Tapestry forecasts annual profit below estimates on tariff pain

Tapestry (TPR.N) shares plunged 8% premarket after the Coach handbag maker forecast fiscal 2026 profit below analyst estimates, citing a significant $160 million hit from U.S. import duties, which could impact its operating margin by 230 basis points. The company expects FY26 EPS of $5.30-$5.45, below the $5.49 consensus, primarily due to these tariffs, despite projecting FY26 revenue of $7.2 billion, above estimates, and reporting strong recent quarterly sales and adjusted profit beats. This outlook highlights ongoing tariff pressures and broader luxury sector slowdown concerns, even as demand for its Coach brand remains robust.

Analysis

Tapestry (TPR) is facing a significant conflict between strong operational performance and severe macroeconomic headwinds, primarily from U.S. import tariffs. The company's stock reacted with an 8% premarket plunge after it issued a fiscal 2026 profit forecast of $5.30 to $5.45 per share, below the $5.49 analyst consensus. This guidance miss is directly attributable to an anticipated $160 million impact from tariffs, which is projected to erode the fiscal 2026 operating margin by approximately 230 basis points. This margin pressure overshadows an otherwise robust top-line outlook, with projected FY26 revenue of $7.2 billion comfortably beating the $7.11 billion estimate. The revenue strength is fueled by the continued popularity of its Coach brand, particularly the Tabby and Empire bags, and successful engagement with younger demographics. This brand momentum was evident in the most recent quarter, where the company beat analyst estimates on both revenue ($1.72 billion vs. $1.68 billion) and adjusted profit ($1.04 vs. $1.02). However, the market is weighing the tariff burden alongside a broader luxury sector slowdown, which has also impacted peers like Kering and LVMH, and concerns over weakening U.S. consumer spending.

Key Decisions for Investors

• Investors should recognize that the market is currently prioritizing the significant margin compression from tariffs over the company's strong top-line growth, warranting caution in the short term until the 8% stock decline stabilizes.
• For those with a longer-term horizon, the pronounced stock weakness could present a buying opportunity, predicated on the thesis that the underlying strength of the Coach brand will eventually overcome the present policy-driven profit headwinds.
• Monitor for any updates on the company's supply chain adjustments or changes in U.S. trade policy, as these are the primary drivers of the current negative outlook and any reversal could serve as a major positive catalyst.
• Given the broader luxury sector slowdown, compare Tapestry's valuation and superior revenue growth post-selloff against peers like Kering and LVMH to evaluate for a potential relative value opportunity.