Tapestry, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Global Growth: Powered global growth, outpacing the industry in key regions (North America, China, Europe) with strong new customer acquisition, particularly Gen Z and millennials.
• Omnichannel Experiences: Delivered compelling omnichannel experiences, leveraging data-driven insights and human connections to drive direct-to-consumer growth across channels.
• Coach Brand Strength: Fiscal 2025 was Coach's strongest year, reimagined for modern consumers. Grew in leather goods, footwear (sneakers), with marketing campaigns like 'On Your Own Time' and immersive retail experiences.
• Kate Spade Turnaround: Actively resetting the brand with marketing focused on Gen Z, simplifying handbag assortment, and maximizing omnichannel cohesiveness to drive long-term growth.
• Capital Allocation: Returned $2.3 billion to shareholders in fiscal 2025 (including $300 million dividends and $2 billion share repurchase). Board authorized 14% quarterly dividend increase; focus on investing in brands and returning capital to shareholders.

Segment Performance

• Coach: Fiscal 2025 saw Coach deliver a 10% revenue increase at strong margins, with 13% constant currency top line gains in Q4. North America grew 16%, China 22%, and Europe 12%. Acquired over 4.6 million new customers in North America in fiscal 2025, with nearly 70% being Gen Z and millennials. Handbags and accessories growth outperformed the industry, with mid-teens AUR growth in Q4 led by North America.
• Kate Spade: Q4 revenue decreased 13%, but is in the early stages of a turnaround. Focus is on marketing targeting Gen Z, simplifying handbag assortment (reducing styles by over 30% by fall), and maximizing omnichannel cohesiveness.
• Stuart Weitzman: Completed sale to Caleres on August 4, 2025, consistent with portfolio management and capital allocation priorities.

Guidance

• Fiscal 2026 guidance: Mid-single-digit revenue growth, mid- to high single-digit earnings growth. Expected margin expansion despite $160 million tariff headwind. Share repurchases of $800 million planned. EPS expected to be $5.30-$5.45, representing 4%-7% growth vs prior year, including tariff headwinds.
• Revenue expected to approach $7.2 billion in fiscal 2026, with mid-single-digit growth at constant currency. Operating margin expansion anticipated, with gross margin expected to decline ~70 basis points offset by operational gains and Stuart Weitzman disposition.

Risks

• Tariffs and Duties: $160 million impact on profitability in fiscal 2026 due to earlier-than-expected end of de minimis exemptions, disproportionately affecting Kate Spade. Dynamic macroeconomic landscape and potential consumer impact from tariff changes.
• Macroeconomic Uncertainty: Rapidly evolving macroeconomic environment poses challenges to maintaining growth and margins.

Question and Answer

• Q: Unpack outlook for fiscal '26 and strategies to mitigate tariffs.

A: Joanne and Todd discuss Coach's growth, new customers, and strategies to offset tariffs, noting strong momentum and ability to mitigate tariff impacts over time.

• Q: Data on new customer growth and margin mitigation.

A: Joanne and Scott talk about new customer acquisition (especially Gen Z/millennials) and margin plans, confident in mitigating tariff impacts through operational strength.

• Q: Coach unit growth and AUR interplay, gross margin phasing.

A: Joanne and Todd/Scott discuss unit growth, AUR as a key margin driver, and gross margin phasing with stronger first-half margins due to operational strength.

• Q: Structural modeling of Coach's margins and pricing to mitigate tariffs.

A: Todd and Scott discuss Coach's structural advantages (direct-to-consumer, global diversification) and pricing strategies to inform margin expansion despite tariffs.

• Q: Share repurchase details and SG&A leverage.

A: Scott talks about $800 million share repurchase plan and SG&A leverage, driven by productivity and strategic investments.

• Q: De minimis impact and Europe growth.

A: Scott and Todd discuss de minimis changes and Europe growth intentions, emphasizing intentional wholesale management and no slowdown in consumer demand.

• Q: 1Q acceleration by region and price increases.

A: Scott and Joanne discuss 1Q acceleration across regions and AUR growth assumptions, with mid- to high single-digit AUR growth expected for Coach.