Tapestry Inc Valuation – April 2018 $TPR

Company Profile (excerpt from Reuters): Tapestry, Inc., formerly Coach, Inc., incorporated on June 1, 2000, is a design house of luxury accessories and lifestyle collections. The Company’s product offering uses a range of leathers, fabrics and materials. The Company’s segments include North America, International and Stuart Weitzman. The Company’s product offering uses a range of leathers, fabrics and materials. The Company’s brands include Coach, Kate Spade, and Stuart Weitzman. The North America segment includes sales of Tapestry brand products to North American customers through Tapestry-operated stores (including the Internet) and sales to North American wholesale customers. The International segment includes sales to consumers through Tapestry-branded stores and concession shop-in-shops in Japan, mainland China, Hong Kong, Macau, Singapore, Taiwan, Malaysia, South Korea, the United Kingdom, France, Ireland, Spain, Portugal, Germany, Italy, Austria, Belgium, the Netherlands and Switzerland. The Stuart Weitzman segment includes sales across the world generated by the Stuart Weitzman brand, primarily through department stores in North America and international locations, and within Stuart Weitzman operated stores (including the Internet) in the United States, Canada and Europe.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TPR – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,987,663,711 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.90 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -31.28% Fail
6. Moderate PEmg Ratio PEmg < 20 31.69 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.11 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.90 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.22 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail


Stage 2: Determination of Intrinsic Value

EPSmg $1.66
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $24.07
MG Value based on 0% Growth $14.11
Market Implied Growth Rate 11.60%
Current Price $52.61
% of Intrinsic Value N/A

Tapestry Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.14 in 2014 to an estimated $1.66 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.6% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Tapestry Inc revealed the company was trading above its Graham Number of $16.84. The company pays a dividend of $1.35 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 31.69, which was below the industry average of 34.38, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-4.36.

Tapestry Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$4.36
Graham Number $16.84
PEmg 31.69
Current Ratio 1.90
PB Ratio 5.11
Current Dividend $1.35
Dividend Yield 2.57%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $3,282,300,000
Total Current Liabilities $1,731,400,000
Long-Term Debt $1,887,500,000
Total Assets $7,481,200,000
Intangible Assets $3,147,700,000
Total Liabilities $4,531,800,000
Shares Outstanding (Diluted Average) 286,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.18
Jun2017 $2.09
Jun2016 $1.65
Jun2015 $1.45
Jun2014 $2.79
Jun2013 $3.61
Jun2012 $3.53
Jun2011 $2.92
Jun2010 $2.33
Jun2009 $1.91
Jun2008 $2.17
Jun2007 $1.76
Jun2006 $1.27
Jun2005 $0.86
Jun2004 $0.57
Jun2003 $0.33
Jun2002 $0.24
Jun2001 $0.19
Jun2000 $0.14
Jun1999 $0.06
Jun1998 $0.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.66
Jun2017 $2.04
Jun2016 $2.21
Jun2015 $2.61
Jun2014 $3.14
Jun2013 $3.17
Jun2012 $2.82
Jun2011 $2.38
Jun2010 $2.04
Jun2009 $1.79
Jun2008 $1.60
Jun2007 $1.20
Jun2006 $0.83
Jun2005 $0.55
Jun2004 $0.36
Jun2003 $0.23
Jun2002 $0.17

Recommended Reading:

Other ModernGraham posts about the company

Coach Inc Valuation – February 2016 Update $COH
Coach Inc. Valuation – October 2015 Update $COH
The Best Companies of the Retail Industry – August 2015
The 20 Best Stocks For Value Investors This Week – 7/25/15
Coach Inc. Analysis – July 2015 Update $COH

Other ModernGraham posts about related companies

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Macy’s Inc Valuation – April 2018 $M
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Bed Bath & Beyond Inc Valuation – March 2018 $BBBY
Ross Stores Inc Valuation – March 2018 $ROST
Nordstrom Inc Valuation – February 2018 $JWN
Walmart Inc Valuation – February 2018 $WMT
Costco Wholesale Corp Valuation – September 2017 $COST
McKesson Corp Valuation – August 2017 $MCK


The author held a long position in TPR but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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