The good news for TPR with the stock at $15 is that the name is trading at just 5-6x underlying earnings power of $2.75. Can’t ask for much cheaper than that. But the bad news is that it’s going to revisit that ‘normalized’ number in its 2023 (June) fiscal. And unfortunately, earnings are going to get worse before they get better. The road to recovery is a long and painful one, and while our cash flow and balance sheet forecasts suggest that there’s ample liquidity along the way, the reality is that the consensus estimates for FY 21 and 22 are likely to emerge from this print as being too high. In fact, we’re looking at a 4Q estimate of a loss of $0.82, more than 3x its 3Q loss. Importantly, we don’t model a positive y/y sales development until 4Q21 – getting us to an annual EPS estimate for next year of just $0.22. The Street is currently at $1.95, and will likely end up well above $1.00 once revisions are done. In the end, there’s simply no rush to own this name when the rate of change in the model is a good year+ away from inflecting. Knowing what we know today, if I had to have exposure to this space it would be through CPRI, which has a stronger asset base, a quicker road to recovery (i.e. none of its brands are broken, unlike TPR), and its trading at half TPR’s multiple on underlying EPS.
