It's been just over a year since Coach did the unthinkable, changing its name (and ticker symbol) to Tapestry (TPR) . I know what they were trying to achieve with that change, the recognition that the company had expanded its brand portfolio (including the acquisition of Kate Spade), but it seemed like an odd move then and now. I've asked my wife and daughters what they think about Tapestry, and they still don't recognize the name. Coach and Kate Spade they know.
While the initial reaction by the markets to the name change was negative, that was short-lived, and shares rose 40% over the next 6 months to $54. While I'd been intrigued enough by TPR's valuation at the time of the name change to put it on my watch list, I simply had no more room in a portfolio that was already overloaded with down and out specialty retailers. Guidance disappointments in May's third quarter earnings release took the wind out of TPR's sails for a while, but it regained much of that lost ground by August. Then anxiety over trade wars and China took center stage sending shares back to the mid-$40's where they stand today.
Having jettisoned many of the specialty retailers in the portfolio after much quicker than expected stock price recoveries, I am once again looking for cheap, beaten down names in that space. TPR is in no way as cheap or downtrodden as Fossil (FOSL) , Hibbett Sports (HIBB) , or Cato Corp (CATO) were, but it's also a much larger, higher quality, and more recognized company (name change notwithstanding), with more than 30 analysts covering it. I am not used to that for sure.
Shares are certainly not expensive at 14 X next year's consensus estimates, which is well below what this company used to trade for when it was a growth darling. But that's what happens when company's mature, lose some of their luster that used to attract the growth crowd, and have seemingly made the transition to value. Currently yielding 3%, the company ended its latest quarter with about $1.25 billion or $4.32 per share in cash and $1.6 billion in debt; certainly a decent balance sheet, with very manageable levels of debt.
The big question for TPR (and others in the luxury space) is whether the China concerns are overblown, or will continue to weigh on the sector. While TPR is not currently expensive, I'd like to see a bigger selloff and more uncertainty before taking a position. Ten times forward earnings would put it at $31/share, with a 4.4% yield. I'm not sure it will get there.
In the meantime, initiating a share buyback, and increasing the dividend, which the company has not done since mid-2013, would be positives. Or, maybe change the name back to Coach. Just saying.