On August 13, Tapestry (NYSE:TPR) reported fiscal 2026 results that beat the three-year targets management set at its Investor Day, and did so two years ahead of schedule. Revenue climbed to $8 billion, up 17% on a pro forma constant currency basis, while earnings per share jumped 38% to $7.05. Handbags led the way, but the quarter also exposed a widening gap between Coach’s momentum and Kate Spade’s stalled turnaround, a split investors will be watching closely heading into fiscal 2027.
Bull Case: The Coach Machine Keeps Humming
Tapestry’s full-year numbers were not a one-quarter fluke. Operating margin expanded 340 basis points to more than 23%, and the company added 11 million new customers across its brands, with Gen Z shoppers leading the way. Those younger buyers tend to spend at higher average unit prices and stick around, which is why management keeps pointing to acquisition as the engine behind everything else.
Coach did the heavy lifting. Fourth-quarter constant currency revenue rose 14%, with North America up 10%, Greater China up 30%, and Europe up 25%. Handbag prices rose at a mid-teens rate for the full year while unit volumes also grew, a combination that shows the brand can raise prices without scaring off shoppers. Footwear grew at a high-teens clip in the quarter, and management still sees a path for Coach to become a $10 billion brand.
That growth is translating into cash. Tapestry returned $1.7 billion to shareholders in fiscal 2026 and plans to return the same amount in fiscal 2027, backed by a 16% dividend increase to an annualized $1.85 per share. Leverage sits at 1.1 times adjusted EBITDA, more than a full turn below the company’s own 2.5 times ceiling, leaving room to keep buying back stock while it invests in stores.
Bear Case: Two Headwinds Worth Watching
Kate Spade remains the drag on the story. Management itself called the brand’s top-line progress “more gradual than we planned,” and unaided brand awareness still has not improved despite a marketing push. Guidance for fiscal 2027 calls for a high single-digit revenue decline at Kate Spade and a modest operating loss, with new hires in marketing and creative meant to fix a problem that has outlasted earlier attempts.
Tariffs are the other complication. Tapestry is assuming a mid-20s percent tariff rate on U.S. imports for fiscal 2027, and the fourth quarter already absorbed a 60 basis point tariff and duty hit, with 250 basis points of that landing on Kate Spade alone. Management expects tariffs to be a modest tailwind in the first half of the year and a headwind in the second half, adding uncertainty to the shape of quarterly results.
Growth is also downshifting from an unusually strong base. Fiscal 2026 revenue grew 17% on a constant currency basis, but fiscal 2027 guidance calls for mid-single-digit growth, with the back half of the year slower than the front half. Japan sales fell 4% in the fourth quarter as Tapestry pulled back on promotions there, though the company is forecasting a return to growth in that market in fiscal 2027.
What Wall Street Is Pricing In
Hedge fund ownership of Tapestry rose from 63 funds to 67 in the most recent quarter, suggesting institutional buyers have been adding rather than trimming. Short interest sits at 9.56% of the float, a level that points to a real bear camp still betting against the stock. Shares trade at a forward price-to-earnings ratio of 16.34 as of August 21, a multiple that does not scream expensive for a business guiding to low double-digit earnings growth.
Where This Leaves Investors
Tapestry heads into fiscal 2027 having already delivered on promises it wasn’t supposed to hit until later, with Coach doing most of the work and a balance sheet strong enough to keep funding buybacks and a bigger dividend. The open question is whether Kate Spade can stop being a drag before tariffs and a tougher comparison turn into a real test of the model. For the growth story to keep compounding, Coach needs to keep converting new, younger shoppers into repeat buyers at higher prices.
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