Tapestry Hikes Annual Forecast as Tabby Handbag Demand Surges Among Gen-Z

Tapestry (NYSE: TPR) is riding high thanks to the popularity of Coach's Tabby handbags, particularly among Gen-Z shoppers. The company's decision to maintain full prices on these sought-after bags, priced up to $750, has helped shield margins despite tariff challenges from countries like India and Vietnam.

CEO Joanne Crevoiserat explained how the brand's focus on higher-margin products has been critical to navigating tariff pressures without passing costs on to consumers. While North America continues to dominate sales, Tapestry is making noticeable inroads in China, where sales jumped 19%, and Europe, which experienced a robust 32% increase in the last quarter.

Coach, accounting for nearly 85% of Tapestry's revenue, saw a constant-currency sales boost of 21%, accelerating from 13% growth in the prior quarter. This highlights sustained demand for affordable luxury items among wealthier younger consumers who remain selective but indulgent.

In contrast, Kate Spade hasn't had an easy run-sales have tapered for almost three years. The company's strategy involves trimming its handbag assortment by roughly 30%, while investing in fresh launches like the fall collection's crossbody bags, priced over $300. The effort seems to be paying off with sequential sales improvements, though a 9% decline was still reported in the first quarter.

Crevoiserat underscored the brand's disciplined approach to discounting at Kate Spade, aiming to protect its long-term desirability, even if that dents short-term revenue. It's a careful balancing act, rebuilding brand equity while avoiding the pitfalls of aggressive markdowns.

With Stuart Weitzman offloaded to Caleres earlier this year, Tapestry now anticipates annual revenue growth of 7% to 8%, boosting its outlook from a mid-single-digit increase. The company's adjusted earnings per share guidance for fiscal 2026 moved up to $5.45-$5.60 from the previous $5.30-$5.45.

Quarterly results gave investors something to talk about with net sales hitting $1.70 billion, outpacing the $1.64 billion expectation. Adjusted EPS of $1.38 also beat the estimate of $1.26, showing more resilience than many anticipated.

The company's operational efficiency has improved as well: first-quarter adjusted operating margins rose 200 basis points, and the company targeted a higher annual margin despite an expected 230 basis point tariff impact. This suggests Tapestry is not just weathering global trade headwinds but finding ways to get leaner.

Despite this upbeat narrative, Tapestry shares took a hit in premarket trading, dipping about 7% after a nearly 70% gain so far this year. Perhaps traders are weighing valuation concerns or broader market volatility against the company's promising fundamentals.