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Tapestry weaves downbeat FY22, but shares spike

 

Friday, May 13, 2022

The news shaping the markets today

Russia warned of taking unspecified “military-technical” steps in response to Finland’s move to join NATO. Despite growing geopolitical tensions, the US dollar index traded slightly lower this morning.


Australia’s new home sales fell 1.2% in April, following a 3.9% increase in the prior month. However, the AUD/USD forex pair remained elevated after the news.


New Zealand’s BusinessNZ Performance of Manufacturing Index declined to 51.2 in April, from 53.7 in the previous month. However, factory activity expanding for the eighth straight month sent the NZD/USD pair higher in forex trading this morning.


Mexico’s central bank raised its benchmark policy rate by 50 bps to 7% at its latest meeting, amid surging inflation and the ongoing Ukraine war. The news lent support to the MXN/USD forex pair.


Germany’s current account surplus narrowed to €18.8 billion in March, from €33.8 billion in the year-ago month. However, the EUR/USD pair rose slightly in forex trading this morning.

 

What’s happening: Shares of Tapestry gained on Thursday, despite the company reducing its FY22 outlook

What happened: The luxury goods manufacturer reported its sales and earnings for the third quarter ahead of expectations

However, management lowered their full-year guidance, despite expressing confidence around a rebound in demand with the easing of covid-19 restrictions in China.

 How were the results: The New York-based company reported growth a sales and earnings for its fiscal third quarter ending April 2.

  • Revenues grew 13.4% to $1.44 billion, beating the Street expectations of $1.42 billion.
  • Earnings climbed to $122.7 million, or 46 cents per share, from $91.7 million, or 32 cents per share, in the year-ago quarter.
  • Adjusted earnings came in at 51 cents per share, higher than the consensus estimates of 41 cents per share.

Why it matters: Several major companies, including EssilorLuxottica and Gucci owner Kering, took a hit from China’s strict zero-covid policy, which resulted in the closure of factories. Tapestry warned that its revenues from Greater China may tumble 35% in the fiscal fourth quarter, despite expectations of covid-19 restrictions in Shanghai being eased by June

The company managed to report revenue growth in the third quarter due to upbeat demand for its luxury goods in North America amid consumers returning to social events with the easing of restrictions over the last two years. Revenues in North America surged 22%, with digital sales growing more than 20% year-on-year.

Management indicated that the third-quarter results were driven by higher customer demand at Coach, Kate Spade and Stuart Weitzman.

The company’s operating margins expanded by 260 basis points to 11.8%, while operating income rose 44.4% to $169 million. Tapestry held cash and equivalents worth $1.1 billion as of April 2, 2022.

Tapestry now plans to return around $1.9 billion to shareholders in fiscal 2022, representing a rise of over $1.5 billion. The company’s board also announced a new share repurchase program worth $1.5 billion. Tapestry also announced a quarterly cash dividend of 25 cents per share, payable on June 27, taking its annual dividend rate to $1.00 per share.

Management reduced their FY22 sales and earnings guidance from $6.75 billion to $6.7 billion and from between $3.60 and $3.65 per share to around $3.45 per share, respectively.

 How shares responded: Tapestry’s shares jumped 15.5% to close at $30.63 on Thursday, following the release of quarterly results. The stock has lost around 25% year-to-date.

 What to watch: Investors will keep an eye on covid-19 restrictions in China and on ongoing supply chain issues.

The markets today

UK stocks will be in focus today after closing lower on Thursday

 

Context: British stocks recorded losses on Thursday, following the release of GDP data from the country

 Details: Economic data released on Thursday showed that the British economy weakened in March. The country’s economy surprisingly shrank by 0.1% in March, recording the first decline this year. The economy also grew by merely 0.8% on quarter in the first quarter, slowing from 1.3% growth in the fourth quarter

UK trade deficit widened to £11.5 billion in March, from £9.2 billion in the prior month, while industrial production eased 0.2%.

Shares of BP and Shell fell on Thursday due to a decline in commodity prices over demand concerns. Banking stocks also took a hit amid fears of an economic slowdown in the UK. Shares of JD Sports Fashion rose around 5%, after the sportswear retailer boosted its annual profit forecast. Coca-Cola’s bottling unit, Coca-Cola HBC, reported 31% year-over-year growth in net sales for the first quarter, which sent the stock higher by over 5%.

The blue-chip FTSE 100 fell 1.56% to close at 7,233.34, while the domestically-focused mid-cap index FTSE 250 declined 0.85% to settle at 19,480.88 on Thursday.

 What to watch: With no major economic reports due today, investors await the jobs data from the UK, scheduled for release on Tuesday.

Markets will also keep an eye on the ongoing Russia-Ukraine war and rising covid-19 cases in some parts of the world.

 Other Markets: US indices closed lower on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.33%, 0.13% and 0.18%, respectively.

Support & resistances for today

Technical Levels News Sentiment
GBP/USD – 1.2194 and 1.2209 Positive
NZD/USD – 0.6232 and 0.6248 Positive
FTSE 100 – 7227.46 and 7259.06 Positive
S&P 500 – 3863.92 and 3911.92 Negative
WTI Crude Oil – 106.98 and 107.68 Positive

Market snapshot

What else to watch today

France’s inflation rate, Spain’s consumer prices, Turkey’s industrial production and retail sales, Eurozone’s industrial production, India’s foreign exchange reserves, balance of trade, exports, imports, and central government budget value, Brazil’s IBC-Br index of economic activity, Canada’s car registrations, US import prices, export prices, University of Michigan consumer sentiment index and Baker Hughes total rigs, Russia’s consumer price index, Australia’s new home sales, China’s new yuan loans, outstanding yuan loan growth, total social financing and money supply M2, as well as South Africa’s SACCI business confidence index.

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