Tapestry shares rise on earnings beat, Coach handbag demand
Luxury group raises annual forecasts as Tabby collection drives record holiday quarter
Tapestry Inc shares climbed in pre-market trading on Thursday after the luxury group reported quarterly results that surpassed analyst expectations and lifted its full-year outlook, fueled by surging demand for Coach handbags.
The company, which owns the Coach, Kate Spade and Stuart Weitzman brands, reported fiscal second-quarter adjusted earnings of $2.69 per share, exceeding the consensus estimate of $2.23 by 20.7%. Revenue reached $2.5 billion, beating analyst projections of $2.32 billion and marking a 14% increase from the same period a year earlier.
The standout performance came from Coach, the company's largest brand, which saw revenue jump 25% to $2.14 billion. The growth was driven by what analysts described as a "craze" for the brand's Tabby handbags, which range in price from $295 to $725 and have found particular resonance with affluent Gen Z customers.
Tapestry's operating margin expanded significantly, rising 390 basis points to 28.8% on a non-GAAP basis. The company's non-GAAP diluted EPS increased 34% year-over-year, demonstrating the profitability of its growth strategy.
Buoyed by the strong performance, Tapestry raised its fiscal 2026 guidance across key metrics. The company now expects earnings per share of $6.40 to $6.45, up from its previous forecast of $5.45 to $5.60. Revenue guidance was lifted to exceed $7.75 billion, compared with the earlier projection of $7.3 billion. The company also increased its outlook for operating margin and free cash flow.
"Our results reflect the strength of our brands and our ability to execute in a dynamic environment," the company said in its earnings announcement, pointing to robust consumer engagement during the holiday period.
Not all segments performed equally. While Coach delivered record results, Kate Spade's sales declined 14% during the quarter, highlighting the challenges facing Tapestry's mid-tier luxury brand as consumers gravitate toward accessible luxury at Coach or ultra-premium alternatives.
Analysts responded quickly to the results. Paul Lejuez at Citi raised his price target to $152 from $124, maintaining a Buy rating and citing the company's robust fundamentals. UBS analyst Jay Sole increased his target to $123 from $105 while keeping a Neutral rating, noting the strength of Coach but pointing to ongoing challenges at Kate Spade.
The stock rose 2.3% in pre-market trading to $132.95, building on a year in which shares have more than doubled. Despite the rally, Tapestry's forward price-to-earnings ratio of approximately 22.7 suggests investors remain cautious about the sustainability of current growth rates given macroeconomic uncertainty facing the luxury sector.
The results underscore a broader divergence in the luxury goods market, where consumers remain selective in their spending. Tapestry's success with the Tabby collection demonstrates how brands can capture demand through the right product offerings, even as Kate Spade struggles to find similar momentum.
Looking ahead, investors will focus on whether Tapestry can maintain its growth trajectory through the remainder of fiscal 2026 and whether Kate Spade can return to growth. The company's raised guidance suggests management confidence in Coach's continued momentum, though macroeconomic headwinds including persistent inflation and potential consumer spending softening pose risks to the outlook.