Tapestry ((TPR)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Tapestry’s latest earnings call revealed a strong financial performance, marked by record revenue and earnings, largely driven by the success of the Coach brand. However, the company faces challenges, including the underperformance of Kate Spade and significant cost pressures from tariffs.
Record-Breaking Year for Tapestry
Tapestry reported a remarkable year, achieving $7 billion in revenue with a 20% operating margin and an adjusted EPS of $5.10. This performance marks a significant improvement compared to the previous year, showcasing the company’s robust financial health.
Coach Brand Performance
The Coach brand was a standout performer, with a 10% increase in revenue. The fourth quarter saw a 13% constant currency top-line gain, with double-digit growth in key markets: North America up 16%, China up 22%, and Europe up 12%.
Strong New Customer Acquisition
Tapestry successfully acquired over 6.8 million new customers in North America, with the Coach brand alone welcoming over 4.6 million new customers. This growth highlights the brand’s expanding appeal and market reach.
Operating Margin Expansion
The company achieved a record fourth-quarter gross margin of 76.3%, which is 140 basis points higher than the previous year. This expansion reflects Tapestry’s effective cost management and operational efficiency.
Kate Spade Underperformance
Kate Spade faced challenges, with a 13% decrease in revenue during the fourth quarter. The brand is undergoing a strategic reset aimed at achieving durable growth in the future.
Impact of Tariffs
Tapestry is dealing with a significant $160 million profit headwind due to tariffs, which represents approximately 230 basis points of margin pressure. This challenge underscores the external cost pressures the company is navigating.
Noncash Impairment Charge
The company recorded a noncash impairment charge of over $850 million related to Kate Spade, influenced by tariffs and incremental investments. This charge reflects the financial adjustments needed to address current challenges.
Forward-Looking Guidance
Looking ahead, Tapestry provided guidance for fiscal year 2026, expecting revenue to approach $7.2 billion, driven by mid-single-digit growth across key regions. Despite $160 million in tariff-related headwinds, the company anticipates EPS growth of 4% to 7%. Tapestry plans to return over $1 billion to shareholders and invest significantly in marketing and brand building, particularly for Coach and Kate Spade.
In conclusion, Tapestry’s earnings call highlighted a strong financial performance, with record revenue and earnings driven by the Coach brand. While challenges such as Kate Spade’s underperformance and tariff-related cost pressures persist, the company’s strategic initiatives and forward-looking guidance suggest a commitment to sustained growth and shareholder value.