On Tuesday, Citi maintained its Buy rating on Tapestry Inc. (NYSE:TPR) with a consistent price target of $55.00. The firm anticipates first-quarter sales and earnings per share (EPS) to align closely with the consensus estimates.
Citi's projections show sales decreasing by 2.7%, which is slightly more than the consensus of a 2.6% decline and close to management's guidance of approximately a 3% drop. The EPS forecast by Citi is $0.96, marginally above the consensus of $0.95 and approaching the company's guidance.
Citi expects Tapestry's management to reaffirm its full-year EPS guidance of $4.45 to $4.50, compared to a consensus estimate of $4.48. The analyst's focus, however, extends beyond the quarterly figures to management's commentary on the recent legal decision to block Tapestry's acquisition of CPRI.
While Tapestry has indicated plans to appeal the decision, Citi is interested in whether this appeal will affect the company's ability to resume share repurchases, which could indicate management's confidence in the appeal's outcome.
Tapestry's management has expressed its intention to appeal the ruling that halted its acquisition, adhering to its obligations under the merger agreement. The analyst from Citi is looking for clues in the management's strategy, particularly regarding the potential resumption of share buybacks, which may be influenced by the company's perspective on the appeal's likely success.
The appeal process and its implications for Tapestry's strategic decisions, especially share repurchases, are of significant interest to investors and the market. Tapestry's upcoming actions and statements concerning these issues will be closely monitored, as they will provide insights into the company's future direction and confidence in overturning the legal blockade on their acquisition plans.
In other recent news, a U.S. court decision has blocked the $8.5 billion merger between Capri Holdings (NYSE:CPRI) and Tapestry, causing Capri's shares to drop significantly. The Federal Trade Commission (FTC) had filed a lawsuit to prevent the merger, arguing it would reduce competition and potentially lead to higher prices for consumers. The court ruled in favor of the FTC, dismissing the defense put forth by Capri and Tapestry.
Analysts from firms such as Telsey Advisory Group and Axinn, Veltrop & Harkrider LLP have suggested that if the merger fails, Capri might look for another company to partner with, while Tapestry intends to appeal the decision.
Evercore ISI adjusted its outlook on Tapestry, increasing the price target and maintaining an Outperform rating on the stock. The firm highlighted that if the merger is blocked, Tapestry could resume its previously paused share buyback program, potentially increasing earnings per share estimates.
In financial developments, Tapestry recently exceeded earnings estimates, with a fourth-quarter earnings per share of $0.92, surpassing the expected $0.88. Tapestry's revenue also saw a slight increase of 1% on a constant currency basis, driven by growth in international markets.
In other company news, Tapestry's digital business now accounts for nearly 30% of its total revenue. The company's brands, including Coach , Kate Spade, and Stuart Weitzman, are demonstrating progress in their growth strategies.
These are all recent developments in the company's growth strategies.
InvestingPro Insights
As Tapestry Inc. (NYSE:TPR) navigates the challenges of its blocked acquisition and potential appeal, InvestingPro data offers additional context to Citi's analysis. The company's P/E ratio of 14.28 suggests a relatively attractive valuation, especially considering its impressive gross profit margin of 73.29% for the last twelve months as of Q4 2024. This high margin aligns with one of the InvestingPro Tips highlighting Tapestry's "impressive gross profit margins."
Despite the recent legal setback, Tapestry has shown strong financial performance, with a significant 89.35% price total return over the past year. This robust performance is reflected in another InvestingPro Tip noting a "high return over the last year." Additionally, the company's dividend strategy remains solid, with InvestingPro highlighting that Tapestry "has raised its dividend for 3 consecutive years."
These insights complement Citi's analysis and provide a broader picture of Tapestry's financial health and market position. Investors looking for a more comprehensive analysis can find 13 additional InvestingPro Tips for Tapestry, offering a deeper understanding of the company's strengths and potential challenges in the current market environment.
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