Detailed Narrative
Coach Brand Momentum and Innovation
Coach delivered a standout performance with 15% top-line growth, driven by product innovation and cultural relevance. Key product families like Tabby and the new New York family, including the viral Brooklyn Shoulder Bag 28 ($295) and Soft Empire Carryall 40 ($695), significantly contributed to growth. The brand also successfully launched archival-inspired items like the Large Kisslock Bag ($695), which sold out rapidly, and saw mid-teens handbag AUR growth, particularly in North America.
Kate Spade Reset Strategy and Product Streamlining
Kate Spade's revenue declined 12% at constant currency, but profit met expectations due to gross margin expansion. The brand is executing a reset strategy focused on building brand heat and elevating its handbag offering. This includes amplifying the Deco, Kayla, and Kip collections, which resonate with younger consumers, and streamlining the assortment by reducing handbag styles by over 15% by Fall to improve focus and cut-through.
Strong Customer Acquisition and Gen Z Engagement
Tapestry acquired over 1.2 million new customers in North America, with two-thirds being Gen Z and millennials. Coach alone welcomed nearly 900,000 new North American customers, 70% of whom were Gen Z and millennials. The company noted a meaningful increase in year-1 retention rates among Gen Z consumers at Coach, indicating sticky relationships and long-term customer lifetime value potential.
Omnichannel Strength and Marketing Investments
The direct-to-consumer model proved a competitive advantage, with digital sales growing at a mid-teens rate and representing approximately 30% of revenue at accretive margins. Global brick-and-mortar sales also increased mid-single digits. Tapestry has significantly increased its marketing and brand-building investments, now approaching 10% of sales, up from 3-4% pre-pandemic, to drive cultural relevance and customer acquisition.
Gross Margin Expansion and Agile Supply Chain
Tapestry achieved its highest quarterly gross margin in over 15 years at 76.1%, a 140 basis point increase year-over-year, driven by operational outperformance including AUR and AUC improvements. The company's diversified supply chain, with 70% of production in Vietnam, Cambodia, and the Philippines and less than 10% in China, provides agility and minimizes tariff exposure, enabling effective mitigation strategies.
Capital Allocation and Shareholder Returns
The company executed a $2 billion accelerated share repurchase program in November and has an additional $800 million remaining under previous authorization. Combined with an expected $1.40 per share dividend for the year, Tapestry is positioned to return over $2 billion, or more than 100% of adjusted free cash flow, to shareholders in FY25, while maintaining a long-term gross leverage target below 2.5x.