Tapestry, Inc. (TPR) Earnings

Management highlights

### Strategic Accomplishments - Exceeded all three-year revenue, operating margin, and EPS commitments set at the 2024 Investor Day, two years ahead of the original plan - Acquired 11 million total new customers across the brand portfolio in fiscal 2026, led by Gen Z, with new customers transacting at higher AURs and delivering stronger retention than the existing customer base - Accelerated growth in the core luxury leather goods category, an attractive high-margin category with significant long-term growth runway - Achieved broad-based double-digit growth across all key regions, gaining market share globally ### Coach Operational Updates - Launched and scaled the *One Coach* unified channel strategy, which blurs traditional retail/outlet lines, offers full-price collection products in outlet locations, and unifies the digital experience, driving higher AURs and improved customer acquisition - Expanded top-of-funnel marketing spend ~20% year-over-year, launching successful Gen Z-focused campaigns (And Coach) and strategic partnerships (second season of the WNBA partnership) to increase cultural relevance and unaided brand awareness - Rolling out the new expressive luxury store concept globally, which drives higher traffic and longer dwell times, especially for Gen Z; plans to have the concept reach ~80% of total store traffic by fiscal 2030. Opened new Coach Play experiential locations in Chicago, Atlanta, and Paris' La Marais - Key product lines including the New York (Brooklyn, Empire, Chelsea), Tabby, and Terry families continue to outperform, driving strong Gen Z acquisition, with a robust innovation pipeline for future growth - Management has a clear long-term target to grow Coach to a $10 billion brand ### Kate Spade Operational Updates - Executing a deliberate three-phase strategy: streamline, solidify foundation, scale. Top-line growth has been more gradual than planned, but the company has gained clarity on high-impact investment areas - Successfully grew brand consideration among Gen Z in the U.S. via a new creator-led YouTube marketing campaign that outperformed platform benchmarks for purchase intent. Hired new Chief Marketing Officer Allison Badea with deep luxury and beauty brand building experience, and new Executive Creative Director Jonathan Saunders to strengthen creative and product storytelling - Top-performing handbag lines (Margo, 454, Duo) drove improved handbag performance and customer acquisition; ongoing light-touch store renovation program is delivering higher conversion and average transaction value ### Technology & Capability Investments - Continued investment in proprietary AI and data capabilities, secured the company's first AI patent, building on existing patented data fabric technology, after more than a decade of investment in data and decision intelligence - Maintains an agile, direct-to-consumer-led omnichannel operating model that drives double-digit growth and rising profitability across both digital and physical channels

Guidance

- **Fiscal 2027 Overall Guidance**: Maintains the long-term financial growth framework established at Investor Day, projects total revenue of $8.4 billion to $8.5 billion, representing mid-single-digit year-over-year growth on a nominal and constant currency basis, with a 40 basis point FX tailwind. Operating margin is expected to expand 50 basis points to nearly 24%, and EPS is expected to reach $7.80 to $7.90, representing low double-digit year-over-year growth. - **Regional Growth Guidance (constant currency)**: North America expected to deliver low single-digit revenue growth; Europe and Greater China both expected to deliver mid-teens growth; Japan expected to return to year-over-year growth; Other Asia expected to deliver high single-digit growth. - **Brand Growth Guidance**: Coach expected to deliver high single-digit revenue growth, maintaining a nearly 36% best-in-class operating margin; Kate Spade expected to deliver a high single-digit revenue decline, with a modest operating loss due to continued investment in the brand. - **Gross Margin Guidance**: Expects a 30 basis point full-year gross margin expansion, driven by operational improvements and favorable geographic/channel mix; assumes a mid-20s% tariff rate on U.S. imports, with a roughly net neutral P&L impact after mitigating actions. Quarterly gross margin will be uneven, with a tariff benefit in the first half and a tariff headwind in the second half. - **Capital Return Guidance**: Expects to return $1.7 billion to shareholders in fiscal 2027; the board approved a 16% dividend increase to an annualized rate of $1.85 per share, with $1.35 billion allocated to share repurchases. - **Capital Expenditure Guidance**: CapEx will step up to support growth, with ~70% of spend allocated to new store openings and expressive luxury concept renovations, and the remainder allocated to technology and digital investments; Coach expects 40-50 net new store doors globally, 75% of which are international locations. - **First Quarter 2027 Guidance**: Expects high single-digit total revenue growth on a nominal and constant currency basis; Coach expected to deliver low teens revenue growth (mid-30% growth on a two-year stack); Kate Spade expected to deliver a low double-digit revenue decline. Gross margin expected to increase 120 basis points, offset by higher marketing spend, leaving operating margin in line with prior year; Q1 EPS is expected to be ~$1.50, a low teens increase. - **Phasing Guidance**: Revenue expected to grow high single-digit in the first half and mid-single-digit in the second half; EPS expected to deliver low double-digit growth in both halves.

