TPR Q2 Deep Dive: Tariffs and One-Time Charges Weigh on Luxury Group’s Results

Luxury fashion conglomerate Tapestry (NYSE:TPR) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 8.3% year on year to $1.72 billion. The company’s full-year revenue guidance of $7.2 billion at the midpoint came in 1.4% above analysts’ estimates. Its GAAP loss of $2.49 per share was significantly below analysts’ consensus estimates.

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StockStory’s Take

Tapestry’s second quarter results were met with a significant negative market reaction, reflecting investor concerns despite revenue that surpassed Wall Street expectations. Management attributed the quarter’s top-line growth to strong momentum at its flagship Coach brand and successful customer acquisition among Gen Z and millennials, particularly in North America and China. However, the quarter’s bottom line was challenged by a substantial non-cash impairment charge related to Kate Spade, as well as higher operating expenses and new tariff impacts. CEO Joanne Crevoiserat acknowledged these headwinds, emphasizing, “We are clear-eyed about the environment… and even with tariffs, we’re continuing to expand our operating margin this year.”

Looking ahead, Tapestry’s full-year guidance is shaped by a mix of ongoing growth at Coach and a deliberate investment phase at Kate Spade, set against persistent tariff-related cost pressures. Management expects mid-single-digit revenue growth, underpinned by continued strength in younger consumer cohorts and expanded store presence, especially in North America. CFO Scott Roe noted that, despite the near-term margin pressure from tariffs, Tapestry is “well positioned to fully offset the impact of tariffs over time” through supply chain optimization and pricing initiatives. The company’s focus remains on building durable, direct-to-consumer relationships and maintaining operational agility in a shifting macro environment.

Key Insights from Management’s Remarks

Management pointed to broad-based growth at Coach, the acceleration of direct-to-consumer sales, and targeted brand investments as key drivers of the quarter, while also highlighting the disruptive impact of tariffs and a major impairment at Kate Spade.

• Coach’s Customer Acquisition Surge: Coach added over 1 million new North American customers in the quarter, 70% of whom were Gen Z or millennials, driving brand momentum and higher average selling prices.
• Omnichannel and Store Expansion: The company highlighted increased digital revenue alongside plans to grow physical store locations, leveraging data that shows younger consumers prefer in-person shopping experiences for luxury goods.
• Product Innovation Pipeline: Management credited new product launches—such as the Coach Kisslock bag, which sold out rapidly, and expanded collections like the New York and Brooklyn lines—for fueling demand and brand “heat.”
• Kate Spade Brand Reset: Kate Spade’s performance was intentionally pressured due to a strategic reset, with investments in marketing and product assortment simplification aimed at long-term growth, but resulting in a substantial non-cash impairment this quarter.
• Tariffs Create Margin Headwinds: CFO Scott Roe emphasized that new tariffs, particularly the end of the de minimis exemption on imports, imposed a $160 million annual cost headwind, impacting both gross and operating margins, with mitigation efforts underway but not fully offsetting the near-term impact.

Drivers of Future Performance

Tapestry’s outlook is shaped by Coach’s ongoing growth, targeted brand investments, and a strategy to navigate substantial tariff-related headwinds.

• Coach’s Brand Strength and Expansion: Management expects Coach to maintain its momentum, driven by new customer acquisition, higher average selling prices, and a growing store footprint, especially as younger consumers display a preference for in-person shopping.
• Tariff Mitigation and Supply Chain Adjustments: The company is implementing supply chain changes and selective price increases to partially offset the $160 million in incremental tariff costs, but expects margin pressure, particularly in the second half of the year, as higher-tariff inventory cycles through.
• Kate Spade Turnaround Investments: Tapestry is investing in marketing and simplifying the product assortment at Kate Spade, accepting near-term revenue and profit pressure in exchange for building a foundation for sustainable growth, with management closely monitoring progress through brand awareness and customer acquisition metrics.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will focus on (1) the pace of Coach’s new customer acquisition and effectiveness of store expansion, (2) evidence that tariff mitigation strategies are reducing margin headwinds, and (3) progress in Kate Spade’s turnaround—particularly improvements in brand awareness, customer engagement, and early signs of revenue stabilization. Developments in global consumer demand and any additional supply chain adjustments will also be closely watched.

Tapestry currently trades at $96.50, down from $113.56 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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