Tapestry Shares Climb on Deutsche Bank Upgrade to Buy

Deutsche Bank upgraded Tapestry shares, noting the Kate Spade parent's "increased efforts to refocus its brands."
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Tapestry  (TPR) - Get Report shares were higher Wednesday after Deutsche Bank upgraded the owner of Coach, Kate Spade and Stuart Weitzman to buy from hold and raised its price target to $21 from $18.

Shares of the New York luxury-products company at last check were rising 9.3% to $18.41.

Analyst Paul Trussell said in a note to clients that he has "long appreciated TPR's robust international growth engine, Coach's merchandising strength, and growing ready-to-wear, footwear, and men's businesses." 

However, the analyst added, "increased efforts to refocus its brands, reduce SKU (stock-keeeping unit) count, grow AUR (average retail unit) even in the outlet channel, and accelerate its omnichannel strategy will result in meaningful GPM (gross processing margin) expansion throughout fiscal 2021 with likely upside in fiscal 2022."

Not surprisingly, Trussell said, China remains the bright spot for Tapestry, followed by North America. 

"We believe this is a positive for TPR, given that a combined about 70% of Coach's sales are derived from North America and Mainland China, while Kate Spade generates about 80% of its top line from these two regions," he said.

Trussell said Tapestry will deliver robust digital sales in the quarters ahead, given the company's "investments into digital capabilities, a compelling product assortment with consistent flow of newness greater engagement with consumers, and a heavier emphasis on storytelling."

Online retail sales have increased dramatically since the coronavirus pandemic shutdown started.

"We have seen strong digital trends across the retail landscape, and believe TPR will be a beneficiary of the current trend that appears to be accelerating the shift to digital/omnichannel," Trussell said. 

Trussell said Tapestry is also working to right-size costs to preserve capital, including $300 million from its "Acceleration Program," a review of its businesses that the company unveiled last month.