Tapestry, Inc. (TPR Quick QuoteTPR - Free Report) posted adjusted earnings of $1.66 per share in the third quarter of fiscal 2026, surging 62% year over year and beating the Zacks Consensus Estimate of $1.31 by 26.7%. Revenues rose 21% from the year-ago period to $1.92 billion, topping the consensus mark of $1.77 billion by 8.5%.

The company acquired more than 2.4 million customers globally during the quarter, led by growing Gen Z demand, which represented more than 35% of new customers. Existing customer demand also improved, reflecting broad-based brand strength and customer retention. Direct-to-consumer revenues increased 23% year over year on a pro-forma constant-currency basis, driven by nearly 25% digital growth and more than 20% growth in global brick-and-mortar sales.

Tapestry also raised its fiscal 2026 outlook, following better-than-expected quarterly execution. However, TPR shares declined 12.3% yesterday as investors reacted to tariff-related concerns, elevated expectations and persistent weakness at Kate Spade.

TPR Outperforms on Regional Demand & Channel Strength

On a pro-forma constant-currency basis, the company delivered double-digit growth across several major markets. North America sales increased 20% year over year to $1.10 billion. Greater China revenues soared 55% on a constant-currency basis to $432.2 million.

Europe revenues rose 21% on a constant-currency basis to $118.6 million, whereas Other Asia revenues increased 16%. Japan sales declined 10% due to an intentional reduction in promotional activity.

Tapestry Leans on Coach as Kate Spade Rebuilds

Coach continued to be the primary engine of growth. Brand revenues climbed 31% year over year (29% in constant currency) to $1.70 billion, beating the Zacks Consensus Estimate of $1.55 billion, with strength across North America, Greater China and Europe. Management highlighted momentum in core leathergoods, supported by higher unit volumes and rising average unit retail.

Kate Spade revenue fell 10% year over year (11% in constant currency) to $219.6 million, lagging the consensus estimate of $226.7 million and reflecting pressure from a strategic pullback in promotions at retail. Even so, the brand showed progress in customer acquisition, adding roughly 400,000 customers during the quarter, alongside improved full-price selling in handbags.

TPR Expands Margins Despite Tariff & Duty Pressure

Adjusted gross profit increased 22% year over year to $1.48 billion. The adjusted gross margin expanded 80 basis points to 76.9%. The increase was primarily driven by approximately 190 basis points of operational improvement, along with a favorable 70-basis-point contribution from the Stuart Weitzman divestiture. These gains fully offset tariff and duty headwinds of nearly 180 basis points, including a 150-basis-point impact on Coach’s gross margin and a 440-basis-point impact on Kate Spade’s gross margin.

Adjusted operating income increased 55% year over year to $430.1 million. Meanwhile, the adjusted operating margin expanded 490 basis points to 22.4%.

Adjusted SG&A expenses totaled $1.05 billion. As a percentage of sales, adjusted SG&A leveraged 410 basis points year over year. The quarter included a 160-basis-point increase in marketing investments, which accounted for 12% of the total sales. The improvement reflected disciplined cost management and the company’s targeted reinvestment strategy aimed at supporting long-term growth initiatives.

TPR’s Q3 Store Update

As of the end of the fiscal third quarter, the company operated 330 Coach stores and 180 Kate Spade stores in North America. Internationally, the store count stood at 625 for Coach and 155 for Kate Spade.

Tapestry Converts Profit to Cash & Returns Capital

Cash generation strengthened, supported by higher profitability and working-capital discipline. The operating cash flow was $263 million in the quarter. The adjusted free cash flow totaled $229 million in the quarter, while capital expenditure and cloud computing costs amounted to $50 million.

Tapestry ended the quarter with $1.07 billion in cash, cash equivalents and short-term investments and $2.38 billion in total borrowings, with a leverage ratio of 1.1X, based on gross-debt-to-adjusted-EBITDA. The company also continued to step up shareholder returns, including a dividend of 40 cents per share and $150 million in share repurchases during the quarter.

TPR Lifts FY26 Outlook After Q3 Beat

Reflecting the quarter’s outperformance and a stronger view for the fiscal fourth quarter, Tapestry raised its outlook. The company expects revenues of $7.95 billion, indicating pro-forma constant-currency growth of 16%, with foreign exchange expected to provide an 80-basis-point tailwind. 

Regionally, TPR anticipates mid-teens growth in North America, approximately 20% growth in Europe and more than 30% growth in Greater China, while Japan revenues are projected to decline at a high-single-digit rate and Other Asia is expected to deliver low-double-digit growth. By brand, Coach revenues are expected to grow more than 20%, whereas Kate Spade is projected to post a low-double-digit decline.

The company expects an operating margin of 23%, representing a year-over-year expansion of nearly 300 basis points and exceeding its prior outlook by 120 basis points. The gross margin is anticipated to improve 110 basis points, driven mainly by operational gains tied to higher AUR and an additional structural benefit from the Stuart Weitzman divestiture. These improvements are expected to offset tariff and duty headwinds of 120 basis points, along with modest foreign exchange impacts.

Tapestry also expects SG&A leverage to improve from the prior guidance, supported by disciplined expense management despite continued growth-focused investments. Marketing spending as a percentage of sales is projected to rise 190 basis points year over year and approach 13% of revenues. Meanwhile, Coach is expected to expand operating margins, while Kate Spade is still projected to report a modest operating loss due to higher tariff impacts and ongoing brand investments.

Earnings per share are expected to be $6.95, suggesting year-over-year growth of more than 35% and exceeding the prior guidance of $6.40-$6.45. The adjusted free cash flow is projected to approach $1.6 billion, while CapEx and cloud computing costs are expected to be $200 million, with the majority allocated toward store openings, renovations and digital investments.

TPR Stock Past 3-Month Performance

Image Source: Zacks Investment Research

Shares of the company have lost 15.4% in the past three months compared with the industry’s decline of 8%.

Zacks Rank & Other Key Picks

The company currently has a Zacks Rank of 2 (Buy).

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