What happened

Shares of Tapestry (NYSE:TPR) gained 33.3% in value last month, according to data provided by S&P Global Market Intelligence

The owner of top luxury brands, including Kate Spade and Coach, reported better-than-expected earnings results last month. Investors are looking ahead to a rosy future for the luxury-goods market, as near-term prospects for an improving economy is certainly good news for consumer discretionary companies.

A luxury handbag in pale green leather.

Image source: Getty Images.

So what

Tapestry's total sales dropped 18% in fiscal 2020 ending last June, with the pandemic pressuring consumer demand for non-essential items. The previous fiscal year was made worse by a large net loss on the bottom line of $652 million. That's down from the previous year's $643 million net profit, or $2.21 per share. 

However, the stock fell to bargain territory during the pandemic, with the share price trading at a relatively low price-to-sales ratio of less than 1. With Tapestry's sequential improvement in sales in the last quarter, investors smell a bargain. In the December-ending quarter, sales improved to $1.68 billion from $1.17 billion in the fiscal first quarter. 

Most importantly, Tapestry's efforts to reduce promotional sales activity and drive higher average selling prices, along with disciplined expense control, has significantly improved profitability. Through the first six months of fiscal 2021, Tapestry's earnings per share improved by 72% to $1.94, almost back to fiscal 2019 levels. 

These positive trends explain why the stock has rebounded more than 200% over the last six months. 

Now what

Tapestry is well-positioned for even better operating performance once the economy fully recovers. Digital sales growth hit triple-digit rates during the holiday quarter, reaching approximately one third of total sales. Moreover, Tapestry's growing online business is being driven by an increasing number of millennials and Gen Z customers, which is a very encouraging sign for Tapestry's long-term prospects. 

Management isn't giving detailed guidance for fiscal 2021 but expects revenue to improve at a high-single-digit rate on a 52-week basis and a 10% rate on a 53-week basis this fiscal year. 

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