Coach owner's revenue rose thanks to zoomers and millennials. Why did the stock fall?

Fashion house Tapestry reported revenue growth that exceeded Wall Street expectations. This was fueled by the surge in popularity of its Coach brand among Zoomers and Millennials. However, Tapestry's stock plunged more than 15% after the quarterly report. Investors took notice of declining revenue at its other brands, Kate Spade and Stuart Weitzman, as well as a "staggering" net loss.

Tapestry's revenue in the fourth quarter of fiscal 2025, which ended June 28, rose 8% from the same period in 2024 to $1.723 billion. Analysts had expected the figure to be $1.681 billion, according to FactSet, MarketWatch reported . Adjusted earnings excluding one-time items reached $1.04 per share, compared with Wall Street's forecast of $1.02.

The main driver of growth was luxury leather goods brand - primarily handbags and accessories - Coach, whose sales added 14% to reach $1.425 billion, also beating analysts' estimates. Tapestry explained that Coach has become popular with Generation Z and Y customers. Of the 1.5 million new customers in North America in the most recent quarter - 60% were Zoomers and Millennials, the company said.

However, Coach's results weren't enough to offset the weak performance of other brands. Tapestry shares, which closed at a record high on Wednesday, August 13, collapsed 15.7% in Thursday trading and topped the list of S&P 500 index outsiders. The company's stock posted its biggest daily drop since April, when it lost 12.9% amid Donald Trump's imposition of duties, MarketWatch recalls.

Kate Spade brand sales fell 13% to $252.6 million - slightly better than analysts' expectations ($251.3 million). However, this is the tenth consecutive quarter of declining revenue. It's also the lowest fourth quarter for the brand since 2020, MarketWatch emphasizes.

Stuart Weitzman's revenue fell 10% to $45.5 million. Tapestry completed the sale of the brand to Caleres in August.

At the same time, the company's company-wide performance has been strong, but only "good enough" - given the strong growth in quotes in 2025, MarketWatch notes. Since the beginning of the year, Tapestry shares are up 48.7%, while the Consumer Discretionary Select Sector SPDR ETF has added 2% and the S&P 500 Index is up 9.8%.

GlobalData analyst Neil Saunders rated Tapestry's total revenue growth better: he called it a "significant achievement" amid soft market conditions. However, he noted, things were spoiled by a "very bleak" earnings situation and a "staggering" net loss, which came in at $517 million, or $2.49 per share - versus net income of $159.3 million, or $0.68 per share, a year earlier. Saunders identified two reasons for the loss: a $120 million write-down on debt raised to finance the failed Capri takeover, which was blocked by regulators, and the depreciation of the Kate Spade brand. According to the analyst, the management is responsible for the latter, as it failed to restore the brand to its former strength.

In its outlook for the new fiscal year, Tapestry expects revenue to approach $7.2 billion, which would represent low single-digit percentage growth (excluding Stuart Weitzman's performance). The FactSet consensus for revenue is $7.12 billion. The company forecasts adjusted full-year earnings in the range of $5.3-5.45 per share, which includes a negative impact from additional duties of more than $0.6 per share. Market estimates for earnings were slightly higher at $5.49 per share.

Tapestry promised that operating margins, even in this environment, would exceed last year's figure, increasing by more than 2.5 percentage points. But that effect is almost completely offset by the negative impact of duties, the company explained. Over time, it expects to compensate for this, MarketWatch writes.

The majority of analysts tracking Tapestry securities recommend buying them - 14 out of 21 have issued Buy and Overweight ratings, MarketWatch data shows. Six advise holding these stocks in a portfolio (Hold), and only one suggests selling (Underweight). The Wall Street consensus price target is $115.9, up 21% from Thursday's close.

This article was AI-translated and verified by a human editor