Tapestry, Inc. (TPR Quick QuoteTPR - Free Report) reported strong first-quarter fiscal 2027 results, with earnings and revenues surpassing the Zacks Consensus Estimate. The performance benefited from robust Coach brand momentum, broad-based international growth, margin expansion and disciplined expense management.

Adjusted earnings of $1.82 per share beat the Zacks Consensus Estimate of $1.56 and rose 31.9% from $1.38 a year ago. Revenues of $1.894 billion topped the consensus estimate of $1.842 billion and rose 11.1% year over year. Excluding the divested Stuart Weitzman business, pro forma revenues increased 12% year over year. The company raised its fiscal 2027 revenues, operating margin and earnings outlook.

TPR Rides on Coach Strength as Kate Spade Lags

Coach revenues reached $1.66 billion, increasing 16% year over year on both reported and constant-currency bases. The brand welcomed more than 2.1 million new consumers, led by Gen Z. Handbag AUR increased at a low-double-digit rate, while unit volumes rose at a low-single-digit rate. The New York, Tabby and Teri collections supported customer acquisition, while footwear revenues grew more than 20%.

Kate Spade revenues declined 10% year over year to $233 million, in line with management's guidance. However, the brand's gross margin expanded 190 basis points. The brand attracted nearly 500,000 new customers, while the Margot, 454 and Duo handbag collections supported higher AURs. The company has about 50 lightly renovated Kate Spade stores and plans to add another 30 during the remainder of fiscal 2027.

Tapestry Posts Broad-Based Regional Growth

Regional performance remained strong on a pro forma constant-currency basis. North America revenues increased 4%, supported by 7% growth at Coach. Greater China revenues surged 39%, while Europe and Other Asia registered increases of 22% and 23%, respectively. Japan returned to growth, with revenues advancing 4%.

Direct-to-consumer revenues increased 9% on a pro forma basis, exceeding expectations. Store revenues grew at a low-double-digit rate, while digital sales advanced at a mid-single-digit rate. Wholesale revenues increased approximately 30%, driven by growth in international markets.

Tapestry acquired 2.6 million new customers globally during the quarter, with approximately 35% belonging to Gen Z. Management highlighted stronger demand from existing customers, indicating contributions from both new customer acquisition and repeat purchasing.

TPR Expands Margins on Operational Improvements

Adjusted gross profit increased 15% year over year to $1.49 billion. The adjusted gross margin expanded 220 basis points to 78.7%, reflecting 130 basis points of operational improvement, a 70-basis-point net benefit from tariffs and duties, and a 20-basis-point foreign currency benefit.

Adjusted operating income increased 24% to $439 million, with the adjusted operating margin expanding 230 basis points to 23.2%. Adjusted selling, general and administrative (SG&A) expenses totaled approximately $1.05 billion, representing 55.5% of sales, down 10 basis points year over year. Marketing investment increased 140 basis points. Earnings rose 37.5% to $1.76 per share from $1.28 a year earlier.

Tapestry Generates Cash & Boosts Shareholder Returns

Operating cash flow increased to $197 million from $113 million a year earlier. However, adjusted free cash flow declined to $56 million from $103 million. Capital expenditures and cloud computing implementation costs totaled $55 million compared with $38 million in the year-ago period.

Tapestry ended the quarter with $782 million in cash, cash equivalents and short-term investments, alongside $2.56 billion in borrowings. Inventory totaled $1.055 billion at quarter-end compared with approximately $1.02 billion a year earlier. The gross-debt-to-adjusted-EBITDA leverage ratio stood at 1.1X.

The company returned about $700 million to shareholders, including $600 million in share repurchases and more than $90 million in dividends. Management increased its fiscal 2027 repurchase target by $350 million to $1.7 billion, bringing anticipated total shareholder returns to approximately $2 billion. The board declared a quarterly dividend of 46.25 cents per share, payable Dec. 21, 2026.

TPR Raises FY27 Financial Outlook

Buoyed by strong first-quarter results, Tapestry raised its fiscal 2027 revenue guidance to $8.5-$8.6 billion from $8.4-$8.5 billion, representing constant-currency growth of 6-7%. Foreign currency is expected to provide a 30-basis-point tailwind. By brand, Coach revenues are projected to increase at a high-single-digit rate, while Kate Spade sales are expected to decline at a high-single-digit rate.

Regionally, management anticipates low-single-digit revenue growth in North America, with Coach growing at a mid-single-digit rate. Europe and Greater China are expected to register mid-teens growth, while Other Asia is projected to grow at a low-double-digit rate. Japan is expected to deliver low-single-digit growth.

Tapestry expects operating margin expansion of approximately 100 basis points to more than 24% compared with its earlier projection of 50 basis points of expansion. Gross margin is expected to improve approximately 80 basis points, supported by operational gains and favorable brand and geographic mix. SG&A expenses are projected to provide roughly 20 basis points of leverage. Coach's operating margin is expected to reach approximately 36%, while Kate Spade is anticipated to report a modest operating loss.

Adjusted earnings guidance was raised to $8.25-$8.35 per share from $7.80-$7.90, indicating year-over-year growth of 17-18%. Net interest expense is projected at approximately $60 million, with an effective tax rate of about 18% and a weighted average share count of about 200 million.

Adjusted free cash flow is still expected to approach $1.7 billion, with capital expenditures and cloud computing costs of approximately $300 million. The company also raised its planned share repurchases by $350 million to $1.7 billion, bringing expected shareholder returns to approximately $2 billion, including an anticipated annual dividend of $1.85 per share.

The outlook incorporates a low-to-mid-20% tariff rate on U.S. imports, resulting in a modest net year-over-year benefit. It excludes the additional 53rd week of fiscal 2027, which is expected to contribute approximately one percentage point to annual revenue growth without affecting the full-year operating margin.

Tapestry Projects Growth for Q2

For the second quarter of fiscal 2027, Tapestry expects revenues to increase 5-6% year over year on a constant-currency basis. Reported revenue growth is projected at approximately 6% at the midpoint of the guidance range, including a 70-basis-point foreign currency tailwind.

By brand, Coach revenues are expected to grow at a high-single-digit rate, supported by mid-single-digit growth in North America and mid-teens growth internationally. Kate Spade revenues are projected to decline at a low-double-digit rate.

The company anticipates gross margin expansion of approximately 170 basis points. Meanwhile, SG&A expenses, as a percentage of sales, are expected to increase roughly 120 basis points, primarily due to higher marketing investments. Consequently, operating margin is projected to expand approximately 50 basis points year over year.

Adjusted earnings are expected to be approximately $3.05 per share, representing low-teens growth from the year-ago quarter. For the second half of fiscal 2027, management anticipates mid-single-digit revenue growth and low-teens EPS growth, with fourth-quarter earnings growth outpacing the third quarter.

Shares of Tapestry have dipped 17.3% over the past three months compared with the industry’s 1.1% decline.

TPR Stock Past Three-Month Performance

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TPR's Zacks Rank & Other Key Picks

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

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