Tapestry, Inc. (NYSE:TPR) shares fell as much as 16.9% to a more than six-month low of $127.78 after the company paired another strong Coach quarter with a revenue outlook that fell just short of expectations.
Tapestry, Inc. (NYSE:TPR) reported fourth-quarter revenue of $1.88 billion, up 8.9% and broadly in line with consensus. Adjusted EPS of $1.32 beat the $1.28 estimate. For fiscal 2027, however, the company forecast revenue of $8.4 billion to $8.5 billion. The midpoint was slightly below the $8.46 billion consensus, even as expected EPS of $7.80 to $7.90 came in marginally above estimates.
The size of the selloff in Tapestry, Inc. (NYSE:TPR) suggests the market had priced in continued upside surprises. It also reflected concern that Coach’s growth could moderate from an unusually strong base while continuing to do nearly all the portfolio’s growth work.
COACH IS CARRYING THE PORTFOLIO
Coach revenue reached $1.64 billion, rising 14% in constant currency. Kate Spade generated only $235 million and declined 7%. Coach therefore accounted for roughly 87% of quarterly sales at Tapestry, Inc. (NYSE:TPR).
The full-year split was just as stark. Coach grew 23% in constant currency to $6.91 billion, while Kate Spade fell 11% to $1.07 billion. After selling Stuart Weitzman, the company now owns two brands, but only one is expanding.
BULL CASE: COACH STILL HAS ROOM TO RUN
Coach’s momentum was not confined to North America. Tapestry, Inc. (NYSE:TPR) reported constant-currency revenue growth of 28% in Greater China and 19% in Europe. Coach continued attracting younger customers through products including the New York family—featuring Brooklyn and Empire—as well as the Tabby family. Handbag average unit retail increased at a mid-teens rate.
That momentum is producing attractive economics. Tapestry, Inc. (NYSE:TPR) expanded adjusted gross margin by 180 basis points to 78.1% and generated $1.86 billion of adjusted free cash flow for the year. Management expects Coach to maintain an operating margin near 36% and plans another $1.7 billion of dividends and repurchases in fiscal 2027.
Coach does not need Kate Spade to recover immediately for earnings to keep rising. International growth, higher average unit retail and buybacks could allow EPS to advance even if group revenue settles into the mid-single digits.
BEAR CASE: KATE SPADE IS STILL NOT A SECOND GROWTH ENGINE
Tapestry, Inc. (NYSE:TPR) expects Kate Spade revenue to decline at a high-single-digit rate in fiscal 2027 and the brand to record a modest operating loss as investment continues. First-quarter guidance assumes an even steeper low-double-digit decline.
Jonathan Saunders’ appointment as executive creative director may strengthen product and storytelling, but the turnaround remains a plan rather than a demonstrated sales inflection. Tapestry’s pro forma constant-currency North American revenue growth slowed to 7% from approximately 20% in the preceding quarter, raising the stakes if Coach’s largest market cools further.
The risk is not that Kate Spade sinks the company. It is that Coach slows before the second brand becomes capable of offsetting it. Management already expects Coach’s fiscal 2027 growth to moderate to a high-single-digit rate.
INSIDER MONKEY’S HEDGE FUND DATA
The filings available so far reflect positions held before the fiscal results and fiscal 2027 outlook were released.
Insider Monkey’s first-quarter database showed 67 hedge funds holding Tapestry, Inc. (NYSE:TPR), up from 63 funds three months earlier.
CONCLUSION
The portfolio has little room for disappointment. Tapestry, Inc. (NYSE:TPR) remains a highly profitable Coach-led company, but the reaction suggests investors want evidence that Kate Spade can stabilize while remaining highly sensitive to any slowdown at Coach.
Coach remains the earnings engine and can support growth on its own. The selloff showed that investors are no longer rewarding the broader portfolio until Kate Spade demonstrates a credible sales recovery.
While we acknowledge the risk and potential of TPR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TPR and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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