Tapestry: Growth Through Brand Power

Tapestry is a leading player in the accessible luxury market, best known for its brands Coach and Kate Spade. With Coach delivering record momentum through craftsmanship, creativity, and pricing power, and Kate Spade undergoing a reset aimed at long-term growth, the company blends brand heritage with modern consumer relevance. Its direct-to-consumer scale, strong free cash flow generation, and disciplined portfolio management position it well to capture younger consumers and expand globally. The question remains: Does this fashion house deserve a place in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Tapestry  at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Tapestry , you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Tapestry, founded as Coach in 1941 in New York, is a global house of accessible luxury and lifestyle brands. Today its portfolio is centered on Coach and Kate Spade New York, following the sale of Stuart Weitzman in 2025. The company generates the majority of its revenue through its direct-to-consumer channels, which represented 86 percent of fiscal 2025 sales, supported by wholesale distribution and licensing. This structure gives Tapestry direct control over its customer relationships, brand presentation, and pricing, while licensing provides a way to extend its brands into categories beyond core handbags, footwear, and small leather goods. Coach remains the largest brand, contributing nearly 80% of sales, with a legacy built on craftsmanship and timeless design. Kate Spade accounts for about 17%t of sales and provides a complementary positioning with colorful, playful, and youthful designs. Both brands operate independently but benefit from shared strengths in global supply chain management, data analytics, and marketing. Licensing is an additional revenue stream, currently representing about 1% of total sales, but it plays an important role in extending brand reach and lifestyle relevance. Coach licenses products such as eyewear, watches, and fragrance through partners including Luxottica, Movado, and Interparfums. Kate Spade has licensing agreements in categories like eyewear, fragrance, tech accessories, bedding, sleepwear, and stationery through partners such as Safilo, Interparfums, Case-Mate, and Komar. Tapestry retains control over design, marketing, and brand positioning, while licensees handle production and distribution, paying royalties on sales. The company’s moat is rooted in brand strength, direct-to-consumer scale, global operations, and customer connectivity. These advantages reinforce each other and create a resilient foundation for long-term growth. Tapestry’s portfolio combines heritage craftsmanship and differentiated positioning, giving it pricing power and cultural relevance in the accessible luxury space. Its high mix of direct-to-consumer sales provides both control over brand presentation and access to customer data that guides design, merchandising, and marketing. A global manufacturing base across Asia ensures quality, cost efficiency, and flexibility to adapt to shifting consumer demand. Heavy investment in digital platforms and marketing deepens engagement and loyalty, while strong gross margins provide the financial flexibility to reinvest in innovation, product expansion, and international growth. Together, these elements create durable structural advantages that protect its market position.

