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Tapestry targets full tariff mitigation by FY28; $3B buyback to lift EPS

Bottom Line Impact

If executed, tariff mitigation and disciplined capital returns can expand gross margins by 100-200 bps and drive low double-digit EPS growth in FY27-FY28, reinforcing Tapestry's accessible luxury leadership while strengthening Coach's brand equity and restoring Kate Spade's profitability.

Executive Summary

Tapestry plans to fully offset an estimated $160M FY26 tariff headwind within three years while executing a $3B share repurchase, signaling confidence in margin expansion and cash generation. Coach is positioned as the growth and profit engine toward a $10B long-run sales goal, while Kate Spade is guided to return to profitable topline growth by FY27, underpinning mid-single-digit revenue and low double-digit EPS growth in FY27-FY28.

Actionable Insights

Immediate Actions (Next 30-90 days)
Lock a three-year tariff mitigation playbook combining 2%-3% targeted pricing at Coach, 200-300 bps mix shift to higher-margin hero SKUs, and 15%-20% reduction in China-sourced volume
Rationale: Balanced levers reduce elasticity risk while delivering measurable gross margin protection and supply chain resilience
Role affected:CEO
Urgency level:immediate
Execute dual-sourcing to shift 10-15 percentage points of volume out of high-tariff corridors by FY27; negotiate 3%-5% vendor cost downs and consolidate freight lanes
Rationale: Diversification and cost-downs are essential to meet the FY28 full mitigation commitment
Role affected:Chief Supply Chain Officer
Urgency level:immediate
Short-term Actions (6-12 months)
Phase the $3B buyback with a rules-based program: 40% in next 12 months and remainder opportunistically, with guardrails tied to net leverage <2.0x and FCF yield >8%
Rationale: Optimizes EPS accretion while preserving balance-sheet flexibility amid policy volatility
Role affected:CFO
Urgency level:short-term
Accelerate AUR growth via limited-edition Coach capsules and personalization, targeting +3%-5% AUR and +150 bps full-price mix lift within 12 months
Rationale: Brand heat and scarcity can offset duty-related COGS inflation without damaging demand
Role affected:CMO
Urgency level:short-term

Strategic Analysis

Next 30-90 days, Tapestry must finalize pricing, sourcing, and channel actions to offset rising landed costs, front-load buyback tranches to exploit valuation dislocations, and communicate a credible tariff mitigation bridge to sustain investor confidence. Expect selective price increases at Coach, tighter outlet exposure, and accelerated vendor negotiations, with near-term gross margin stabilization despite cost inflation.

Over 6-12 months, full tariff mitigation depends on mix upgrades at Coach, a disciplined Kate Spade turnaround, and sourcing diversification beyond China. Successful execution supports mid-single-digit top-line growth and 100-200 bps cumulative gross margin improvement by FY28, reinforcing Tapestry's accessible luxury leadership and improving cash returns via buybacks.

In accessible luxury, Coach's pricing power and DTC depth can outpace peers with heavier wholesale or outlet reliance. Capri's Michael Kors remains more promo-sensitive, while Ralph Lauren and European maisons push AUR expansion. Effective tariff mitigation and capital returns strengthen Tapestry's relative TSR profile and strategic optionality versus peers constrained by margin pressure.

Suppliers will face increased compliance and relocation demands to Vietnam, India, and Mexico; logistics partners must adapt to higher duties as de-minimis ends; wholesale partners could see tighter allocations as DTC and full-price channels are prioritized; consumers may experience 2%-4% list price lift and reduced promo cadence, especially at Coach.

Risks & Opportunities

Primary Risks

  • Policy risk: faster-than-expected tariff escalation or earlier end of de-minimis raises COGS and fulfillment costs
  • Demand elasticity: price and promo pullback could dampen traffic, particularly in US outlets and for Kate Spade
  • Execution risk: delays in supply chain relocation and brand-specific turnarounds undermine margin targets

Primary Opportunities

  • Coach scale-up to $10B via men, footwear, and China full-price expansion with higher AUR
  • DTC acceleration and loyalty personalization to raise LTV and lower promo dependency
  • Share repurchases to drive double-digit EPS growth and rerating if margin bridge is delivered

Market Context

Accessible luxury faces mixed US demand and uneven China recovery; brands are prioritizing AUR growth, DTC penetration, and tighter promo discipline while navigating potential de-minimis removal and higher tariffs. Tapestry's plan aligns with sector moves by focusing on pricing power and sourcing diversification but distinguishes itself with a quantified mitigation timeline and a sizable buyback. Relative to peers more exposed to wholesale and outlets, Coach's brand equity and CRM depth offer an edge in passing through costs without eroding traffic, while Kate Spade's recovery remains the key swing factor.

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