Tapestry, Inc. (TPR) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals a positive sentiment with strong financial performance, customer acquisition, and strategic brand development. Despite tariff challenges, management is confident in their mitigation strategies and operating margin expansion. Positive guidance on EPS and share repurchase plans further enhance investor sentiment. However, the lack of detailed plans for tariff impact mitigation and reliance on general confidence could temper enthusiasm slightly. Overall, the combination of strong growth, optimistic guidance, and shareholder returns suggest a likely positive stock price reaction.
Key Financial Performance
Revenue Tapestry delivered $7 billion in revenue for fiscal 2025, representing a 5% year-over-year growth. Coach, a key brand, achieved a 10% increase in revenue, with notable growth in North America (16%), China (22%), and Europe (12%). The growth was driven by strong customer acquisition, particularly among Gen Z and millennials, and increased sales in leather goods and footwear.
Operating Margin The operating margin for fiscal 2025 was 20%, showing improvement due to operational efficiencies and increased average unit retail (AUR). AUR growth contributed to approximately two-thirds of the margin improvement, while the rest came from cost reductions.
Earnings Per Share (EPS) Adjusted EPS for fiscal 2025 was $5.10, reflecting a 19% year-over-year increase. This growth was attributed to revenue growth, gross margin expansion, and disciplined expense management.
Gross Margin The gross margin for the fourth quarter was 76.3%, an increase of 140 basis points year-over-year. This improvement was driven by AUR growth and operational efficiencies.
Customer Acquisition Tapestry acquired over 6.8 million new customers in North America during fiscal 2025, with Coach alone adding 4.6 million new customers. Approximately 70% of these new customers were Gen Z and millennials, who demonstrated higher retention rates and higher AUR.
Kate Spade Revenue Kate Spade's revenue decreased by 13% in the fourth quarter of fiscal 2025. The decline was attributed to the brand's ongoing reset and strategic reinvestments in marketing and product innovation.
Free Cash Flow Adjusted free cash flow for fiscal 2025 was $1.35 billion, supported by strong operational performance and disciplined capital allocation.
Inventory Levels Inventory levels at the end of fiscal 2025 were 4% higher than the previous year, excluding $92 million of Stuart Weitzman inventory. This increase was due to strategic pull-forward of receipts in response to trade dynamics.
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Operating Highlights
Coach's product innovation: Coach introduced new styles within the New York family, expanded the Brooklyn and Empire collections, and grew the Coach Originals collection with a Large Kisslock bag priced at $695, which sold out quickly.
Handbag and accessories growth: Coach achieved mid-teens handbag AUR growth globally, with strong performance in North America. The Tabby family and New York family were key drivers.
Footwear business: Coach's sneakers, particularly the High Line and Soho families, grew mid-single digits, appealing to Gen Z consumers.
Global growth: Tapestry achieved $7 billion in revenue, with strong performance in North America, China, and Europe. Coach's revenue grew 10%, with double-digit growth in these regions.
Customer acquisition: Coach acquired over 4.6 million new customers in North America, with 70% being Gen Z and millennials.
Omnichannel experiences: Tapestry enhanced direct-to-consumer growth through digital and brick-and-mortar channels, leveraging a modern technology platform.
Gross margin improvement: Achieved a record gross margin of 76.3% in Q4, driven by operational efficiencies and AUR growth.
Kate Spade turnaround: Focused on resetting the brand for durable growth by simplifying handbag offerings, reducing styles by 30%, and targeting Gen Z with campaigns featuring Ice Spice and Charli D'Amelio.
Stuart Weitzman sale: Completed the sale of Stuart Weitzman to Caleres, aligning with portfolio management strategy.
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Risk or Challenges
Macroeconomic Uncertainty: The company acknowledges operating in a rapidly evolving and uncertain macroeconomic landscape, which could impact consumer spending and overall business performance.
Tariff and Duty Impacts: The company faces significant profit headwinds from tariffs and duties, with an expected $160 million impact on profitability in fiscal year 2026. This represents a 230 basis point margin headwind.
Kate Spade Turnaround Challenges: Kate Spade is undergoing a brand reset, which is expected to pressure revenue and profitability in fiscal year 2026. The brand also faces outsized impacts from tariffs and duties, as the majority of its business is in the U.S.
Consumer Behavior in Japan: Sales in Japan declined by 11% due to a challenging consumer backdrop, which could continue to affect performance in this region.
Inventory Management: The company has strategically pulled forward inventory receipts due to trade landscape uncertainties, which could lead to potential overstock or inefficiencies.
Regulatory and Policy Changes: The earlier-than-expected ending of de minimis exemptions has added to tariff-related challenges, increasing operational complexity and costs.
Brand Investment Risks: Increased marketing expenses and investments in brand-building, particularly for Kate Spade, may not yield immediate returns, adding pressure to short-term financial performance.
