Tapestry Raises Earnings Forecast as Young Consumers Rush to Buy Coach Bags, Stock Surges

Updated share price information in paragraph 2; added commentary in paragraphs 13 to 15

Danielle Kaye/Anuja Bharat Mistry

Reuters, November 5 - Tapestry (TPR.N) raised its annual revenue and profit forecasts on Thursday, betting that young affluent consumers will continue to buy its Coach handbags during the holiday season, despite a slowdown in consumer spending across the broader luxury goods sector.

The company's shares rose 16% in pre-market trading. As of the last close, the stock was down about 2% so far this year.

The high-end handbag maker also exceeded market expectations for first-quarter revenue, especially with a significant acceleration in sales in China where local revenue jumped 43%. Company executives told Reuters that the quarter's earnings beat was mainly thanks to strong Coach sales in North America.

Tapestry has benefited from Coach's growing popularity among Gen Z consumers in North America, China, and Europe—the company targeted this demographic through products such as bag charms and marketing campaigns featuring singer Tyla, actress Elle Fanning, and K-pop star So-yeon.

But in its largest market, North America, overall growth momentum has slightly slowed because Tapestry's Kate Spade brand is facing a decline in sales.

According to reported figures, Coach's revenue grew 16% this quarter, while Kate Spade's sales dropped 10% compared to the same period last year.

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"We're seeing strong growth across different groups—whether in terms of economic status or age," Coach CEO Todd Kahn told Reuters.

"Our products and their value proposition are extremely attractive within the current price range, so we will not increase promotional activities," Kahn added. He spoke of the upcoming holiday shopping season and the "golden price point" of the brand's products, priced between $200 and $500.

Tapestry now expects to buy back $1.7 billion worth of shares this fiscal year, increasing its previous guidance by $350 million.

While spending on non-essential goods has contracted among lower-income consumers, affluent Americans continue to buy "affordable" luxury brands such as Coach and Ralph Lauren RL.N. This contributed to stronger-than-expected U.S. retail sales (link) in September despite economic uncertainty.

Tapestry expects fiscal year 2027 revenue to be between $8.5 billion and $8.6 billion, up from a previous range of $8.4 billion to $8.5 billion.

The company also projects annual earnings per share between $8.25 and $8.35, compared to a previous forecast of $7.80 to $7.90.

"Coach has essentially grown very adept at integrating into the lives and cultures of young consumers, and has been richly rewarded for it," said GlobalData Managing Director Neil Saunders.

However, Saunders added that Tapestry "is currently more of a 'one-trick pony' than a true luxury group," pointing out the company's struggles in boosting the Kate Spade brand and its over-reliance on Coach's success.

Tapestry CEO Joanne Crevoiserat said on the earnings call that under new Creative Director Jonathan Saunders, Kate Spade is working to increase brand relevance and strengthen its handbag collection.

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Meanwhile, top global luxury brands including Kering PRTP.PA (parent company of Gucci), French luxury giant LVMH LVMH.PA, and Hermes HRMS.PA are facing new challenges due to escalating Middle East conflict and increased tax scrutiny on wealthy consumers in China. These factors have added to existing pressures from weak demand in China and the U.S. (link).

According to data compiled by London Stock Exchange Group (LSEG), Tapestry's quarterly sales rose 11.1% to $1.89 billion, surpassing analysts' expectations for a 9.12% rise to $1.86 billion.

Its adjusted earnings per share were $1.82, ahead of the expected $1.57.

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