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Tapestry (TPR) posted a strong Q3 2025 beat driven by Coach, but looming tariff headwinds and high leverage pose risks despite robust capital returns and operational efficiency.

# Tapestry Inc. Delivers Strong Q3 2025 Beat, But Tariff Headwinds Loom

---

## Executive Summary

- **Tapestry Inc. (TPR) posted a robust Q3 2025, beating EPS expectations by $0.15 ($1.03 vs. $0.88 consensus) and delivering revenue growth of 6.89%.** The outperformance was driven by the Coach brand, which continues to demonstrate both volume and pricing power.
- **Earnings quality remains high, with net margins at 12.83% and gross profit of $1.21B,** reflecting strong operational efficiency and disciplined cost control. SG&A expenses are expected to remain flat year over year, providing at least 100 basis points of expense leverage.
- **Management’s tone was bullish on Coach but more cautious on Kate Spade,** which faces revenue headwinds despite margin improvements. The company is actively managing its portfolio, including the divestiture of Stuart Weitzman.
- **Risks are emerging from new tariffs and duty changes, which are expected to create a $160M profit headwind in FY2026 and compress margins by approximately 230 basis points.** Elevated debt levels (debt-to-equity of 2.75) also warrant close monitoring.
- **Catalyst watch:** Investors should monitor the Q4 2025 results, the impact of tariff changes, and execution on capital return plans (over $1B in FY2026, including a 14% dividend increase).

---

## Performance Snapshot

| Metric         | Reported | Consensus | Surprise | YoY Change |
|----------------|----------|-----------|----------|------------|
| Revenue        | $1.21B   | $1.13B    | +$0.08B  | +6.89%     |
| EPS            | $1.03    | $0.88     | +$0.15   | +12.0%     |
| Net Margin     | 12.83%   | —         | —        | +80 bps    |
| Gross Profit   | $1.21B   | —         | —        | +7.2%      |
| ROE            | 14.37%   | —         | —        | +60 bps    |

*Coach accounted for 80% of sales and over 90% of operating profit.*

---

## Earnings Quality

Tapestry’s Q3 2025 results highlight a **high-quality earnings profile**. Revenue growth was driven by sustainable factors—volume and pricing at Coach—rather than one-off events. **Margins remain industry-leading** (net margin 12.83%), and gross profit growth outpaced revenue, reflecting strong cost discipline. SG&A expenses are expected to remain flat, providing at least 100 basis points of expense leverage. However, the company’s high debt-to-equity ratio (2.75) is a structural risk, especially in a rising rate environment.

---

## Management Commentary & Guidance

Management struck a **bullish tone on Coach**, emphasizing its resilience and growth potential. The outlook for Kate Spade was more measured, with management acknowledging ongoing revenue pressures but highlighting margin improvements. The company reiterated its commitment to **portfolio discipline**, including the divestiture of Stuart Weitzman. **Forward guidance for Q4 2025 EPS ($1.01) and FY2026 capital returns (over $1B, including a 14% dividend increase)** is aligned with consensus, but management’s tone was slightly conservative given the upcoming tariff headwinds.

---

## Key Risks

- **Tariff and Duty Headwinds:** New tariffs are expected to create a $160M profit headwind in FY2026, compressing margins by ~230 bps.
- **Leverage:** The debt-to-equity ratio of 2.75 is elevated, increasing sensitivity to cash flow disruptions.
- **Brand Concentration:** Heavy reliance on Coach (80% of sales) could amplify risks if brand momentum falters.
- **Kate Spade Turnaround:** Ongoing revenue pressures at Kate Spade could weigh on overall growth.

---

## Expected Market Reaction

The market is likely to remain **cautiously optimistic**. The consistent EPS beats and strong operational performance support the current valuation, but enthusiasm may be tempered by concerns over new tariff challenges and high leverage. **Analyst upgrades and strong options activity** (calls in the $60–$111 range) reflect optimism, but the stock’s 187.83% rally over the past year suggests much of the good news is already priced in.

---

## Final Takeaway

**Tapestry Inc. delivered a strong, high-quality quarter, underpinned by Coach’s outperformance and disciplined cost control.** However, the market may be underestimating the impact of upcoming tariff headwinds and the risks associated with high leverage. Conversely, the company’s robust capital allocation strategy (share repurchases, dividend growth) and operational efficiency may be underappreciated. 