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Guidance & Outlook
Revenue Growth: Tapestry expects revenue to approach $7.2 billion in fiscal 2026, representing mid-single-digit growth on both a nominal and constant currency basis. By region, North America is expected to grow mid-single digits, Europe by approximately 20%, Greater China by high single digits, Japan to decline by high single digits, and other Asia to grow by high single digits.
Brand-Specific Projections: Coach is expected to achieve high single-digit growth at constant currency, while Kate Spade is projected to see a high single-digit revenue decline with sequential improvement in the second half of the year.
Operating Margin: Operating margins are expected to expand, with gross margin anticipated to decline by 70 basis points due to a 230 basis point headwind from tariffs and duties. Operational gross margin is expected to expand by 120 basis points, offset by FX headwinds and tariff impacts.
Earnings Per Share (EPS): EPS is projected to be between $5.30 and $5.45, representing 4% to 7% growth compared to last year, despite over $0.60 of tariff and duty headwinds.
Capital Allocation: Tapestry plans to return over $1 billion to shareholders in fiscal 2026, including $800 million in share repurchases and a 14% increase in the quarterly dividend to an annual rate of $1.60 per share.
Free Cash Flow and CapEx: Adjusted free cash flow is expected to approach $1.3 billion, with CapEx and cloud computing costs projected at $200 million, primarily for store openings, renovations, and IT/digital investments.
Tariff and Duty Mitigation: The company is addressing $160 million in tariff and duty headwinds through supply chain optimization and efficiency improvements, with a goal to mitigate 30% of the annualized run rate of $235 million.
First Quarter Projections: For Q1 fiscal 2026, revenue is expected to grow by low double digits, with gross margins increasing by approximately 100 basis points and EPS forecasted to grow by more than 20% to approximately $1.25.
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Shareholder Return Plan
Dividend Payments: In fiscal '25, Tapestry returned $300 million to shareholders through dividend payments.
Dividend Increase: The Board authorized a 14% quarterly dividend increase for fiscal '26, with an anticipated annual rate of $1.60 per share.
Share Repurchase Program: Tapestry executed a $2 billion accelerated share repurchase program in fiscal '25, with an average purchase price of about $78 per share.
Future Share Repurchase Plans: The company plans to repurchase $800 million in shares during fiscal '26.
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Key Q&A
Q:Can you help us unpack your outlook for fiscal '26 and what you're seeing in the business right now? Specifically, can you talk about the strength at Coach and your strategies to mitigate the impacts of tariffs over time?
A:Joanne highlighted the strong performance in fiscal '25, with mid-single-digit growth and earnings per share above $5. For fiscal '26, they expect mid-single-digit top-line growth and mid- to high-single-digit earnings growth, inclusive of tariffs. Todd added that Coach saw 13% growth in Q4, with strong traction among younger consumers, and highlighted the success of specific products like the Kisslock bag. They are confident in mitigating tariffs over time.
Q:Can you help us with the data or the new customer growth, anything you look at that gives you confidence in an ability to kind of lap the robust comps that really began during last holiday?
A:Joanne emphasized the focus on acquiring new customers, particularly younger ones, and noted higher retention rates among these cohorts. Todd added that younger customers are returning more frequently, and their sales team is effective in driving repeat purchases. This strategy is expected to sustain growth.
Q:I just wanted to ask about tariffs. So I think 3 months ago, you gave some confidence in maintaining margin when you had about $90 million of headwind. Now it sounds like you've got more like $160 million with the new tariffs, but you're also kind of not guiding to mitigate any of that in your guide. Is that highly conservative?
A:Scott explained that $0.60 of the impact on guidance is due to tariffs, with 2/3 of that being recent changes. Despite this, operating margins are expected to expand. He expressed confidence in their ability to adapt and mitigate these impacts over time.
Q:At the Coach brand and the continued strength of the business, how best to think about the inflection in units that you're seeing despite the impact of lower promotions? And maybe how do you see the go-forward interplay between AUR and units as both contributors to the revenue build?
A:Joanne and Todd explained that Coach has reached a tipping point with high AUR and reduced promotional activity. Growth is expected to come from both AUR and units, with plans to expand physical stores to cater to younger consumers who prefer in-person shopping.
Q:Could you give any elaboration on the phasing of gross margin for fiscal '26 or just any front half versus back half assumptions to consider?
A:Scott noted that gross margins will be stronger in the first half due to inventory brought in ahead of tariffs, with some impact from higher tariff goods in the second half. Mitigation plans are underway, with more effects expected in fiscal '27 and '28.
Q:Can you talk about structurally what is different today and what enables Coach to continue to kind of expand on both gross margins and operating margins?
A:Todd highlighted the shift to a more direct-to-consumer model, geographic diversification, and data-driven strategies. He also mentioned ongoing innovation in product offerings and the blending of magic and logic in their approach.
