Tapestry outlines $7.2B revenue target for fiscal 2026 amid Coach brand acceleration and tariff headwinds

Earnings Call Insights: Tapestry, Inc. (TPR) Q4 2025

MANAGEMENT VIEW

* CEO Joanne Crevoiserat described fiscal 2025 as "truly a breakout year for Tapestry," highlighting $7 billion in revenue, operating margin of 20%, and $5.10 in adjusted EPS. She emphasized, "we also achieved key targets we set at our Investor Day 3 years ago, namely to achieve over $5 in earnings, return more than $3 billion cumulatively to shareholders and drive best-in-class total returns."
* Crevoiserat pointed to accelerated gains in North America, China, and Europe, noting the acquisition of over 6.8 million new customers in North America, especially within Gen Z and millennial cohorts. She stated, "Coach is redefining what's possible when you blend consumer obsession with disciplined brand building and creativity."
* Coach posted a 10% revenue increase for the year, with Q4 constant currency top-line gains of 13% and double-digit growth in North America (16%), China (22%), and Europe (12%). The CEO highlighted the success of product innovations such as the Tabby and New York families, as well as the sell-out performance of the Coach Originals Large Kisslock bag.
* For Kate Spade, Crevoiserat acknowledged revenue declined 13% in Q4 but emphasized ongoing investments to reset the brand, with strategic focus on Gen Z marketing and product assortment simplification.
* The CEO confirmed the completion of the Stuart Weitzman sale to Caleres, aligning with portfolio management and capital allocation discipline.
* CFO Scott Roe stated, "looking back at our results for the fiscal year, we exceeded our outlook... we delivered revenue growth of 5% with 10% growth at Coach. We increased gross margins by 210 basis points, and we grew earnings per share by 19% versus last year while accelerating investments into our brands."

OUTLOOK

* Roe provided guidance for fiscal 2026, stating, "we expect revenue to approach $7.2 billion. This represents pro forma revenue to grow at a mid-single-digit rate on both a nominal and constant currency basis."
* By region, the company expects North America revenue to increase mid-single digits, Europe to grow around 20%, Greater China to achieve high single-digit growth, Japan to decline high single digits, and other Asia to gain high single digits.
* Coach is expected to deliver high single-digit revenue growth at constant currency, while Kate Spade is forecast to decline by high single digits with sequential improvement in the second half.
* Roe noted, "we anticipate gross margin to decline in the area of 70 basis points," offset by operational gross margin improvement and a 230 basis point headwind from tariffs and duties, equating to a $160 million impact.
* Full-year EPS guidance was set at $5.30 to $5.45, representing 4% to 7% growth, including over $0.60 of tariff and duty headwinds.

FINANCIAL RESULTS

* Fourth quarter sales increased 8% compared to prior year, with North America sales up 8%, led by 16% growth at Coach. Europe revenue grew 10%, and Greater China revenue rose 18%.
* Direct-to-consumer business grew 6%, with digital revenue up mid-teens percentage and brick-and-mortar sales rising low single digits.
* Gross margin reached a record 76.3%, up 140 basis points year over year. SG&A expenses rose 10%, primarily due to increased marketing, which accounted for 13% of sales. Operating margin increased 30 basis points.
* Q4 EPS was $1.04, up 12% year over year.
* In fiscal 2025, $2.3 billion was returned to shareholders, including $2 billion via accelerated share repurchase and $300 million in dividends. The Board authorized a 14% quarterly dividend increase for fiscal 2026.
* Year-end cash and investments were $1.1 billion, with net debt at $1.3 billion. Adjusted free cash flow for the year was $1.35 billion.
* A noncash impairment charge of over $850 million was recorded related to Kate Spade, reflecting business trends, tariff impacts, and incremental investments.

