VALUATION HIGHLIGHTS

1. Coach constitutes 78% of the Trefis price estimate for Tapestry's stock.
2. Kate Spade constitutes 19% of the Trefis price estimate for Tapestry's stock.

WHAT HAS CHANGED?

1. Tapestry Tops Q2 Estimates
   • Tapestry reported strong fiscal 2025 Q2 results, outperforming expectations with revenue of $1.51 billion, in line with the previous year. The company achieved a record non-GAAP diluted EPS of $1.02 (up from $0.93 year-over-year) and a significant gross margin expansion of 280 basis points.
   • Tapestry’s strong performance was driven primarily by the Coach brand, which delivered a 10% increase in revenue. The top line growth was fueled by new product innovations, a 4% rise in direct-to-consumer sales, and strong digital channel sales. Meanwhile, the Kate Spade brand saw a 10% revenue decline and the Stuart Weitzman brand witnessed a 15% drop, reflecting challenges in these segments.
   • Nevertheless, the company’s customer base improved in Q2, particularly among younger people. In North America, Tapestry added over 2.7 million new customers, with the majority being Gen Z and Millennials.

Note: Tapestry's FY'24 ended on June 29, 2024. Q2 FY'25 refers to the quarter that ended on December 28, 2024

2. Outlook

For fiscal 2025, Tapestry expects earnings per share between $4.85 and $4.90, up from the prior guidance of $4.50 to $4.55.Full-year revenue is projected at $6.85 billion implying growth of around 3% versus the prior year on a reported basis, compared to the previous prior guidance of approximately 1% to 2% growth outlook.

Based on these results, Tapestry raised its fiscal 2025 outlook, expecting revenue of over $6.75 billion and EPS of $4.50 to $4.55.

The company’s full-year guidance includes an additional 10% tariff on goods imported from China into the U.S. beginning Feb. 4. It is not expected to have a material effect on the company’s results since it has limited manufacturing in China, as mentioned in Q2 earnings call.

3. Tapestry to Sell Stuart Weitzman

Tapestry has agreed to sell Stuart Weitzman to Caleres (the group that owns Sam Edelman and Famous Footwear, along with the footwear licenses for Veronica Beard and Vince) for $105 million in cash. The deal is expected to close in the summer of 2025, with Caleres aiming to fund it through the company's revolving credit agreement, subject to market conditions. The sale will allow Tapestry to focus its attention on Coach and Kate Spade.

Tapestry had owned Stuart Weitzman since 2015, when it bought the footwear brand for $574 million from Sycamore Partners. Stuart Weitzman has been the underperformer in the portfolio for some time. Coach has seen a revival in recent years thanks to its success with Gen Z (sales were up 10% y-o-y to $1.7 billion in Q2 2025). Kate Spade’s sales dropped 10% to $416 million. Meanwhile, Tapestry said that Stuart Weitzman’s sales dropped 16% y-o-y to $69.7 million in the second quarter, largely due to declines across China and the U.S. and wholesale underperformance.

4. Capri and Tapestry Abandon Plans to Merge; Citing Regulatory Hurdles

Tapestry called off the merger with Capri after the Federal Trade Commission successfully sued to block the megadeal. The agreement, which companies had fought for in court, would have merged America’s two largest luxury houses and put six fashion brands under one company: Tapestry’s Coach, Kate Spade and Stuart Weitzman with Capri’s Versace, Jimmy Choo and Michael Kors. Tapestry announced the acquisition of Capri Holdings, formerly known as Michael Kors, in 2023.

There is no break fee associated with the transaction, but under the terms of the merger agreement, Tapestry had agreed to pay Capri for its expenses if the deal failed to earn regulatory approval. Tapestry said it will reimburse Capri around $45 million.

BUSINESS SUMMARY

Tapestry, Inc. is a leading New York-based house of modern luxury accessories and lifestyle brands. Tapestry owns the Coach, Kate Spade, and Stuart Weitzman brands. The Company's primary product offerings, manufactured by third-party suppliers, include women's and men's bags, small leather goods, footwear, ready-to-wear including outerwear, watches, weekend and travel accessories, scarves, eye wear, fragrance, jewelry, and other lifestyle products.

The Coach segment includes worldwide sales of Coach brand products to customers through Coach-operated stores, including the Internet, concession shop-in-shops, and sales to wholesale customers and independent third-party distributors. The Kate Spade segment includes worldwide sales primarily of Kate Spade New York brand products to customers through Kate Spade-operated stores, including the Internet, concession shop-in-shops, independent third-party distributors, and wholesale customers. The Stuart Weitzman segment includes worldwide sales of Stuart Weitzman brand products primarily to wholesale customers, numerous independent third-party distributors, and through Stuart Weitzman-operated stores, including the Internet.

KEY TRENDS

Demand for luxury goods is correlated with economic growth

Demand for luxury, and fashion goods can be an indicator of flourishing economies. It is observed that during boom times, consumers with higher incomes tend to consume more high-end goods like leather handbags, designer clothes, branded watches, etc. Luxury goods are cyclical and correlate with GDP in specific regions, often exaggerating the up-and-down swings in the economy. As the global economy recovers, we expect the luxury goods market to return to pre-recessionary growth levels of 7-8% per year.

Increasing demand for luxury goods in China and other emerging markets

Luxury consumption in China has seen double-digit growth in recent years as a result of rapid economic growth and rising standards of living. Despite weak macroeconomic conditions globally and a threat to China's economy from surging inflation, luxury goods sales continue to grow strong in China. It should also be noted that Coach has a more significant physical presence in China, which is expected to be the key beneficiary of China's reopening. China's luxury market is rapidly recovering from the pandemic with greater strength and resilience. It is expected to reach around $112 billion by 2025, or approximately 25% of the total global spending.

Emerging markets will see the highest growth in new openings of directly-operated stores in the coming years. Tapestry is aiming for expansion into areas where it feels it is under-penetrated, such as Greater China, South East Asia, and Europe.

Consumer shift to affordable luxury

Affordable luxury brands and private labels have held up solidly during the current market conditions, while luxury and premium end companies, including Louis Vuitton and Hermes, have all reported slowing sales. The luxury market has been hit by a renewed sense of consumer ethics, which has seen some consumers turning away from luxurious lifestyles to take on a "less is more" approach.

This trend was observed even before the economic downturn, with consumers shying away from luxury items, hinting that consumers may not return to buy luxury goods in the near future and may opt for more understated choices.