Pedestrians and shoppers walk past a Coach Inc. store, operated by Tapestry Inc., on Orchard Road in Singapore, on Saturday, Feb. 10, 2018. (Photographer: Ore Huiying/Bloomberg)

Tapestry Inc. (NYSE:TPR) posted its first quarter results on October 30, wherein a 7% improvement in revenues and a 14% increase in earnings was reported, with the metrics exceeding consensus expectations. The 4% sales growth at Coach was driven by its digital efforts, while its 21% improvement at Kate Spade was a result of new store openings and the consolidation of its China business. Moreover, a pullback on flash sales, and hence, an increased sale of full-price items, together with a reduced exposure to the wholesale channel for Coach and Kate Spade, eased the pressure on the margins, and consequently, improved profitability. This, together with the lowering of the corporate tax rate, resulted in a significant improvement of the EPS. The company achieved its synergy guidance target (from the merger with Kate Spade) of $45 million in FY 2018, and anticipates synergies of $100 to $115 million in FY 2019. For the full year, Tapestry is projecting sales to increase by a mid-single-digit rate to $6.1 billion to $6.2 billion, including low single-digit growth at Coach and double-digit improvement at Kate Spade. The retailer has upped its EPS guidance range to $2.75 to $2.80 from $2.70 to $2.80.

We have a $59 price estimate for Tapestry (Coach Inc), which is significantly higher than the current market price. The charts have been made using our new, interactive platform. You can click here for our interactive dashboard on Tapestry Inc.’s Performance In Q1 2019 And Estimating Its Fair Price to modify the different drivers to see their impact on Tapestry’s price estimate.

Factors That May Impact Performance

1. Problems at Stuart Weitzman: While the company reported a rise in sales in the segment in Q3 2018, it was noted that the brand’s supply chain in Spain was unable to handle “the level of complexity and new development.” Consequently, the company is in the process of adding infrastructure and capacity to support the brand and ensure quality on-time deliveries. As a result of this, the segment continued to face a slight disruption in the first quarter, with a return to growth projected in the second quarter of FY ’19, faster than Q3 expected earlier. The company is also aiming to increase its offerings and expand internationally, with a focus on the Chinese consumer.

2. Pullback from…