In 2016, I invested in Tapestry (TPR), betting on Coach as an undervalued brand poised for a turnaround. It was one of the first stocks I bought as a new investor. My thesis was straightforward: the stock could reclaim its March 2012 peak of $79.70. Nearly a decade later, my prediction proved correct, though the road was far from smooth.

Tapestry faced significant challenges, including the 2019 ousting of its CEO, the 2020 resignation of another due to ‘personal misconduct,’ and a 2024 court ruling blocking its merger with Capri Holdings. Yet, TPR has outperformed the likes of LVMH, Lululemon (LULU), Capri Holdings (CPRI), and Nike (NKE) over the past five years—the very stocks I eyed when TPR struggled. Those same peers now sit well below their prior peaks.

I acknowledge luck played a role. Had the Capri merger proceeded, TPR would likely be trading in the $50–$70 range today, far below its current levels. Now, with TPR soaring past its 2012 high, I’ve shifted my strategy and trimmed my position to lock in long-term gains. If the stock continues to climb, I’ll likely reduce my holdings further.

My original thesis—that Coach was trading at a bargain—no longer holds. In a tough luxury market, Coach has unexpectedly gained pricing power for a mid-tier brand, fueled by a reshaped brand narrative and the TikTok-driven success of its Tabby Bag. However, Kate Spade, accounting for about 15% of revenue, remains a weak link due to inconsistent branding and declining sales, tempering my optimism.

Management deserves credit for Coach’s turnaround, but I remain cautious. Tapestry’s cyclical nature ties its success directly to consumer spending and economic conditions. A weakening economy would likely pressure sales.

Tapestry’s acquisition strategy is my primary concern. Selling the unprofitable Stuart Weitzman brand was a smart move, but the pursuit of the Capri merger suggests management may doubt Coach’s standalone growth potential. Given the lackluster outcomes of the Stuart Weitzman and Kate Spade acquisitions, future M&A activity could increase debt and strain cash flow.

My suggestion? If Tapestry is set on acquisitions, it should issue new shares to fund a targeted purchase, such as a niche luxury brand with strong growth potential. This approach would preserve cash and avoid debt, though it risks diluting existing shareholders. It could create more long-term value than increasing the dividend or buying back stock to where it’s trading currently—an action that offers limited upside if the stock corrects.

While I’ve enjoyed reinvesting dividends during the stock’s recent climb, weaker economic indicators, like declining retail sales, suggest uncertainty ahead. Most companies in the consumer cyclical sector face headwinds from slowing spending, and TPR is no exception.

That said, TPR isn’t wildly overvalued. With an upcoming earnings report and Investor Day looming in September, short-term upside potential remains. I’m cautiously optimistic and will monitor these events. My goal is to sell more shares at a higher price before the end of the year.