Tapestry lifts outlook as Coach momentum offsets Kate Spade weakness

A stronger Coach performance has given Tapestry, Inc. (NYSE:TPR) enough confidence to raise its fiscal 2027 outlook, despite a sharp decline at Kate Spade. Revenue reached US$1.894 billion in the first quarter, up 11% on a reported basis and 12% pro forma after excluding the divested Stuart Weitzman business from the prior-year comparison.

Coach drives growth while Kate Spade retreats

Coach supplied most of the momentum, with revenue increasing 16% to US$1.661 billion. The company said handbag average unit retail prices rose at a low-double-digit percentage rate while units increased by a low-single-digit rate, pointing to growth in both pricing and volume within its core leathergoods category.

Kate Spade moved in the opposite direction. Revenue fell 10% to US$233 million, including an 8% decline in international directly operated stores. By region, Greater China was the standout, with pro forma constant-currency revenue up 39%, while Europe rose 22% and North America increased 4%. Japan was weaker, down 5% on a reported basis, although up 4% in constant currency.

Margins and earnings beat the first-quarter plan

GAAP gross margin expanded 230 basis points to 78.6%, while operating margin rose 310 basis points to 22.4%. GAAP operating income increased 29% to US$424 million and diluted earnings per share rose 38% to US$1.76. On a non-GAAP basis, operating income rose 24% to US$439 million and diluted EPS increased 32% to US$1.82.

The non-GAAP figures exclude US$15 million of distribution-network optimisation costs, primarily linked to moving from an Ohio fulfilment centre to a third-party facility in Pennsylvania. Tapestry said non-GAAP gross margin benefited from operational improvements, tariffs and duties, and foreign exchange. That mix matters: the company’s outlook assumes a low-to-mid-20% tariff rate on US inventory receipts and a modest net tariff benefit year on year.

Higher forecast comes with heavier capital returns

Tapestry now expects fiscal 2027 revenue of approximately US$8.5 billion to US$8.6 billion, compared with its previous US$8.4 billion to US$8.5 billion range. It expects operating margin to expand by about 100 basis points, up from prior guidance for roughly 50 basis points, while non-GAAP diluted EPS is now forecast at US$8.25 to US$8.35, versus US$7.80 to US$7.90 previously.

The company also increased its expected share repurchases by US$350 million to US$1.7 billion for the year, taking anticipated fiscal 2027 capital returns to approximately US$2.0 billion including dividends. It repurchased about 4.6 million shares for US$600 million in the first quarter, at an average price of US$130 a share. The balance sheet ended the quarter with US$2.56 billion of borrowings and a reported non-GAAP leverage ratio of 1.1 times.

There is a less polished cash-flow detail beneath the earnings headline. Operating cash flow improved to US$197 million from US$113 million, but adjusted free cash flow fell to US$56 million from US$103 million, partly reflecting US$109 million of working-capital movement associated primarily with collecting an IEEPA tariff refund. Tapestry expects adjusted free cash flow approaching US$1.7 billion for the full year, unchanged from its previous forecast, leaving execution and the seasonal shape of cash generation important to the buyback plan.