Tapestry Inc (NYSE:TPR) stock fell 6.21% (As on June 16, 11:31:34 AM UTC-4, Source: Google Finance) though the company upgraded to buy at Jefferies analyst Ashley Helgans with a price target of $45 a share that represents a 40% upside from here. Previously, she had a PT of $30 on the stock. The investment firm said Tapestry’s improvement in its digital business and opportunities in China provide upside for the stock. As per the analyst, We’re shifting to a more constructive view on improved margin and sales growth outlook driven by the foundational changes made to the business over the last few years, namely digital, marketing, and data. The Jefferies analyst also expects the luxury fashion holding company to benefit (both in near and the long term) as China comes out of the lockdown. Upside opportunity is compelling at <8x FY2 P/E, in line with ’08 levels. She’s convinced Tapestry can weather a recession as well. “The shift to high-margin channels (e.g. digital to 1/3, only 10% wholesale), increases in global AURs, and lower promos are helping margins expand +250bps in FY22E vs. FY19, while sales are +11%,” the analyst wrote. The bullish note comes in the face of an unexpected 0.3% decline in retail sales the U.S. Commerce Department reported for May on Wednesday.

In the third quarter, Tapestry continued to make meaningful progress under its Acceleration Program by sharpening the Company’s focus on the consumer, leveraging data to lead with a digital-first mindset and transforming into a leaner and more responsive organization. The company remains on track to realize gross run-rate savings of $300 million in FY22, which is funding investments in brand-building activities. Net sales totaled $1.44 billion for the third quarter compared to $1.27 billion in the prior year, representing a 13% increase. Gross profit totaled $1.01 billion on both a reported and non-GAAP basis, while gross margin was 69.9%. On a non-GAAP basis, operating income was $176 million, while operating margin was 12.2%. This compared to operating income of $183 million and an operating margin of 14.4% in the prior year. At quarter-end, cash, cash equivalents and short-term investments totaled $1.07 billion and total borrowings outstanding were $1.59 billion. Inventory at quarter-end was $913 million versus ending inventory of $700 million a year ago. The increase in inventory versus prior year was driven by a higher level of in-transits. Free cash flow year-to-date was an inflow of $541 million compared to an inflow of $876 million in the prior year.