Coach's hot sales cannot withstand the cold wave of tariffs, Tapestry's profit outlook is hindered, and stock prices plummet

According to Zhitong Finance APP, despite a strong performance in the latest quarterly financial report, Tapestry (TPR.US) provided an annual outlook that fell short of analysts' expectations due to tariff costs dragging down key profit indicators, leading to a sharp decline in the company's stock price before the market opened on Thursday.

The financial report showed that for the fourth quarter of fiscal year 2025 ending June 28, Tapestry's adjusted earnings per share reached $1.04, exceeding analysts' expectations by $0.02; the quarterly sales of $1.72 billion also surpassed analysts' estimate of $1.68 billion.

Looking ahead, the brand group, which owns Coach and Kate Spade, expects diluted earnings per share for fiscal year 2026 to be between $5.30 and $5.45, which, while representing a growth of 4% to 7% from the previous year, is below analysts' expectations of $5.49.

Tapestry stated in a press release on Thursday that this discrepancy is primarily due to the impact of tariffs, which are expected to result in a negative impact of $0.60 per share. The market seems to have not fully absorbed this cost, leading to a drop of 17% in its stock price during pre-market trading, despite the stock having previously accumulated a gain of 74% for the year.

Chief Financial Officer Scott Roe revealed in an interview that tariffs will bring about an additional cost of approximately $160 million for this fiscal year. Although this "new variable" will have a "significant impact," management is confident in their ability to "gradually mitigate the impact of tariffs." Roe emphasized that the company's annual expectations "reflect a cautious attitude" in the current context. Currently, the group primarily produces handbags and other products in Asian countries such as China, Vietnam, and Cambodia.

Tapestry expects revenue for the fiscal year ending in June to reach $7.2 billion (excluding the sold Stuart Weitzman business), slightly exceeding the market expectation of $7.12 billion, achieving mid-single-digit growth year-on-year. After divesting non-core assets, management is able to concentrate resources on driving growth for Coach and the transformation of Kate Spade.

The latest financial report shows that, excluding currency factors, Coach's revenue grew by 13% last quarter, while Kate Spade declined by 13%. CEO Joanne Crevoiserat stated, "Coach continues to lead the industry with exceptional profit margins and exceeds expectations for growth," and the growth rate further accelerated this season. As for Kate Spade, "the brand revitalization plan has been fully launched."

According to the authoritative Lyst index, Coach ranked as the fifth most popular fashion brand globally in June, with its Tabby and Brooklyn bags becoming star products, while the cherry charm became a popular choice among consumers due to its affordable price. Notably, in a list dominated by European luxury brands such as Miu Miu, Loewe, Prada, and Moncler, Coach and Ralph Lauren (RL.US), ranked 11th, are among the few American companies successfully competing against European luxury brands—despite continuous price increases, its pricing strategy remains more approachable than that of European competitors, effectively broadening its coverage of high-end customer segments Bloomberg Intelligence analysts Deborah Aitken and Andrea Ferdinando Leggieri wrote in a recent research report, "Against the backdrop of low consumer confidence, rising price sensitivity, and compounded tariff risks, the strong performance of these brands suggests that they are likely to continue expanding market share and maintaining operating margins through full-price sales."