Intrinsic Value Tapestry, Inc. (0LD5.L)

• Previous Close: £126.54
• Intrinsic Value: £41.41
• Upside potential: -67%

Stock Valuation Context

Business Model And Market Position

Tapestry, Inc. operates as a global leader in the luxury accessories and lifestyle products sector, with a diversified portfolio encompassing the Coach, Kate Spade, and Stuart Weitzman brands. The company’s revenue model is anchored in premium handbags, small leather goods, footwear, and ready-to-wear collections, complemented by licensing agreements for tech accessories, fragrances, and home goods. Tapestry’s multi-brand strategy allows it to cater to distinct consumer segments, from aspirational luxury buyers (Kate Spade) to heritage-driven clientele (Coach) and high-end footwear enthusiasts (Stuart Weitzman). Its direct-to-consumer channels—including 1,443 owned stores and e-commerce platforms—bolster margins, while wholesale partnerships and concessions expand market reach. The company competes in the fragmented premium apparel and accessories space, differentiating through brand storytelling, craftsmanship, and digital innovation. Despite macroeconomic headwinds, Tapestry maintains resilience in North America and Asia-Pacific, particularly in Greater China, where localized marketing drives penetration. Its acquisition of Capri Holdings (pending regulatory approval) could further solidify its position as a top-tier global luxury conglomerate.

Revenue Profitability And Efficiency

Tapestry reported FY2023 revenue of $6.67 billion, with net income of $816 million, reflecting a 12.2% net margin. Operating cash flow stood at $1.26 billion, underscoring strong liquidity generation. Capital expenditures of $108.9 million indicate disciplined reinvestment, primarily in digital infrastructure and store refreshes. The company’s asset-light model and high inventory turnover (supported by lean supply chains) contribute to robust ROIC of approximately 15%.

Earnings Power And Capital Efficiency

Diluted EPS of $3.50 demonstrates earnings stability, driven by pricing power and cost controls. Tapestry’s capital efficiency is evident in its 30%+ gross margins, though leverage from the Capri acquisition may temporarily pressure metrics. The company’s licensing deals provide high-margin, asset-light income streams, while its DTC focus (75% of sales) enhances profitability.

Balance Sheet And Financial Health

Tapestry holds $6.14 billion in cash against $8.77 billion of total debt, yielding a net debt position of $2.63 billion. The liquidity buffer is ample, with a current ratio above 2.0. Debt covenants are manageable, but the Capri deal’s financing could elevate leverage ratios near-term. The balance sheet remains investment-grade, supported by predictable cash flows.

Growth Trends And Dividend Policy

Organic growth has been steady at 3-5% annually, with Asia-Pacific outpacing other regions. The dividend yield is ~2.5%, with a payout ratio of 40%, signaling commitment to shareholder returns. Buybacks have been modest recently, likely due to M&A priorities. Future growth hinges on category expansion (e.g., menswear) and digital penetration.

Valuation And Market Expectations

At a $15.99 billion market cap, Tapestry trades at ~19x forward P/E, a premium to peers, reflecting its brand equity and growth optionality. The beta of 1.43 indicates higher volatility versus the market, typical for discretionary luxury stocks. Consensus estimates project mid-single-digit revenue growth post-Capri integration.

Strategic Advantages And Outlook

Tapestry’s key strengths include brand diversification, pricing power, and a scalable digital platform. Risks include exposure to Chinese consumer sentiment and integration challenges from the Capri acquisition. Long-term, the company is well-positioned to benefit from global luxury demand recovery, though near-term macro uncertainty persists.

Sources

Company 10-K filings, investor presentations, Bloomberg terminal data