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The S&P 500 and the other major indexes have been under fire in the past week, losing much of the gains made in January and parts of February. The index itself has lost 2.63% over the past five days. As a result, it is now up just 1.22% in 2025 as we near the end of February.
Two months into 2025, there are significant concerns about tariffs and their economic impact. Retail stocks and apparel brands must be worried about tariffs from China, Mexico, other Asian countries, and even Canada.
As a result, it was interesting to see Tapestry (TPR) enter the Barchart Top 100 Stocks to Buy on Tuesday in the 68th spot. After all, it was only in mid-November that Tapestry and Capri Holdings (CPRI) called off their merger after it became clear that it would not receive regulatory approval from the FTC (Federal Trade Commission).
However, after 15 months in limbo, the announcement affected the two companies’ stocks differently.
Tapestry’s stock has gained 43% in the three months since, while Capri’s stock has gone sideways. However, most of the damage was already done in October when a Federal court upheld the FTC’s lawsuit to stop the deal. Capri shares fell nearly 50% on the news.
Now, tariffs are on the agenda, as 25% tariffs are expected to kick in for Mexican and Canadian imports starting on March 4. It still might not happen, but a significant portion of U.S. apparel is made elsewhere.
Is this enough to warrant avoiding Tapestry stock? Or are investors signaling by entering the top 100 that the owner of Coach and Kate Spade will be able to weather the storm, and as such it’s a buy?
I’ll consider both questions.
Should You Avoid Tapestry Based on Tariff Concerns?
The company’s brands have a big presence in Asia, both in terms of revenue generated and manufacturing of products for sale there, in the U.S. and elsewhere.
“We maintain strong oversight of the supply chain process for each of our brands from design through manufacturing. We are able to do this by maintaining sourcing management offices in Vietnam, mainland China, the Philippines, Cambodia and Spain that work closely with our independent manufacturers,” states pg. 7 of its 2023 10-K.
It goes on to say that most of Coach’s manufacturing is in Vietnam, Cambodia, the Philippines, and India. At the same time, Kate Spade’s products are manufactured in Kate Spade products, which were manufactured primarily in Vietnam, Cambodia, mainland China, and the Philippines, while Stuart Weitzman’s shoes are made in Spain.
Just Style reported in November that U.S. apparel tariffs from China were 14.7%. With the additional 10.0% added by the U.S. government, Chinese imports will be nearly 25% higher, so a $20 product to import will now cost $25, and so on.
The import tariffs are estimated to cost the U.S. economy as much as $18 billion for apparel and $8 billion for footwear.
While Tapestry will undoubtedly move some or all of its manufacturing from China to countries with less onerous tariffs, the Trump administration cannot guarantee that it won’t pursue other Asian countries that utilize low-cost manufacturing to avoid making the products in America.
Through Q2 2025, Tapestry’s revenues from China and other Asian countries were $527.2 million, accounting for 24% of its $2.20 billion in overall revenue. Since fiscal 2018 (June year-end), the company’s best year for Asian revenue was 2019, which generated $912.9 million in China and $1.02 billion in the rest of Asia. Together, they accounted for 32% of the company's overall revenue, 33% higher than today.
If China and other Asian countries decide to retaliate significantly, Tapestry’s revenue generation there will worsen. Moreover, the higher costs of its products sold elsewhere will hurt profits.
In fiscal 2019, net income was $643.4 million, or a 10.7% net margin. Today, its net margin is upwards of 13%. A trade war is bound to bring these margins down in fiscal 2025 and beyond.
Profitable growth isn’t a certainty.
Why It Will Weather the Storm?
On Feb. 19, the company announced it would sell Stuart Weitzman to Caleres (CAL), an owner of footwear brands, for $105 million. The shoe brand accounts for just 3% of sales, so that it won’t be material to the business. However, it paid $574 million for the brand a decade ago, so it’s been a colossal failure regarding operational execution and shareholder value destruction. Shareholders will not miss it.
Given the size of the business, addition by subtraction made sense in this instance. The company will have its hands full, trying to optimize its supply chain to maximize profitability without sacrificing revenue growth.
There’s no question that the Coach brand is driving growth at this point. In Q2 2025, the brand’s sales were 10% higher, accounting for 78% of its overall revenue. For all of 2025, management expects revenue of $6.85 billion, 3% higher than 2024, with earnings per share between $4.85 and $4.90, translating into 13-14% growth year over year.
Analysts don’t seem worried about the effect of tariffs on the business. Of the 24 analysts covering TPR stock, 15 rate it a Buy (63%), with only one Sell. The stock has a 12-month target price of $95, 15% higher than where it currently trades.
It boosted its margins in the first two quarters of 2025. While I think the tariff issues will be a bigger deal than analysts are letting on, the company’s guidance suggests it can overcome them with smart supply chain management.
The bigger problem if you haven’t already bought TPR stock is valuation. It trades at 16.8x its 2025 EPS estimate. That’s not a nosebleed valuation for a tech stock. However, according to S&P Global Market Intelligence, its forward EPS multiple at the end of 2023 was 7.43x, less than half what it is today.
Suppose the markets retreat due to the tariffs affecting the American consumer’s discretionary spending. In that case, you’ll definitely be able to buy Tapestry stock at a more reasonable valuation than its current one.
I like it, but I’d probably explore options to find a better entry point. Here’s one possibility.
Out of the money by 15%, if you sell the $70 put expiring in 80 days, the annualized yield is 8.2%. It’s decent, if not spectacular, but it allows you to earn some income while chasing a better entry point. Just remember that you should have the cash in your options account should you have to buy the 100 shares at $70 at expiration.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
