Luxury fashion conglomerate Tapestry (NYSE:TPR) beat analysts’ expectations in Q2 CY2024, with revenue down 1.8% year on year to $1.59 billion. On the other hand, the company’s full-year revenue guidance of $6.7 billion at the midpoint came in 1.1% below analysts’ estimates. It made a GAAP profit of $0.68 per share, down from its profit of $0.95 per share in the same quarter last year.

Is now the time to buy Tapestry? Find out in our full research report.

Tapestry (TPR) Q2 CY2024 Highlights:
Revenue: $1.59 billion vs analyst estimates of $1.57 billion (1.1% beat)
Operating income (non-GAAP): $262 million vs analyst expectations of $258 (1.6% beat)
Management’s raised full year revenue and EPS guidance
Gross Margin (GAAP): 74.9%, up from 72.4% in the same quarter last year
EBITDA Margin: 17.8%, down from 20.1% in the same quarter last year
Free Cash Flow Margin: 13.2%, down from 22.6% in the same quarter last year
Constant Currency Revenue was flat year on year(compared to 1% in the same quarter last year)
Market Capitalization: $8.72 billion

Originally founded as Coach, Tapestry (NYSE:TPR) is an American fashion conglomerate with a portfolio of luxury brands offering high-quality accessories and fashion products.

Apparel, Accessories and Luxury Goods

Within apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Sales Growth

A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, Tapestry grew its sales at a weak 2.1% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Tapestry’s recent history shows its demand slowed as its revenue was flat over the last two years.

We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which exclude currency movements that are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 2.3% year-on-year growth. Because this number is better than its normal revenue growth, we can see that foreign exchange rates have been a headwind for Tapestry.

This quarter, Tapestry’s revenue fell 1.8% year on year to $1.59 billion but beat Wall Street’s estimates by 1.1%. Looking ahead, Wall Street expects sales to grow 1.3% over the next 12 months, an acceleration from this quarter.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Tapestry has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 14.5% over the last two years, better than the broader consumer discretionary sector.

Tapestry’s free cash flow clocked in at $209.8 million in Q2, equivalent to a 13.2% margin. The company’s cash profitability regressed as it was 9.4 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Key Takeaways from Tapestry’s Q2 Results

It was good to see Tapestry beat analysts’ constant currency revenue expectations this quarter. We were also happy its revenue and operating income both outperformed Wall Street’s estimates. That the company raised full year guidance for revenue and EPS shows that the business is humming. Overall, this was a solid quarter. The stock traded up 8.5% to $41.20 immediately following the results.

So should you invest in Tapestry right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.