Tapestry lifts annual forecasts as Tabby handbag craze fuels blowout holiday quarter

By Angela Christy M and Juveria Tabassum

Feb 5 (Reuters) – Tapestry raised its annual targets for a second time after strong demand for its Tabby handbags helped the affordable luxury retailer comfortably beat holiday-quarter estimates, sending its shares about 8% higher on Thursday.

Affluent Gen Z customers have been snapping up Tabby handbags, priced between $295 and $725, boosting sales for the company’s Coach brand when rivals such as Michael Kors have struggled to attract discerning shoppers.

Revenue at Coach surged 25% to $2.14 billion in the second quarter, beating analysts’ estimates of a growth of 14.5%, according to data compiled by LSEG.

“Coach has done a remarkable job re-elevating its brands in recent years, succeeding in convincing shoppers to accept higher prices but also buy more products. That has been a commendable rarity across the retail landscape,” said Simeon Siegel, analyst at Guggenheim Securities.

The company increased its spending on marketing by 40% in the reported quarter. 

“These investments are helping solidify our brand building. We see the opportunity for Coach to be a $10 billion brand,” Tapestry CEO Joanne Crevoiserat told Reuters.

Tapestry raised its full-year adjusted earnings forecast to $6.40 to $6.45 per share from $5.45 to $5.60 expected earlier. It projected annual operating margin growth of about 180 basis points, from an earlier target of about 50 basis points.

The company expects full-year revenue of more than $7.75 billion, compared with about $7.3 billion previously. 

Tapestry bumped up its share buyback expectation for fiscal 2026 to about $1.2 billion, from $1 billion expected earlier.    

Parka maker Canada Goose and Ralph Lauren also beat revenue estimates for the holiday quarter. 

KATE SPADE RESET CONTINUES 

Coach’s success also gives the company some cushion, as it works through a long Kate Spade reset where sales have dropped for the last 13 quarters, and fell 14% in the second quarter. 

The company has focused on cutting back promotions at Kate Spade to enable the brand lean into the higher-end of luxury, which has also caused some weakness in sales.

Kate Spade has also been hit by tariffs, as well as the removal of the de minimis exemption, but Tapestry expects to fully mitigate the roughly 200 basis points impact on its margins from tariffs this year.

“Tariffs don’t seem to be a problem for Tapestry. Coach is performing so well that it can raise prices to offset them,” said Morningstar analyst David Swartz.

He does not believe Coach can sustain the high-growth rates as competition heats up.

The company sources products from countries such as India, Vietnam and Cambodia that were hit with steep U.S. tariffs.

The company’s second-quarter revenue came in at $2.5 billion, edging past analysts’ estimates of $2.32 billion.   

Adjusted earnings per share were $2.69, beating analysts’ estimate of $2.22, while gross margin expanded 110 basis points in the quarter.

Last year, Tapestry divested Stuart Weitzman to Dr Scholl’s owner Caleres for $105 million as the luxury footwear brand struggled with weak spending in North America and China.   

(Reporting by Angela Christy M and Juveria Tabassum in Bengaluru; Editing by Sriraj Kalluvila)