Management

Joanne Crevoiserat serves as the CEO of Tapestry, a position she assumed in October 2020 after initially joining the company as CFO in 2019. She brings decades of leadership experience across the retail and consumer industries, with deep expertise in finance, operations, and brand management. Prior to joining Tapestry, Joanne Crevoiserat served as Executive Vice President and COO at Abercrombie & Fitch Co., where she played a key role in guiding the company through a strategic transformation. Earlier in her career, she held senior leadership positions at Kohl’s and Walmart, gaining valuable experience in merchandising, operations, and customer engagement at scale. As CEO of Tapestry, Joanne Crevoiserat has emphasized the importance of building powerful, enduring brands in an era when consumers can access nearly anything they want, anywhere and anytime. She has been recognized for her customer-centric, data-driven approach, her focus on execution, and her ability to balance near-term performance with long-term growth. One of her most notable strategic initiatives was the decision to pursue the acquisition of Capri Holdings for $8,5 billion, a move that underscored her conviction that strong brands are the foundation of competitive advantage and margin resilience in the fashion industry. Beyond her role at Tapestry, Joanne Crevoiserat serves on the Board of Directors of General Motors. She holds a Bachelor of Science degree in Finance from the University of Connecticut. Her leadership style is often described as pragmatic, disciplined, and brand-driven, with a focus on leveraging data, consumer insights, and innovation to unlock growth. Given her track record and her clear vision of the power of brands, I believe Joanne Crevoiserat is well-positioned to continue guiding Tapestry through its next phase of expansion and value creation.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Tapestry has consistently achieved a high ROIC because of its asset-light, brand-driven business model. Unlike companies that require large investments in factories or physical infrastructure, Tapestry outsources manufacturing to a global network of partners, keeping invested capital relatively low. At the same time, its brands, particularly Coach, enjoy strong pricing power and high gross margins thanks to their heritage, craftsmanship, and consumer recognition. The emphasis on direct-to-consumer channels further supports returns, as these sales capture more margin than wholesale. Together, these elements create structurally high returns relative to invested capital. The exception was fiscal year 2020, when the pandemic led to widespread store closures and a collapse in demand for discretionary products like handbags and accessories. Operating profits dropped sharply while invested capital remained largely unchanged, pushing ROIC well below its usual levels. Since then, profitability has recovered, and fiscal 2025 showed an improvement over the year before, helped by stronger brand performance and ongoing digital growth. Even so, ROIC has not yet returned to pre-2020 highs, as macroeconomic headwinds in markets such as China and increased marketing and innovation investments under the “futurespeed” strategy continue to weigh on margins in the near term.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Tapestry has steadily grown its equity base over time, but there have been certain years where equity declined sharply, most notably in fiscal 2021, 2023, and 2025. In fiscal 2021, the pandemic forced the company to lower the book value of some of its businesses, especially Kate Spade and Stuart Weitzman. Accounting rules require companies to write down the value of assets like brand names, goodwill, and stores if they are no longer expected to generate as much profit as originally assumed. These adjustments do not involve any cash leaving the company, but they reduce reported earnings and therefore also reduce equity. In fiscal 2023 and fiscal 2025, the declines had a different cause. Equity fell because Tapestry spent heavily on share buybacks, and these repurchases reduced the company’s reported equity more than the year’s earnings increased it. These occasional sharp declines are not necessarily a problem. Asset write-downs are accounting adjustments rather than ongoing losses, and buybacks are a deliberate choice to return capital to shareholders. For a business like Tapestry, which generates strong free cash flow and earns high returns on invested capital, the ability to sustain profitability and reinvest in its brands is far more important than short-term swings in reported equity. As long as those fundamentals remain intact, there is little reason to worry about these occasional declines.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Tapestry has produced very strong free cash flow in recent years, with fiscal year 2024 standing out as the second-highest level in the company’s history and fiscal year 2025 as the third-highest. The strength in 2024 was driven by strong profitability, especially at Coach, combined with disciplined cost management and tight control of inventories. Because Tapestry runs an asset-light model, outsourcing production and keeping capital spending relatively low, a large share of its earnings typically turns into cash, which explains why its free cash flow margins were also very high that year. In fiscal year 2025, free cash flow declined from the levels of 2024, but it still remained historically strong. The year-over-year change reflected higher working capital needs, including inventory build, as well as the timing of capital expenditures. These factors reduced reported free cash flow compared to the prior year, but they did not indicate a weakening in brand performance or underlying profitability. On the contrary, management highlighted the company’s continued ability to generate robust cash. Looking ahead, investors can expect Tapestry to continue generating strong free cash flow. Management has made it clear that its first priority is to reinvest in Coach and Kate Spade to drive sustainable long-term growth, and its second is to return cash to shareholders through dividends, with the board already authorizing a 14% increase for fiscal 2026. Beyond these commitments, the company’s high cash generation provides flexibility to fund further buybacks, maintain balance sheet strength, and consider acquisitions when the timing is right. Free cash flow yield is at its lowest level since fiscal year 2018, suggesting that the shares are currently trading at a premium valuation. We will return to valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a three-year period. We calculate this by dividing the total long-term debt by earnings. In the case of Tapestry, I use adjusted EPS instead of reported EPS because fiscal year 2025 included large impairment charges related to Stuart Weitzman, which significantly reduced reported earnings but did not reflect the company’s underlying profitability. Using adjusted EPS gives a more accurate picture here. Based on this measure, Tapestry has 2,2 years of earnings in debt, which is below the three-year threshold. Looking ahead, debt does not appear to be a major concern for Tapestry. The company holds a healthy cash position relative to its borrowings and has been actively reducing its debt load. Management has emphasized its commitment to maintaining an investment-grade rating and keeping debt well below its long-term target.

