, accelerating e-commerce efforts and increasing the brand’s retail footprint to 300 stores.

For Jimmy Choo, the company sees the opportunity to grow revenue to $1 billion through the expansion of accessories and footwear collection, digital capabilities and a higher store count touching 300 stores.

The company is also making efforts to turnaround its Michael Kors brand by expanding its signature offering across all categories, continuing e-commerce focus, doubling revenue in Asia and expanding the men’s business.  

Last week, Morgan Stanley analyst Kimberly Greenberger upgraded Capri to Buy from Hold and raised the price target to $29 from $15. Given the faster than expected global retail comparable sales recovery, Greenberger now thinks her unchanged 2020 estimates “remain conservative and beatable” and hence she raised her 2021 and 2022 forecasts to account for the sharper revenue recovery pace.

In a research note to investors, the analyst also points to Versace’s latest results as underscoring its long-term revenue and margin potential. (See CPRI stock analysis on TipRanks)

Meanwhile, the Street is on the sidelines about Capri Holdings. Three recent Buy ratings, 10 Holds and no Sell ratings add up to a Hold consensus. Capri stock has plummeted 50% so far in 2020. However, the average analyst price target of $20.30 suggests a possible upside of 7.3% in the coming months.

Bottom line

With tough economic conditions, luxury companies might continue to struggle to bounce back to pre-pandemic sales levels. However, the Street consensus and higher upside potential currently indicate that Tapestry stock is in a better position to recover compared to Capri Holdings.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment

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