Tapestry is a well-known design stock in the art world. It houses several popular luxury fashion brands like Kate Spade, Stuart Weitzman, and Coach. The company prides itself on the quality and craftsmanship of its products. However, its shares tumbled down by 50% year-to-date due to the pandemic. Goldman Sachs noted that this weakness presents a unique buying opportunity.
According to analyst Alexandra Walvis, recent data from the luxury industries and accessories along with Tapestry’s latest press releases suggest exceptional promotional activity. It also makes analysts more optimistic about near-term sales.
Walvis thinks that the good results are due to several factors, including product strategy and a novelty at Coach, as well as favorable category exposure and a more consolidated market share category.
Furthermore, Tapestry’s ability to lower promotional intensity year-over-year is also a positive signal. Analysts believe that it is indicative of solid brand positioning in a relatively attractive category.
What are Tapestry’s other benefits?
Investors should also consider the company’s high DTC mix and low reliance on challenged department store partners. Its solid standing in China makes Tapestry better-positioned than other apparel vendors, among them its main competitor, Capri Holdings.
Tapestry has proactively expanded its direct China business, involving new e-commerce initiatives, business takebacks across brands, specialized product launches, and other strategies. As a result, China now accounts for 15% of sales of the stock. Tapestry is well-positioned to recapture some tourist spending as Chinese consumers spend more in their domestic market.
The company is exposed to decelerating tourist spending, but Walvis noted that this exposure is lower than Capri’s. Furthermore, Tapestry’s balance sheet and liquidity access remain strong despite the pandemic.
Walvis upgraded the stock from Neutral to Buy and increased the price target, raising it from $16 to $18. Shareholders could gain 35% in the next year with this price target. The $16.25 average price target has an upside potential of 22%, though.