Solid quarter from TPR relative to expectations, driven in particular by the Coach brand, which beat top line forecasts by over 15%. EPS for the quarter came in at $0.58 vs the consensus of $0.22 (and $0.40 a year ago)– driven by virtually every line of the P&L. Impressive that earnings are already back above pre-pandemic levels. Still plenty of wood to chop at Kate Spade and Stuart Weitzman, but progress is evident on the top and bottom lines. One of the most impressive stats in the quarter is that Coach handbag Average Unit Retail was up 25% globally, and over 20% in the core North American market. That translated to triple digit growth in digital sales. By comparison, RL put up similar growth in AUR, but only translated that to 10% growth in digital. If there’s one number that is a proxy for the health of a brand, it is its digital growth – especially given that we’re seeing the biggest permanent sea change in shopping behavior towards online that we’re likely to see in our entire lifetime. About half of the beat was driven by SG&A leverage, which I won’t necessarily give credit for past one or two quarters – as I’d rather see the $235mm cost saves vs last year remain in the model to continue to drive the top line – particularly at Kate Spade. But to TPR’s credit, its recent marketing strategies have been working as evident in the positive rate of change in the brands. Credit to the company for taking a stab at guidance, calling for FY21 to increase at a mid-single digit rate vs ly (vs the Street at 3%). That includes a low double digit sales decline in 2Q (ending Dec), which sounds beatable with a significant topline inflection thereafter (in fairness all of retail will see a massive inflection in 1H of CY21). Current Street estimates for the Dec quarter are for $0.87, which looks conservative to us by 10-20%. This name sits on our Long Bias list as we think the category has bottomed, now improving on the margin, and expectations are largely too low. We have Capri as our lead horse (Best Idea Long) in this space as there are more dramatic and sizable TAIL earnings drivers that should make the stock a 3-4 bagger over the course of 2-3 year time period. But by no means are we against owning TPR. The name has better than $2.50 in earnings power over 2-years, and is trading at just 9x that number today. More realistically, we’re looking at a 12-13x multiple on $2.50 in EPS on an NTM basis over the course of 12 months, which gets to near 50% upside from current levels.
Takeaway: Realistically, we’ve got 12-13x on $2.50+ in EPS on an NTM basis in 12 mos, which gets to near 50% upside from current levels.
