Tapestry (TPR)

Luxury fashion conglomerate Tapestry (NYSE:TPR) announced better-than-expected revenue in Q1 CY2025, with sales up 6.9% year on year to $1.58 billion. The company’s full-year revenue guidance of $6.95 billion at the midpoint came in 1.1% above analysts’ estimates. Its GAAP profit of $0.95 per share was 7.4% above analysts’ consensus estimates.

Company Overview

Originally founded as Coach, Tapestry (NYSE:TPR) is an American fashion conglomerate with a portfolio of luxury brands offering high-quality accessories and fashion products.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Tapestry’s main competitors are PVH Corp (NYSE:PVH) who owns Calvin Klein and Tommy Hilfiger; Kering (OTCMKTS:PPRUY) who owns Gucci, Yves Saint Laurent, and Bottega Veneta; LVMH Moët Hennessy Louis Vuitton (OTCMKTS:LVMUY) who owns Louis Vuitton, Dior, Givenchy; Ralph Lauren (NYSE:RL)

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Tapestry’s sales grew at a sluggish 3.6% compounded annual growth rate over the last five years. This was below our standard for the consumer discretionary sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Tapestry’s recent performance shows its demand has slowed as its annualized revenue growth of 1.6% over the last two years was below its five-year trend.

We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 2.4% year-on-year growth. Because this number aligns with its normal revenue growth, we can see that Tapestry has properly hedged its foreign currency exposure.

This quarter, Tapestry reported year-on-year revenue growth of 6.9%, and its $1.58 billion of revenue exceeded Wall Street’s estimates by 3.7%.

Looking ahead, sell-side analysts expect revenue to grow 1.9% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its newer products and services will not lead to better top-line performance yet.

Tapestry’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 17.8% over the last two years. This profitability was top-notch for a consumer discretionary business, showing it’s an well-run company with an efficient cost structure.

This quarter, Tapestry generated an operating profit margin of 16%, up 2.2 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Tapestry’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, Tapestry reported EPS at $0.95, up from $0.60 in the same quarter last year. This print beat analysts’ estimates by 7.4%. Over the next 12 months, Wall Street expects Tapestry’s full-year EPS of $3.80 to grow 38.6%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Tapestry has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 20.4% over the last two years, quite impressive for a consumer discretionary business.

Tapestry’s free cash flow clocked in at $682.4 million in Q1, equivalent to a 43.1% margin. This result was good as its margin was 37.7 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Tapestry hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 19.7%, impressive for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Tapestry’s ROIC averaged 3.5 percentage point increases each year. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Tapestry reported $1.06 billion of cash and $4.11 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.58 billion of EBITDA over the last 12 months, we view Tapestry’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $98.4 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Tapestry blew past analysts’ constant currency revenue, EPS, and EBITDA expectations this quarter. We were also glad it raised its full-year revenue and EPS guidance. Zooming out, we think this quarter featured some important positives. The stock traded up 5.4% to $78.79 immediately following the results.

Updated: May 15, 2025 at 10:43 PM EDT

Before investing in or passing on Tapestry, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Tapestry’s business quality ultimately falls short of our standards. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while Tapestry’s projected EPS for the next year implies the company will continue generating shareholder value, its constant currency sales performance has disappointed.

Tapestry’s P/E ratio based on the next 12 months is 16.2x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $88.79 on the company (compared to the current share price of $83.71).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.