The New York company owns the brands Coach, Kate Spade and Stuart Weitzman.
Chen acted on Cowen’s survey of Coach data and his own analysis that e-commerce and demand from China represent “substantial growth drivers” for Tapestry, Bloomberg reports.
The distinction of products in outlets versus full-price stores should “prevent cannibalization” for Coach, he wrote in a report cited by Bloomberg.
Online sales will boost Tapestry’s margins based on earnings before interest and taxes, Chen said.
“E-commerce acceleration is underway,” with penetration climbing to 25% in the first quarter of fiscal 2021 [ended Sept. 26] from 15% in fiscal 2020 and 10% in fiscal 2019, he said.
China accounts for the widest gross-profit margins in Tapestry’s regions, generating “another opportunity for earnings-per-share growth,” he wrote. Tapestry brands are “growing in traction in China,” Chen said.
Cowen’s survey indicated that Coach’s outlet and full-price stores are “gaining traction with the younger population,” Chen wrote in a report cited by Bloomberg.
Tapestry recently traded at $25.95, easing 0.2%. The shares have given up 4% year to date.
Morningstar analyst David Swartz puts fair value for Tapestry at $37.50.
“We have a narrow-moat rating on Tapestry due to the strength of its intangible brand asset,” he said.
“Although Tapestry owns three brands, Coach, Kate Spade New York, and Stuart Weitzman, our moat rating is based solely on its Coach brand.”
Swartz sees Coach accounting for 73% of Tapestry’s revenue and more than 90% of its segment operating income in fiscal 2021.