## Tapestry’s Profit Forecast Falls Short
Bengaluru/New York — Tapestry, the parent company of Coach, has recently projected its annual profits to be lower than expected, largely due to increasing tariffs. This announcement caused a significant 14% drop in the company’s shares. To navigate the impact of these import duties, Tapestry plans to streamline its inventory.
### Impact of Tariffs on Tapestry
The tariffs put in place by President Trump are anticipated to cost Tapestry roughly $160 million for its fiscal year 2026. This situation has echoed warnings from other luxury brands like Kering and LVMH about the financial strain caused by these levies.
The retail sector heavily relies on production from Southeast Asian nations, now facing approximately 20% tariffs on imported goods. Tapestry produces its Coach and Kate Spade handbags chiefly in Vietnam, Cambodia, the Philippines, and India.
### Consequences for Kate Spade
According to Tapestry’s CFO Scott Roe, Kate Spade will suffer the most from these tariffs, as a substantial part of its business occurs in the U.S. As a response, Tapestry announced it would reduce the number of Kate Spade handbags by 30%. Retailers are re-evaluating their import strategies, focusing more on profitable products as sales of lower-demand items dwindle.
Sky Canaves from eMarketer highlighted the necessity for brands to refine their product assortments in light of the tariffs. This strategy helps maintain profit margins by minimizing markdowns on less popular items.
### Quarterly Sales and Earnings
Tapestry’s quarterly sales reached $1.72 billion, surpassing the LSEG analyst consensus of $1.68 billion. They also projected an annual revenue of $7.2 billion, exceeding expectations.
The adjusted profit for the quarter ending in June was reported at $1.04 per share, slightly above the estimates of $1.02 per share. However, Tapestry predicts its fiscal 2026 earnings per share will fall between $5.30 and $5.45, just shy of the estimated $5.49 per share.
### Future Expectations
The company anticipates a 60-cent impact on annual profit from tariffs, with a third of this derived from the end of the “de minimis” exemption on smaller shipments. Canaves noted that the premium Coach brand may better transfer tariff costs to customers compared to the less sought-after Kate Spade.
In response to earlier tariff anticipation, many companies ramped up imports. Currently, U.S. businesses have largely absorbed rising costs, although economists from Goldman Sachs predict this may not continue.
Despite consumer-level inflation remaining stable, producer-level inflation surged in July. Tapestry experienced an 11% sales decline in Japan, alongside a 1% drop in revenue across other Asian markets.
Interestingly, Tapestry’s shares have appreciated by approximately 74% this year, driven by the growing popularity of Coach bags among younger consumers.
What are your thoughts on how luxury brands are adapting to these challenges in the current economic climate?