Tapestry shares down as TD Cowen downgrades to 'hold' on growth risks

Tapestry Inc. Stock Downgrade

Shares of Tapestry, Inc. (NYSE:TPR), parent company of Coach, Kate Spade, and Stuart Weitzman, experienced a drop in pre-market trading on Tuesday following a downgrade from TD Cowen analysts.

The brokerage lowered its rating on Tapestry from "buy" to "hold," citing concerns regarding the stock’s recent rally and broader macroeconomic factors affecting consumer trends.

Analysts noted that Tapestry's stock had surged nearly 40% year-to-date and over 85% in the past 12 months, nearing TD Cowen’s price target of $52 per share. However, they conveyed caution about the company's future, highlighting a slowdown in discretionary spending in key markets such as China and the U.S.

Despite stable margins due to a commitment to full-price selling, U.S. sales have either stagnated or dipped slightly. In China, economic issues—such as youth unemployment and a sluggish property market—have diminished consumer sentiment, which could hinder Tapestry's growth.

The downgrade also reflects potential risks linked to Tapestry’s pending acquisition of Capri Holdings (NYSE:CPRI), which faces regulatory scrutiny from the Federal Trade Commission. TD Cowen analysts cautioned that while Tapestry’s acquisition strategy resembles that of European luxury houses, uncertainties surrounding the merger and challenges in brand execution raise concerns about the company’s scalability.

Among Tapestry's brands, Coach is the strongest revenue contributor. However, analysts pointed out that Coach’s success raises the bar for future growth, particularly as competitors like LVMH and Kering signal a softening luxury market in the latter half of the year.

Meanwhile, Tapestry’s other brands, Kate Spade and Stuart Weitzman, continue to encounter hurdles. While Kate Spade shows signs of margin stability, significant investment is needed for product and store enhancements. Stuart Weitzman, having struggled post-acquisition, may experience limited near-term growth.

Despite these difficulties, TD Cowen retains a long-term perspective, believing Tapestry is well-positioned to gain market share through operational efficiency and brand strength, particularly with Coach. The downgrade reflects short-term concerns stemming from macroeconomic uncertainties and risks, indicating the stock’s upside may now be restricted.