Tapestry's Coach-Driven Rebound Fuels $5 EPS Guidance Hike: A Luxury Market Turnaround?

Tapestry, Inc. (TPR) has delivered a confidence-boosting revision to its fiscal 2025 guidance, raising its earnings forecast to $5.00 per share—a high-teens percentage increase from its prior outlook—amid surging momentum at its flagship Coach brand. The luxury goods conglomerate’s updated targets reflect a strategic pivot toward its most profitable segment, even as it grapples with underperformance at Kate Spade and prepares to divest Stuart Weitzman. Here’s why investors should take note of this high-margin rebound story.

The Coach Effect: Driving Growth Amid Contrasts

Coach’s 15% constant currency revenue growth in fiscal 2025 has become the engine of Tapestry’s turnaround. This outperformance stands in stark contrast to declines at Kate Spade (-12%) and Stuart Weitzman (-17%), brands the company is now exiting. While Kate Spade’s struggles have long been a drag, the decision to sell Stuart Weitzman—excluded from the updated guidance—allows management to focus resources on its crown jewel.

Coach’s success hinges on its Gen Z and Millennial appeal, with 67% of its new North American customers in Q3 falling into those demographics. This is no small feat in a luxury market where younger buyers increasingly demand authenticity and innovation.

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Geographic Leverage and Margin Strength

Tapestry’s geographic split tells a story of strategic rebalancing. North America grew 9% constant currency, but Europe’s 35% surge—and Asia-Pacific’s 4% expansion—highlight the brand’s global reach. Crucially, omni-channel sales rose 9%, underscoring the importance of digital integration in luxury retail.

Operating margins are expanding as well. Non-GAAP operating margins hit 17.5%, up 100 basis points year-over-year, driven by a 140-basis-point gross margin improvement. This efficiency isn’t accidental: Tapestry credits “supply chain agility” and cost discipline, including lower borrowing costs that slashed net interest expense guidance to $25 million from $35 million.

Capital Allocation: Rewarding Shareholders

With free cash flow raised to $1.3 billion, Tapestry is doubling down on shareholder returns. The company reaffirmed its $2 billion buyback plan—including an $800 million Accelerated Share Repurchase—and a $1.40 annual dividend. This totals over $2 billion returned to shareholders in 2025, a move that could buoy sentiment in a market hungry for tangible returns.

Risks and Assumptions to Monitor

The guidance assumes tariffs on Chinese imports (145%) and global goods (10%) won’t disrupt margins, but Tapestry claims inventory timing will mitigate this. The Stuart Weitzman sale—expected by summer—also carries execution risk, though its exclusion from the outlook limits downside. Meanwhile, one-time costs from the divestiture and organizational changes (e.g., severance, tech upgrades) remain excluded from the numbers.

The Bigger Picture: Luxury Sector Dynamics

Tapestry’s guidance upgrade comes amid mixed signals for the luxury market. While Coach’s Gen Z focus aligns with LVMH’s (LVMUY) and Kering’s (PRTP.PA) strategies, Tapestry’s reliance on a single brand poses risks compared to diversified peers. Still, its margin expansion and cash flow metrics stack up favorably:

Conclusion: A Story of Focus and Execution

Tapestry’s revised $5 EPS guidance isn’t just a numbers game—it’s a bet on its ability to capitalize on Coach’s cultural resonance while shedding underperforming assets. With 1.2 million new North American customers added in Q3 alone and margins expanding despite macroeconomic headwinds, the company is proving its “2025 growth strategy” is more than a slogan.

The numbers back this up: the $1.3 billion free cash flow target represents a 10% increase from prior guidance, while the $5 EPS figure implies a high-teens earnings multiple that could attract value investors. However, risks remain. If Coach’s Gen Z appeal wanes or Europe’s growth slows, the company’s narrow focus could become a liability.

For now, though, Tapestry’s shift feels strategic—and profitable. With shares trading at ~15x the new EPS target, the stock offers a rare combination: a luxury brand’s premium pricing power and a value investor’s multiple. If Coach can sustain its momentum, this could be the year Tapestry finally escapes its peer group’s shadow.