Tapestry, the parent company of Coach, delivers high-growth earnings report, but the market is not buying it

On August 13 local time, Tapestry, the parent company of Coach, announced its results for the fourth quarter and the full year of fiscal year 2026. Fourth quarter revenue reached $1.877 billion, up 9% year-on-year; full year revenue was $8.004 billion, up 14% year-on-year.

After the results were released, Tapestry’s share price once fell 16.9% to $127.78, hitting a more than six-month low. Although adjusted profit for the quarter beat market expectations, the company’s outlook for fiscal 2027 revenue was relatively cautious, and with Kate Spade yet to pull out of its decline, market concerns about the sustainability of growth have increased.

The financial report showed that Tapestry’s operating profit for the fourth quarter was $442 million, compared to an operating loss of $584 million in the same period last year; full year operating profit rose from $415 million to $1.914 billion, while diluted earnings per share increased from $0.82 to $7.27.

However, the substantial year-on-year growth in profit includes obvious base effects. In fiscal year 2025, Tapestry made about $855 million in impairment charges against the Kate Spade trademark and goodwill and incurred costs related to the terminated acquisition of Capri and the sale of Stuart Weitzman.

Excluding special items, Tapestry’s fourth quarter operating profit was $362 million, up 25% year-on-year; full year operating profit reached $1.866 billion, up 33% year-on-year. The adjusted full year operating margin was 23.4%, up 3.4 percentage points year-on-year, giving a clearer picture of the core business changes.

From a brand structure perspective, Coach continues to bear the main growth responsibilities. In the fourth quarter, Coach’s revenue was $1.642 billion, up 15% year-on-year and up 14% at constant exchange rates; full year revenue was $6.915 billion, up 24% year-on-year, accounting for about 87% of Tapestry’s revenue after excluding Stuart Weitzman.

Coach’s growth came from both pricing and sales volume. In the fourth quarter, the average selling price of its handbags increased by more than 10% year-on-year, while sales volume was roughly flat; for the full year, the average selling price of handbags maintained a similar increase with unit sales up by low double digits.

Product lines such as Brooklyn, Empire, Chelsea, and Tabby continued to contribute to sales. While reducing promotions, the company increased brand investment, with marketing spending rising about 20% year-on-year in the fourth quarter. Coach added nearly 9 million new consumers for the year, with young consumers remaining the main source of incremental growth.

Adjustments at Kate Spade have been slower than expected. The brand reported fourth quarter revenue of $235 million, down 7% year-on-year; full year revenue of $1.075 billion, down 10% year-on-year and 11% at constant exchange rates.

Handbag collections such as Margot, 454, and Duo helped improve the performance of some products, and Kate Spade added about 2 million new consumers for the year, but this has not yet reversed the revenue decline. Tapestry has appointed Jonathan Saunders as executive creative director and continues to adjust product design and brand expression.

The company expects that in fiscal year 2027, Kate Spade revenue will still decline by a high single digit percentage, with a small operating loss. This means that Tapestry’s reliance on Coach will deepen further in the short term.

The original third brand, Stuart Weitzman, was sold to Caleres in August 2025. The brand only contributed $14.6 million of revenue in fiscal year 2026. After the sale, Tapestry’s brand portfolio is reduced to Coach and Kate Spade.

China is the region with the fastest growth this fiscal year. In the fourth quarter, Tapestry’s revenue in Greater China was $352 million, up 33% year-on-year and 28% at constant exchange rates; full year revenue was $1.397 billion, up 38% year-on-year and 35% at constant exchange rates.

Specifically, Coach’s fourth quarter revenue in Greater China grew 30% at constant exchange rates. The company stated that growth covered both online and offline channels, digital business performed strongly, and acquisition of new customers continued to be driven primarily by younger demographics.

However, Greater China’s fourth quarter constant exchange rate growth slowed to 28% from 55% in the third quarter. This rate is still significantly higher than North America’s 7% for the same period, but it also suggests the previous high growth is beginning to moderate.

For fiscal year 2027, Tapestry expects revenue of $8.4 to $8.5 billion, a mid-single-digit percentage increase year-on-year. Among this, Coach is expected to achieve high single-digit growth in revenue, Greater China and Europe are expected to see mid-double-digit growth, while Kate Spade continues to contract. How to sustain the growth of Coach and narrow disparities between brands remains the main focus for the next fiscal year.