Dividend Payments Never Are Out of Fashion With Tapestry

You've probably come across bags and purses from Coach, and your significant other may have some clothes or purses from Kate Spade and shoes from Stuart Weitzman in the closet. What all three of those companies have in common is being owned by Tapestry, Inc. , the company formerly known as Coach, that focuses on modern luxury accessories and lifestyle brands. Following the 2018 acquisitions of Kate Spade, Coach changed its name to Tapestry. Despite the name change, the Coach brand and its products account for more than 70% of Tapestry's revenue, with the balance of the company's revenue generated by Kate Spade (22%) and Stuart Weitzman (6%). If we were to cleave Tapestry's business into products, the largest generator of revenue would be women's handbags, which across Coach and Kate Spade account for 50% of company sales. That's three times the size of Tapestry's next largest business, products for men. From a geographic perspective, roughly 40% of Tapestry's revenue has been from markets outside of the U.S., with China and Japan being key markets for the company, accounting for 12.5% and 12% of sales, respectively. However, over the last several quarters Tapestry has faced challenges with its share price, which is down from the low $50s last summer. While fashion can indeed be a fickle beast, Tapestry shared in early February that while it will continue to invest in its brands, it has dialed back its revenue growth and margin expansion expectations for the coming quarters, citing an uncertain global environment. Particularly bothersome was the market share loss for Coach, which saw its revenue grow 1.5% year over year for that quarter, well below the high single digit growth for the category during the same period. With its margins intact, we can deduce Tapestry opted not to engage heavily in discounting during the 2018 holiday season, which explains the market share loss. Generally speaking, it's smarter in the long run to focus on companies that focus on profits over sales - if pricing is the only weapon a company has, and it pulls that trigger, its challenging to get prices back to prior levels, all things being equal. With fashion companies, we usually have to wait for the next product cycle to see a jump start in demand, assuming the new designs are in vogue. Ask any investor that has held Skechers U.S.A. shares, and it can be hit or miss. Coupled with the slowing global economy and mounting consumer debt in the U.S. and China, the odds of seeing a pronounced and sustained move higher in TPR shares seems limited, at least in the near term. From an income perspective, at the current share price the dividend yield is roughly 4%, which is well above that of other luxury companies like LVMH Moët Hennessy and its 1.2% yield. Tapestry's dividend yield reflects its $0.338 quarterly dividend per share. Being a luxury retail company, it should come as little surprise the December quarter is a meaningful one for Tapestry. During calendar 2018, the December quarter accounted for just under one-third of its sales for the period. But here's the thing, over the course of 2019, Tapestry will pay out roughly $392 million to shareholders in dividends, and with $1.5 billion in cash and investment on its balance sheet exiting December, it has ample firepower to pay those dividends, even before we consider its earnings and cash flow potential in the coming quarters. Fashion may be a fickle beast for stock prices, but solid, high-yielding dividend coverage is a buy every time.

Dividend Payments Never Are Out of Fashion With Tapestry

Fashion may be a fickle beast for stock prices, but solid, high-yielding dividend coverage is a buy every time.

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