Segment performance

### By Brand: 1. **Coach**: - Full year 2026 constant currency revenue growth of ~14% year-over-year, with maintaining best-in-class operating margin of nearly 36% for fiscal 2027. Fourth quarter constant currency revenue grew 14%, with North America up 10%, Greater China up 30%, and Europe up 25%. Coach contributed ~78% of total company revenue (based on fiscal 2027 guidance for 8.4-8.5B total revenue and high single-digit Coach growth from 2026's ~6.6B Coach revenue). - Full year handbag AUR rose mid-teens, unit sales increased low double digits. Fourth quarter handbag AUR increased mid-teens, unit volumes flat year-over-year by design. - Acquired ~9 million new customers full year, 2 million new customers in Q4, led by Gen Z. 2. **Kate Spade**: - Fiscal 2027 guidance projects a high single-digit revenue decline year-over-year, with a modest operating loss as the brand continues to receive investment to drive long-term growth. Acquired ~2 million new customers full year, 450,000 new customers in Q4, with new customers transacting at higher AURs than the existing customer base. ### By Region (Q4 2026): - North America: +7% total revenue, +10% at Coach - Europe: +19% total revenue - Greater China: +28% total revenue - Other Asia: +22% total revenue - Japan: -4% total revenue, an intentional result of reduced promotions ### By Channel (Q4 2026): - Direct-to-consumer: +11% total revenue - Digital: mid-single-digit growth - Global brick-and-mortar: mid-teens growth - All channels delivered rising profitability ### Overall Full Year 2026: - Total revenue: $8 billion, +17% pro forma constant currency - Operating margin: over 23%, expanded 340 basis points - EPS: $7.05, +38% year-over-year - Q4 2026: gross margin 78.1%, up 180 basis points; operating margin expanded 250 basis points; EPS $1.32, +28% year-over-year

Risks & headwinds

- Macro economic uncertainty and evolving U.S. import tariff dynamics create quarterly volatility in profitability and margin - Kate Spade has experienced slower top-line growth than originally planned during its foundation-building phase, requiring continued investment that creates a modest near-term operating loss for the brand - The luxury accessories industry has no material barriers to entry, requiring sustained investment in brand building and customer connection to maintain competitive position - Consumer demand and shopping behavior continue to evolve, requiring ongoing adaptation of product, marketing, and retail strategy to remain relevant, especially for younger consumers

Analyst Q&A

• Q: With strong fiscal 2026 results leading to a higher base, what is the reasoning for moderated full year fiscal 2027 growth, and what supports confidence in durable back half growth? /

  A: Management remains confident in growth durability, as the strong fiscal 2026 results reflect sustainable improvements to the business, including stronger direct consumer relationships, expanded global reach, and differentiated data/AI capabilities, which improved profitability and cash generation capacity to invest in future growth. Q1 Coach growth of low teens matches Q4 2026 momentum, and the full year guidance is intentionally prudent, not requiring that high first quarter growth rate to continue through the full year, while still aligning with the company's long-term growth framework.

• Q: With strong recent AUR growth, what drove flat Q4 Coach units, and what is the expected mix of AUR and unit growth going forward? /

  A: Flat Q4 units were intentional: the company reduced promotion days as part of its One Coach strategy focused on brand health, and exceptional Q3 sell-through pulled some unit sales forward from Q4. Management prioritizes high quality sales growth over churning units to hit targets, and One Coach's channel alignment has supported higher AURs while maintaining strong margins. Going forward, the company expects to deliver continued AUR gains and gradual unit growth as it expands its global customer base.

• Q: How is Coach North America growth normalizing after very strong comps, and what growth is embedded in fiscal 2027 guidance? /

  A: Coach North America delivered ~30% cumulative two-year growth for Q4, Q1, and full fiscal 2027 guidance, meaning it is compounding strong prior growth from a much higher base. The full year guide embeds mid-single-digit growth, which is above the original investor day framework, and the brand continues to outgrow the category while intentionally avoiding promotional activity that would erode margin and brand value. Approximately 70% of Coach's overall growth for the year is expected to come from international markets, aligning with long-term plans.

• Q: What is driving growth momentum in Europe and Greater China, and what is the long-term growth runway in these markets? /

  A: Coach is in the early innings of European expansion, with meaningful penetration only in the UK to date, leaving dozens of untapped markets for growth; new experiential stores like the Paris Coach Play location act as brand beacons, and the brand's strong value proposition resonates with consumers. In Greater China, Coach has 25 years of local market roots, and is increasing marketing investment to match the brand's growth potential, targeting Gen Z consumers by positioning the brand where younger shoppers want to engage, leading to growth that has outpaced the local industry for the full year at over 30%.