Stock Story -
Luxury fashion conglomerate Tapestry (NYSE:TPR) beat analysts’ expectations in Q2 CY2024, with revenue down 1.8% year on year to $1.59 billion. On the other hand, the company’s full-year revenue guidance of $6.7 billion at the midpoint came in 1.1% below analysts’ estimates. It made a GAAP profit of $0.68 per share, down from its profit of $0.95 per share in the same quarter last year.
Is now the time to buy Tapestry? Find out by reading the original article on StockStory, it’s free.
Tapestry (TPR) Q2 CY2024 Highlights:
- Revenue: $1.59 billion vs analyst estimates of $1.57 billion (1.1% beat)
- Operating income (non-GAAP): $262 million vs analyst expectations of $258 (1.6% beat)
- Management’s raised full year revenue and EPS guidance
- Gross Margin (GAAP): 74.9%, up from 72.4% in the same quarter last year
- EBITDA Margin: 17.8%, down from 20.1% in the same quarter last year
- Free Cash Flow Margin: 13.2%, down from 22.6% in the same quarter last year
- Constant Currency Revenue was flat year on year(compared to 1% in the same quarter last year)
- Market Capitalization: $8.72 billion
Apparel, Accessories and Luxury GoodsWithin apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.
Sales GrowthA company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Tapestry grew its sales at a weak 2.1% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Tapestry’s recent history shows its demand slowed as its revenue was flat over the last two years.
We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which exclude currency movements that are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 2.3% year-on-year growth. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Tapestry.
This quarter, Tapestry’s revenue fell 1.8% year on year to $1.59 billion but beat Wall Street’s estimates by 1.1%. Looking ahead, Wall Street expects sales to grow 1.3% over the next 12 months, an acceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
Tapestry has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 14.5% over the last two years, better than the broader consumer discretionary sector.
Tapestry’s free cash flow clocked in at $209.8 million in Q2, equivalent to a 13.2% margin. The company’s cash profitability regressed as it was 9.4 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.
Key Takeaways from Tapestry’s Q2 Results It was good to see Tapestry beat analysts’ constant currency revenue expectations this quarter. We were also happy its revenue and operating income both outperformed Wall Street’s estimates. That the company raised full year guidance for revenue and EPS shows that the business is humming. Overall, this was a solid quarter. The stock traded up 8.5% to $41.20 immediately following the results.
