Luxury fashion retailer Tapestry, Inc. (NYSE: TPR)
shares are still trading below its pre-COVID levels underperforming the benchmark S&P 500 index (NYSEARCA: SPY)
year-to-date. The wider time frame charts are indicating higher price ranges ahead as its weekly Bollinger Band (BBs) compression shifts to expansion. Tapestry operates three iconic premium luxury brands including Coach, Kate Spade, and Stuart Weitzman. While brick and mortar retail apparel have been a laggard industry during the pandemic, the improving traffic from economic restarts is accelerating the recovery notably with luxury fashion brands. Prudent investors looking to take a stake in this recovery should monitor opportunistic pullback entries during this price compression period.
Q4 FY 2020 Earnings Release
On Aug 13, 2020, Tapestry released its fourth-quarter fiscal 2020 results for the quarter ending June 2020. The Company reported a loss of (-$0.25) per share beating consensus analyst estimates for a loss of (-$0.61) per share by $0.36 per share. Revenues fell (-52.8%) year-over-year (YoY) to $714.8 million still beating consensus estimates of $675.15 million. Capex fell (-60%) YoY to $33 million. Moving forward, capex is expected to range around $150 million for fiscal 2021 as investments migrate to digital solutions. Tapestry ended the quarter with $1.4 billion in cash and equivalents upon drawing $700 million on its $900 million revolver. The Company will not provide fiscal 2021 guidance and will also add a 53rd week to fiscal 2021. Tapestry is deliberately cutting promotional activity with targeted SG&A expense reductions for gross margin expansion. Management expects a return to sustained top-line growth in the second half of 2021. Total inventories fell (-5%) YoY due to better than expected revenues.
Conference Call Takeaways
The Company set the bar longer-term for a return to growth giving it enough runway to weather through the pandemic and put into motion their Acceleration program with emphasis on efficiencies and refining marketing targets. The Company gained nearly 1 million new customers through its digital platform. The Coach brand ended the quarter with 73.6% gross margins. Tapestry reduced global headcount costs by 20% and using the pandemic as an opportunity to become more streamlined moving forward. With stagnant growth in the legacy Coach brand, the Company is moving forward to Coach 2.0 aimed at Millennials and Gen-Z with ready-to-wear footwear and social and digital marketing.
Tapestry Finds Digital Religion
The Company also opened up coachoutlet.com in late April 2020 in North America. The site garnered 600,000 new customers with 50% split between Gen-Z and Millennials. Shifting from high fashion imagery to “one that is more inclusive, culturally relevant and consumer-centric”. This approach was adopted by The Gap (NYSE: GPS) bringing in the Yeezy line for 2021. The Kate Spade brand saw over 350,000 new customers mostly through the digital channel. The Company acknowledges the benefits of digital being more profitable and efficient than brick and mortar stores. The reopening and restart narrative has been improving incrementally on a week by week basis. The Company has found its digital religion during the pandemic and has shifted its strategy to bolster digital offerings as well as broaden the demographic scope of its audience across brands. Shares didn’t gap too much on the earnings release reaction nor rally too much ahead of the release. This sets up tight but targeted opportunistic buying levels to track. The shares may initiate a slow grind before triggering additional rug pulls but accumulation is clearly in progress.
TPR Opportunistic Pullback Price Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for TPR stock. The monthly rifle chart is trying to cross the stochastic backup but is still below the 20-band oversold level. It is holding the monthly 5-period moving average (MA) support at $14.06 and sloping higher indicating rising demand. The monthly rifle chart triggers a market structure low (MSL) buy above $15.58 and weekly MSL triggers above $16.66. This sets up a tight range of opportunistic pullback price levels at $14.50 sticky 5s zone, $13.98 Fibonacci (fib) level and monthly 5-period MA support range, $13.16 fib and the $12.20 triple bottom. Upside trajectories accelerate off the monthly and weekly MSL triggers pointing to the $16.96 fib at $21.15 fib. Nimble traders can scalp off the fib ranges. Investors can use high fashion peers like Capri Holdings (NASDAQ: CPRI) , Ralph Lauren (NYSE: RL) and PVH Holdings (NYSE: PVH) to gauge the price trends.
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