Q:Can you talk about pricing as a mechanism to mitigate the tariffs? Is there a plan for the fall season or spring of next year?
A:Todd stated that pricing decisions are data-driven and informed by geography, channel, and product mix. They plan to continue leveraging these factors to grow AUR and mitigate tariff impacts.
Q:On the $800 million that you're now targeting for share repurchase activity, should we assume or think about that as the sort of new repo run rate?
A:Scott clarified that $800 million is the target for this year, emphasizing their strong cash flow and shareholder-friendly capital allocation. He hinted at more details to come during their Investor Day.
Q:I was hoping to ask for more details on the drivers of the 160 basis points of operating SG&A leverage this year and then your thoughts on the longer-term opportunities to maintain that leverage or if the store rollout might offset some of this in the out years?
A:Scott explained that SG&A leverage was driven by increased productivity in their fleet, higher full-price sales, and disciplined investment in areas like customer data and AI. He noted that store rollouts could offset some leverage in the future.
Q:Could you just unpack the commentary on de minimis and how does that change? Maybe how much of the 230 basis point is from de minimis?
A:Scott explained that de minimis allowed duty-free e-commerce shipments into the U.S., but recent changes have removed this benefit, contributing to 1/3 of the $0.60 tariff impact. He assured that their agile supply chain can adapt without significant disruption.
Q:What does your guidance assume in terms of the magnitude of price increases at the Coach brand?
A:Todd stated that AUR growth is projected to be mid- to high-single digits throughout the year, supported by a mix of full-price product introductions and strategic pricing decisions.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the long-term impact of tariffs and the specific measures to fully mitigate them. Their responses often relied on general confidence in their strategies and adaptability without providing detailed plans or timelines.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AUR assortment
AUR margin
AUR retention
Adrienne Eugenia
America China
America activity
America cohort
America handbag
Bag charm
Bank PLC
Barclays Bank
Bernard
Brand President
CEO Brand
Caleres
China Europe
Crevoiserat
Inc Research
Investor Day
President Coach
Research Division
Scott
Soho sneaker
action brand
approach
backdrop
brand relevance
consumer insight
consumer sneaker
desire Coach
foundation
gain AUR
insight consumer
spring
success brand
target
turnaround
unit
TPR Transcript
Tapestry, Inc. (TPR) Q3 2026 Earnings Call Transcript
Positive5-7
The earnings call presents a positive outlook with strong financial metrics, despite Kate Spade's decline. Operating margin and EPS growth are robust, and Coach's growth and innovation strategies are promising. The Q&A section highlights management's confidence in sustainable growth and effective strategies for customer acquisition and retention. Positive factors like increased shareholder returns and a focus on marketing investments further support a positive sentiment. However, lack of specific market cap data limits precise prediction, but overall, the stock is likely to see a positive movement of 2% to 8%.
Tapestry, Inc. (TPR) Q2 2026 Earnings Call Transcript
Positive2-5
The earnings call summary highlights strong financial performance, with significant revenue growth in key regions and brand momentum. The Q&A section reveals management's confidence in sustaining growth through strategic initiatives like AI implementation and customer acquisition. Despite some unclear responses, the overall sentiment is positive, supported by increased shareholder returns and operational discipline. The positive guidance and strong regional performance suggest a favorable stock price movement in the short term.
Tapestry, Inc. (TPR) Q1 2026 Earnings Call Transcript
Positive11-6
The earnings call reflects a positive outlook with strong financial metrics, optimistic guidance, and strategic growth plans. Revenue and EPS are projected to grow, operating margins are expected to expand, and there is a significant shareholder return plan. The Q&A section reinforces confidence in sustained growth, especially for Coach, despite some uncertainties in market penetration and discounting impacts. Overall, the positive elements outweigh the concerns, suggesting a positive stock price movement.
Tapestry, Inc. (TPR) Q4 2025 Earnings Call Transcript
Positive8-14
The earnings call reveals a positive sentiment with strong financial performance, customer acquisition, and strategic brand development. Despite tariff challenges, management is confident in their mitigation strategies and operating margin expansion. Positive guidance on EPS and share repurchase plans further enhance investor sentiment. However, the lack of detailed plans for tariff impact mitigation and reliance on general confidence could temper enthusiasm slightly. Overall, the combination of strong growth, optimistic guidance, and shareholder returns suggest a likely positive stock price reaction.
TPR Slides
Tapestry Q2 2026 slides: Coach powers 18% revenue growth, outlook raised2026-02-05
Tapestry Q1 FY26 slides: Record revenue and raised outlook, stock falls despite results2025-11-06
Tapestry FY25 slides: Record results amid Coach strength, Kate Spade challenges2025-08-14
Tapestry Q3 FY25 slides: Coach drives 8% revenue growth, guidance raised2025-05-08
TPR Report
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