Coach, Tariffs, and the $855 Million Question: Why Tapestry’s Shine Dimmed This Week

When a luxury icon drops 11.8% in five days, even the most seasoned Wall Street hands reach for their strongest espresso. Tapestry, Inc. (NYSE:TPR)—parent to Coach, Kate Spade, and until recently Stuart Weitzman—has been the darling of the luxury sector, up a staggering 149.7% in the last year. But this week, even as the S&P 500 cruised to new highs, Tapestry’s shares stumbled, leaving investors wondering: what tarnished the crown?

The Velvet Hammer: Record Revenues, Unwanted Surprises

On paper, Tapestry is the envy of its peers. Fiscal 2025 revenue hit a record $7.01 billion, up 5% year-over-year, while Q4 sales climbed 8% to $1.72 billion. Gross margins? An astonishing 76.3% in Q4, the highest on record. Adjusted earnings per share for the full year: $4.28. In a luxury market forecast to crawl at 1–3% annual growth, Tapestry’s engine is still purring.

But behind the showroom glass, a few cracks appeared. The company booked a bruising $855 million impairment charge tied to Kate Spade. While Coach handbags are still flying off shelves—mid-teens growth in average unit retail—the writedown reminded markets that not all Tapestry brands are cut from the same leather.

Tug of War: Tariffs and Trade Wind Shifts

Then came the macro headwinds. The U.S. government’s 2025 tariff salvos, aimed squarely at major trading partners, landed with a thud on Tapestry’s income statement. The abrupt end of the de minimis exemption for imports and new levies mean a $160 million profit hit—230 basis points shaved from margins, even after the company mitigated 30% of a $235 million tariff run rate. For a business with a 17.9% operating margin and 12.5% net income margin (TTM Q1 2025), that’s not just a paper cut; it’s a gash.

And while global trade is reconfiguring—U.S. imports shifting away from China to ASEAN and Mexico—the luxury supply chain can’t pivot overnight. Investors see a sector suddenly forced to reroute, reprice, and reinvent.

The Broken Merger, The Broken Spell

Adding to the drama, Tapestry’s $8.5 billion merger with Capri Holdings collapsed after a U.S. judge’s intervention. What was meant to be a supergroup of American luxury fizzled, leaving both companies to walk away—amicably, but with investors left holding the emotional bag. The failed deal cast a shadow: if scale is the future, Tapestry is suddenly, if only psychologically, smaller than it was a week ago.

Shareholder Candy: Buybacks and Dividends, But Is It Enough?

In classic luxury style, Tapestry reached for the velvet gloves: a $2 billion share buyback and a $1.40 annual dividend. The company returned $2.3 billion to shareholders in 2025 alone. Its leverage ratio is a conservative 1.4x, and free cash flow to sales sits at a healthy 13%. But with a price-to-earnings ratio of 28.45 and a beta of 1.47, the market is asking—how much of the future is already baked in?

Luxury’s New Reality: The Demand Chill

Behind the headlines, luxury demand is cooling. The industry faces a post-pandemic hangover: persistent inflation, shifting consumer priorities, and a China that is less reliable as a growth engine. Even as Tapestry outpaces the KraneShares Global Luxury Index ETF (KLXY)—up 58.3% in six months versus KLXY’s 2.7% fall—the narrative has shifted from “How high?” to “How safe?”

What the Crystal Ball Refuses to Say

Analysts are, as always, hedging their bets. Seventeen have a “buy” on Tapestry; the consensus rating is a moderate buy. The company forecasts FY2026 revenue near $7.2 billion and EPS of $5.30–$5.45, even with $0.60 of tariff and duty drag. But after a 12-month rally, this week’s 11.8% drop is a reminder that in luxury, expectations are as finely stitched—and as easily frayed—as an artisanal handbag.

When the world’s finest brands face the world’s sharpest headwinds, even a record-breaking quarter can’t always keep the gilded carriage from hitting a pothole.