Loop Initiates Apparel Names, Says Tapestry Has ‘Exciting’ Catalysts Ahead

Loop Capital has released several initiation reports on some of the most notable retail names. 

Champine Bullish On Tapestry

Analyst Laura Champine initiated coverage on Tapestry Inc (NYSE: TP) with a Buy rating and $57 price target.

The newly named Tapestry is uniquely positioned to make the most of the Kate Spade acquisition, and Champine said she believes Coach’s sourcing supply chain is the best in its class. Some investors may fail to fully recognize the sales and cost synergies to come, the analyst said.

“Combining its scale with Kate can only strengthen Tapestry’s overall competitive advantage,” Champine said. 

Coach  underwent a three-year process of cutting excessive online promotion, pulling out of poorly performing distribution channels and reducing the length of its promotional events, Champine said. While these moves sacrificed short-term margins, the analyst said these actions protected the company’s long-term growth.

Burlington Stores Heading In The Right Direction

Champine initiated coverage of Burlington Stores Inc (NYSE: BURL) with a Buy and $150 price target.

“We expect Burlington’s momentum to continue as the off-price sector gains more share from department stores and some specialty retailers. BURL’s continued inventory reductions should bolster sales (excluding pack-away) and margins as clearance lessens,” the analyst said. 

An expanded and improved assortment of women’s fashion and home products could drive same-store sales upside, two areas the company’s off-price peers specialize n — and one in which Burlington is underindexed, she said. 

Burlington is in the midst of continuing to grow its use of pack-away inventory, and in-store inventory is improving to the benefit of gross margins through fewer markdowns and less in-store clearance, according to Loop. 

Urban Outfitters Moves Past Fashion Missteps

Champine also initiated coverage on Urban Outfitters, Inc. (NASDAQ: URBN) with a Buy rating and $46 price target.

Following a fourth-quarter earnings beat earlier in the week that saw comps rise 4 percent, Champine said fashion at the company’s core brands, particularly Urban Outfitters, is much improved from a year ago.

Loop expects a rebound in sales and earnings led by improvement in Urban Outfitters brand, and expects the company to post 4-percent same-store sales growth in fiscal 2019. 

“Tax reform is a driver , but stripping out tax reform,EPS would still grow 27 percent based on our estimates. Comparisons are especially easy in [the first half of] 2019, as the company will lap the worst of last year’s merchandising errors in the UO brand,” Champine said. 

The analyst landed several blows to merchandising decisions at Urban Outfitters’ core brands last year, saying last spring’s women’s apparel at Urban Outfitters was “sporty and masculine to a fault” and calling Anthropologie’s last spring apparel line “mom clown” gear.

Urban Outfitters’ merchandising choices for the upcoming year indicate real improvement, the analyst said. 

Victoria’s Secret Still Headed In The Wrong Direction

Loop Capital initiated coverage on L Brands Inc (NYSE: LB) with a Hold rating and $45 price target.

“We remain concerned that Victoria’s Secret’s size and price range are uncompetitive, and BBW seems to have posted its peak EBIT margin in 2015. We think it makes sense to remain on the sidelines on shares of LB until the VS segment shows real improvement,” Champine said.

Victoria’s Secret is still headed in the wrong direction, and management’s fiscal 2018 guidance indicates that the worst is still yet to come, the analyst said. 

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