**Upcoming catalysts:**  
- Q4 2025 earnings and FY2026 guidance updates  
- Execution on capital return plans and impact of tariff changes

**Bottom line:** Tapestry’s quarter is fundamentally strong, but investors should remain vigilant regarding external risks and the company’s ability to sustain momentum across its full brand portfolio.

Tapestry (TPR): Strong Q3, Tariff Risks Ahead

Tapestry (TPR) is set for margin expansion and digital-driven growth, with Coach outperforming and proactive inventory management supporting earnings stability ahead of Q4 2024 results.

# Tapestry, Inc.: Navigating Margin Expansion and Digital Momentum Amid Brand Divergence – Q4 2024 Earnings Outlook

## Executive Summary: Bullish Outlook Anchored by Coach and Digital Strength

We maintain a **Bullish** stance on Tapestry, Inc. (NYSE: TPR) heading into the Q4 2024 earnings release, underpinned by **robust Coach segment performance** and **accelerating digital sales**. Q3 revenue reached **$1.58B** (+5.4% YoY), with gross margin at **76.1%** and operating margin expanding to **16.0%**. Our base case projects Q4 revenue of **$1.65B** and adjusted EPS of **$0.98**, supported by continued digital and DTC channel growth. The market may be underestimating the **margin stability provided by proactive inventory management** (inventory at $874M in Q3), which could buffer against macro and supply chain volatility.

## Recent Trends Signal What’s Next: Margin Expansion and Segment Divergence

Tapestry’s last two quarters have demonstrated **consistent revenue growth** and **margin improvement**, primarily driven by Coach’s outperformance and digital channel gains. Q3 saw revenue of **$1.58B** (+5.4% YoY), gross margin at **76.1%**, and operating margin at **16.0%**. EPS has trended upward, with Q3 adjusted EPS at **$0.92**. The following table illustrates the positive trajectory across the last four quarters:

### Quarterly Financial Trends

| Quarter   | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Adjusted EPS ($) |
|-----------|--------------|------------------|----------------------|------------------|
| Q4 2023   | 1.56         | 75.2             | 15.2                 | 0.88             |
| Q1 2024   | 1.60         | 75.7             | 15.6                 | 0.90             |
| Q2 2024   | 1.62         | 75.9             | 15.8                 | 0.91             |
| Q3 2024   | 1.58         | 76.1             | 16.0                 | 0.92             |

**Trend:** Revenue and margins have steadily improved, with Coach’s strength offsetting Kate Spade’s softness and Stuart Weitzman’s divestiture.

## Management’s Forward Tone and Positioning: Cautious Optimism with Focus on Core

Management’s Q3 commentary was **confident yet measured**, emphasizing Coach’s role as the “primary growth engine” and highlighting “accelerated growth” in digital and DTC channels. Key quotes include:

- “We’re seeing early signs of normalization in demand, particularly in North America.” (Q3 2024 Earnings Call)
- “Coach continues to outperform, driving our raised outlook for the year.” (Q3 2024 Earnings Call)

Compared to prior quarters, the tone has shifted from broad-based optimism to a **more focused narrative on Coach and digital execution**, while remaining cautious on Kate Spade and macro risks. This signals a strategic pivot to defend margin and prioritize high-ROIC segments.

## KPI Trends & Upcoming Quarter Drivers: Digital, Inventory, and Store Leverage

Three KPIs will be pivotal for Q4 results:

- **Customer Acquisition:** Q3 saw **1.2M new customers**, with Gen Z and Millennials driving digital and DTC growth.
- **Inventory Management:** Inventory at **$874M** (up YoY) reflects proactive supply chain positioning.
- **Coach Store Performance:** Nearly **900 global company-owned stores** continue to deliver strong operating leverage.

### KPI Movement Table

| KPI                   | Q3 2023 | Q2 2024 | Q3 2024 | YoY Change | QoQ Change |
|-----------------------|---------|---------|---------|------------|------------|
| New Customers (M)     | 1.0     | 1.1     | 1.2     | +20%       | +9%        |
| Inventory ($M)        | 810     | 860     | 874     | +8%        | +2%        |
| Digital % of Revenue  | 27      | 29      | 30      | +3ppt      | +1ppt      |

**Impact:** Sustained customer growth and digital mix will drive revenue and margin upside, while inventory discipline reduces operational risk.

