Is TPR Positioned to Deliver Strong Growth Despite Tariff Headwinds?

Tapestry (TPR) reported record fiscal 2025 revenues of $7 billion (+5% y/y) and adjusted EPS of $5.10, primarily driven by strong Coach brand performance. For fiscal 2026, the company projects sales of $7.2 billion and adjusted EPS of $5.30-$5.45, indicating continued growth despite absorbing over 60 cents in tariff-related costs, which will be offset by operating margin expansion and SG&A leverage. Tapestry also announced an $800 million share repurchase program and a 14% dividend increase, underscoring management's confidence in its financial outlook and commitment to shareholder returns amidst broader industry tariff headwinds.

Analysis

Tapestry, Inc. (TPR) has demonstrated significant operational resilience, reporting a 5% year-over-year revenue increase to $7 billion and adjusted EPS of $5.10 for fiscal 2025. This performance was driven by the Coach brand, which saw 10% annual growth fueled by strong momentum in key regions and accelerated customer acquisition among younger demographics. The company's fiscal 2026 guidance is notably strong, projecting revenue growth to $7.2 billion and adjusted EPS of $5.30-$5.45, even after absorbing an estimated $160 million in tariff-related costs. Management plans to offset these headwinds through a 120 basis point operational gross margin improvement and 160 basis points of SG&A leverage, leading to an expanded operating margin. This contrasts sharply with peers such as Under Armour (UAA), which anticipates its adjusted operating income will be halved due to similar pressures. Tapestry's confidence is further reinforced by a robust Q1 forecast, an $800 million share repurchase program, and a 14% dividend increase, signaling a strong belief in its ability to deliver sustained growth despite sector-wide challenges.

Key Decisions for Investors

• Given Tapestry's demonstrated ability to absorb significant tariff costs while guiding for EPS growth and expanding margins, investors may view the company as a resilient leader in the consumer discretionary space, warranting consideration for an overweight position.
• The stark divergence in outlook between Tapestry and its peers presents a potential pair trade opportunity, such as going long TPR while shorting a more heavily impacted competitor like Under Armour (UAA), which forecasts a severe contraction in profitability.
• It is prudent to monitor the performance of the Kate Spade brand for its projected second-half improvement and watch for any deviation from guidance in the latter half of fiscal 2026, when the bulk of tariff impacts are expected to materialize.