While most luxury retail brands are suffering, thanks to consumer reluctance to spend, Tapestry (NYSE: TPR), led by its Coach division, is thriving.
Coach, which specializes in handbags, luggage and accessories, accounts for 80% of the company’s revenue. And laggard Kate Spade, which also focuses on handbags and accessories, accounts for 17% of revenue.
Coach has attracted Generation Z (born 1997-2012) and millennials (born 1981-1996) with marketing campaigns focused on emotional connection, inclusive brand messaging, authentic celebrity partnerships, and social impact initiatives.
Over the past 10 years, Tapestry has turned 84-year-old Coach around through store closures, discounting restrictions, and increased online capabilities. A hefty 87% of Coach’s 2025 fiscal sales were direct to consumer through Tapestry-owned stores and the Internet. “So the company has strong control over pricing, inventory, and marketing,” notes Morningstar analyst David Swartz.
Tapestry has just implemented its “Amplify” growth strategy, which revolves around four goals: customer growth, with a focus on Gen Z; fashion innovation and expansion into footwear; continued growth in North America; accelerating sales increases in overseas markets, such as China and Europe; and maintaining a “consumer-obsessed” company culture.
Stock price to the moon
Tapestry is clearly doing something right. Its stock has skyrocketed 87% over the past 12 months, 184% over the past three years and 373% over the last five years. Tapestry has crushed the S&P 500, which has climbed 11%, 64% and 102% during those periods, historically strong numbers. The company has a market capitalization of $22 billion.
It helps that Tapestry’s wheelhouse is affordable luxury, compared to the stratospheric prices of LVMH (CBOE: MC), Hermes (CBOE: RMS) and Chanel.
Not surprisingly, Tapestry has posted banner earnings in the past few years. In the first quarter of fiscal 2026 ended Sept. 27, revenue jumped 13% year-over-year to $1.7 billion. Coach led the way with 22% sales growth. Kate Spade sales slid 8%.
The latter has suffered from a hazy brand identity, over-reliance on outlet sales that detracted from it luxury image, and an inability to connect with younger consumers like Coach has.
Tapestry is reducing the unit’s handbag styles and limiting discounts to lift prices. “Through these efforts, we forecast operating margin improvement to 12.5% in fiscal 2027 from low single digits at present,” wrote Morningstar’s David Swartz.
Strong profit margins
Getting back to the entire company, it registered a gross profit margin of 76.3% in the latest quarter, up 100 basis points from a year earlier. The operating profit margin totaled 19.3%, up 2.6 percentage points. This came despite the negative impact of tariff, which took 70 basis points off the adjusted gross margin.
In August, Tapestry sold the shoe brand Stuart Weitzman, which made up 3% of fiscal 2025 sales, to Caleres (NYSE: CAL) for $105 million. Analysts lauded the move, seeing the brand as a poor fit with Coach and Kate Spade.
Tapestry lifted its spending on marketing to 11% of sales in the latest quarter from just 4% seven years ago. That compares to current rates of 5%-10% for other luxury brands. “Given Coach’s stellar sales growth, we think this spending has a high return on investment and bolsters brand value,” Swartz said.
In its first-quarter fiscal 2026 earnings report, Tapestry lifted full-year 2026 estimates for revenue growth (4% to 5%) and earnings per share growth (7% to 10%). It also foresees an operating margin expansion of 50 basis points, weighed down 230 points by tariffs.
Swartz thinks Tapestry can compensate for the tariff impact through supply-chain efficiencies and price increases, taking advantage of Coach’s demonstrated pricing power.
So it looks like Coach will keep flashing the leather, as they say in American baseball. But remember Quantfury’s usual warning: trade with caution. Nothing is guaranteed in financial markets.
Comments