## Missed by the Street: Inventory Strategy and Conservative Coach Guidance

Two overlooked signals:

1. **Inventory Management:** The Street may be underappreciating the margin protection from Tapestry’s “proactive supply chain management” (Q3 2024 Earnings Call), with inventory up to **$874M**. This positions TPR to avoid markdowns and stockouts, supporting stable gross margins.
2. **Coach Guidance Nuance:** Management’s use of “accelerated growth” for Coach, without promising double-digit expansion, suggests **conservative guidance**. If Coach outperforms, EPS could surprise to the upside.

## Scenarios for the Upcoming Quarter: Bull, Base, Bear

### Q4 2024 Scenario Table

| Scenario | Revenue ($B) | Adjusted EPS ($) | Operating Margin (%) | Key Assumptions                                         |
|----------|--------------|------------------|----------------------|---------------------------------------------------------|
| Bull     | 1.67         | 1.05             | 16.8                 | Digital acceleration, strong Coach, supply chain gains   |
| Base     | 1.65         | 0.98             | 16.4                 | Steady Coach, stable FX, managed Kate Spade headwinds    |
| Bear     | 1.63         | 0.93             | 16.0                 | Kate Spade softness, tariff/FX pressure, muted digital   |

**Most Likely:** The **Base Case** is most probable, given current digital momentum, Coach’s resilience, and management’s measured tone. Upside exists if digital and Coach outperform, but risks from Kate Spade and tariffs cap the bull scenario.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter   | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Adjusted EPS ($) |
|-----------|--------------|------------------|----------------------|------------------|
| Q4 2023   | 1.56         | 75.2             | 15.2                 | 0.88             |
| Q1 2024   | 1.60         | 75.7             | 15.6                 | 0.90             |
| Q2 2024   | 1.62         | 75.9             | 15.8                 | 0.91             |
| Q3 2024   | 1.58         | 76.1             | 16.0                 | 0.92             |

### KPI Movement Table

| KPI                   | Q3 2023 | Q2 2024 | Q3 2024 | YoY Change | QoQ Change |
|-----------------------|---------|---------|---------|------------|------------|
| New Customers (M)     | 1.0     | 1.1     | 1.2     | +20%       | +9%        |
| Inventory ($M)        | 810     | 860     | 874     | +8%        | +2%        |
| Digital % of Revenue  | 27      | 29      | 30      | +3ppt      | +1ppt      |

### Key Management Quotes

| Quote                                                                 | Source                    | Interpretation/Risk Implication                                 |
|-----------------------------------------------------------------------|---------------------------|-----------------------------------------------------------------|
| “Coach continues to outperform, driving our raised outlook for the year.” | Q3 2024 Earnings Call     | Coach is the primary growth engine; upside if trend persists.   |
| “We’re seeing early signs of normalization in demand, particularly in North America.” | Q3 2024 Earnings Call     | Demand stabilization could support revenue consistency.         |
| “Proactive supply chain management has positioned us well for volatility.” | Q3 2024 Earnings Call     | Inventory discipline may protect margins amid macro uncertainty.|
| “Kate Spade remains challenged, and we are taking steps to reposition the brand.” | Q3 2024 Earnings Call     | Ongoing headwinds in Kate Spade could weigh on consolidated results. |
| “Digital and DTC channels now represent nearly 30% of total revenue.” | Q3 2024 Earnings Call     | Digital mix is a structural margin and growth driver.           |
| “Tariff and FX pressures could impact up to 60bps of gross margin.”   | Q3 2024 10-Q Filing        | External risks may limit further margin expansion.              |
| “We are confident in our ability to deliver on our full-year guidance.” | Q3 2024 Earnings Call     | Management signals high visibility and execution confidence.    |

---

**Conclusion:**  
Tapestry’s Q4 2024 outlook is defined by **Coach’s resilience, digital channel momentum, and disciplined inventory management**. While risks remain from Kate Spade and external cost pressures, the company’s strategic focus and operational execution position it for continued margin expansion and potential upside surprise.

Tapestry (TPR): Margin Expansion & Digital Growth