Detailed Narrative
Strategic Outperformance and Outlook
Tapestry's Q2 FY26 results demonstrated significant outperformance, with pro forma revenue growth of 18%, adjusted operating margin expansion of 390 basis points, and EPS growth of 34%. This strong momentum led to an increased full-year FY26 outlook, with expected revenue over $7.75 billion and EPS of $6.40 to $6.45, reflecting a new gear of growth and operational discipline. The company's strategies are compounding, driving healthy and sustainable growth with expanding operating margins.
Customer Acquisition and Brand Building
The company acquired over 3.7 million new customers globally in the quarter, with a strategic focus on Gen Z, enhancing repeat purchasing and lifetime value. Marketing spend increased by approximately 40% year-over-year, shifting towards top-of-funnel brand building to support sustained customer acquisition and cultural relevance. This was evident through campaigns like 'The Gift for New Adventures' and a collaboration with CLOT in China, deepening cultural relevance and accelerating consumer acquisition.
Coach's Continued Strength and Product Innovation
Coach delivered exceptional results with revenue increasing 25% and margins expanding, driven by 2.9 million new customer acquisitions. Growth was led by core leathergoods, with both average unit retail (AUR) and unit volumes increasing at mid-teens rates, demonstrating diversified drivers. The brand's icons, including the Tabby franchise and New York family, outperformed, fueled by Gen Z recruitment, and a strong product pipeline is expected to support continued gains in AUR and units.
Kate Spade Turnaround Efforts and Store Experience
Kate Spade's revenue declined 14%, reflecting deliberate actions to reset the brand through promotional pullback and increased investments in its turnaround strategy. Early positive signs include improved brand consideration and Gen Z acquisition trends in handbags, with handbag styles reduced by 40% for the holiday season to support full-price selling and AUR growth. The brand also tested updated visual merchandising in 10 locations, which experienced a lift in conversion and ADT, with plans to expand this format.
Gross Margin and Tariff Mitigation
Gross margin expanded by 110 basis points to 75.5% in Q2 FY26, driven by operational expansion of 250 basis points and a 50 basis point benefit from the Stuart Weitzman divestiture. These gains fully offset a 190 basis point tariff and duty headwind. For the full year, gross margin is expected to increase by 20 basis points, completely mitigating tariff impact🌐s through AUR improvements and supply chain actions, with most tariff impact🌐 hitting in Q3 and Q4.
Capital Allocation and Shareholder Returns
Tapestry plans to return $1.5 billion, or 100% of expected adjusted free cash flow, to shareholders in FY26, including over $300 million in dividends and $1.2 billion in share repurchases. The company maintains a commitment to investing in brands, increasing dividends in line with earnings growth, and evaluating strategic portfolio management opportunities while targeting a gross leverage ratio below 2.5x, underpinned by a solid investment-grade rating.
International Market Penetration and Strategy
International markets, particularly Europe and Greater China, represent significant growth opportunities for Tapestry. Europe saw 22% revenue growth, driven by direct business strength and new customer acquisition, while Greater China revenue increased 34%, outpacing the industry and driven by digital channels and Gen Z engagement. The company is focused on disciplined brand building and attracting local young consumers in these regions, with plans to expand further in Europe, including France.