Q&A

* Brooke Roach, Goldman Sachs, asked for context on the fiscal 2026 outlook and tariff mitigation. Crevoiserat responded, "our guidance calls for mid-single-digit top line growth and mid- to high single-digit earnings growth, inclusive of tariffs," and expressed confidence in offsetting tariff impacts over time. Todd Kahn, Coach CEO, detailed momentum from product innovation and Gen Z traction, citing "81,000 customers in the United States who have registered to be notified" for the next Kisslock bag drop.
* Irwin Boruchow, Wells Fargo, inquired about new customer growth and tariffs. Crevoiserat emphasized customer acquisition and retention as "fuel for our future growth," while Roe stated, "our operating margins are guided to expand even with the $0.60" tariff impact and underscored ongoing mitigation efforts.
* Matthew Boss, JPMorgan, probed AUR and unit growth. Kahn said, "our guidance for the year has most of our growth coming through AUR growth. We believe units will continue to grow as well."
* Adrienne Yih, Barclays, asked about structural differences enabling margin expansion, and Kahn outlined the shift to a direct-to-consumer model, geographic diversity, and data-driven pricing.
* Lorraine Hutchinson, Bank of America, questioned SG&A leverage, and Roe explained, "we are increasing our investment in MAP spending or marketing... and even with that, we're finding leverage across the SG&A line."
* Michael Binetti, Evercore, asked about the impact of de minimis exemption removal. Roe clarified, "that was about 1/3 of the $0.60" EPS impact and described the company's agile supply chain response.
* Tracy Kogan, Citigroup, asked about Q1 regional acceleration and AUR growth. Kahn projected mid- to high single-digit AUR growth for Coach in the year.

SENTIMENT ANALYSIS

* Analysts' questions were probing yet constructive, with recurring focus on tariff impacts, customer acquisition, and margin sustainability. The tone was neutral to slightly positive, seeking clarity on risk mitigation and growth drivers.
* Management maintained a confident and optimistic tone throughout, frequently referencing proven strategies and "momentum" while acknowledging headwinds. Prepared remarks were assertive, while Q&A responses balanced confidence with specific mitigation plans for tariffs.
* Compared to the previous quarter, analyst skepticism regarding tariffs was more pronounced, but management's confidence and detail in mitigation were more explicit.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter's guidance included more explicit discussion of tariff headwinds, with a $160 million impact and a 230 basis point margin headwind, versus the previous quarter's minimal expected impact.
* Management's tone shifted from raising outlooks in Q3 to a more cautious but confident approach for fiscal 2026, citing external complexities and prudent guidance.
* Analysts in both quarters focused on customer acquisition, Coach's brand momentum, and margin durability, but the Q4 call saw deeper inquiry into tariff mitigation and operational agility.
* Key metrics such as EPS, revenue, and gross margin continued to improve quarter over quarter, but with heightened attention on headwinds and their mitigation.
* Strategic focus moved from broad-based growth to detailed execution, especially regarding tariffs and capital allocation.

RISKS AND CONCERNS

* Management highlighted "greater than previously expected profit headwinds from tariffs and duties," particularly from the early end of de minimis exemptions, with a $160 million expected impact for fiscal 2026.
* Roe discussed mitigation strategies: "we're leveraging our agile supply chain to optimize our global manufacturing footprint, minimizing our tariff exposure where possible."
* A noncash impairment charge of over $850 million was recorded for Kate Spade, attributed to "current business trends, the outsized impact of tariffs... and incremental investments."
* Analysts raised concerns about the pace and effectiveness of tariff mitigation, the durability of Coach's momentum, and SG&A leverage sustainability.

FINAL TAKEAWAY

Tapestry closed fiscal 2025 with record results, marked by robust growth at Coach, significant new customer acquisition, and strong operating margins. Looking ahead to fiscal 2026, management projects continued mid-single-digit revenue growth to nearly $7.2 billion, high single-digit gains at Coach, and sequential improvement at Kate Spade, while preparing for substantial tariff headwinds. The company remains focused on leveraging its direct-to-consumer strengths, supply chain agility, and disciplined capital allocation to drive durable growth and shareholder value, supported by confidence in brand heat, innovation, and ongoing investment in customer relationships.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/tpr/earnings/transcripts]

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