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Risks

Macroeconomic factors represent a significant risk for Tapestry because the company operates in a global, discretionary consumer market that is highly sensitive to changes in trade policy, consumer confidence, and economic cycles. Most of Tapestry’s products are manufactured in Asia, with key production bases in Vietnam, Cambodia, the Philippines, India, and China. This means the company is heavily exposed to international trade dynamics. Tariffs, duties, or other trade restrictions on imports from these countries can increase costs substantially, as seen in fiscal 2025 when new tariff rules and the end of certain duty exemptions created a $160 million headwind, equal to more than two percentage points of margin pressure. These costs either reduce profitability directly if absorbed or risk dampening demand if passed on to consumers. Beyond trade policy, Tapestry is also exposed to the broader economic backdrop. Its products are discretionary purchases, meaning demand tends to weaken in periods of recession, high inflation, or declining consumer confidence. Consumers are less likely to spend on handbags, footwear, and accessories if unemployment is rising, credit availability is tight, or purchasing power is eroded by higher living costs. Store traffic is also tied to travel and tourism, so geopolitical instability or global downturns can hurt sales in major cities and shopping destinations. The combination of these factors makes Tapestry particularly sensitive to global macroeconomic volatility. While its strong brands and direct-to-consumer scale provide resilience, external risks like tariffs, trade disputes, and cyclical consumer spending patterns can materially impact earnings. Investors should therefore expect free cash flow and margins to fluctuate with shifts in the external environment, even if the underlying brand strength remains intact.

Competition is a meaningful risk for Tapestry because the fashion and accessories industry is crowded, fast-moving, and highly fragmented. The company faces rivals across all its categories, from luxury players like Louis Vuitton, Gucci, and Prada, to accessible-luxury peers such as Michael Kors and Ralph Lauren, and even mass-market and digital-first brands that compete for consumer attention. Many of these competitors are also wholesale customers of Tapestry, which creates additional pressure in negotiations and pricing. The main challenge is that consumer preferences evolve quickly, and competitors may launch products or categories that resonate better with shoppers. To stay relevant, Tapestry must anticipate and respond to shifting tastes in handbags, footwear, and lifestyle products, while also adapting to new shopping behaviors like the ongoing shift toward digital engagement and social commerce. Competitors that move faster on these trends can capture market share, especially among younger consumers who are less loyal to established brands. Brand strength is another key battleground. Tapestry relies heavily on the equity of Coach and Kate Spade to command premium prices and margins. If competitors succeed in building stronger brand recognition, delivering more compelling marketing campaigns, or fostering deeper digital engagement, Tapestry risks losing both pricing power and customer loyalty. At the same time, pricing itself is a delicate balance as the company needs to offset inflationary pressures with price increases without pushing consumers toward alternatives.

Mergers and acquisitions represent a meaningful risk for Tapestry because, while they are part of the company’s long-term growth strategy, they come with execution challenges and financial uncertainties. Management has been clear that acquisitions remain an option when the timing is right, but history shows that deals have not always delivered the expected benefits. Two clear examples are Stuart Weitzman and Kate Spade, both of which have faced significant impairments since being acquired. These write-downs reflect that the brands did not perform as strongly as initially expected, either due to softer demand, operational challenges, or an inability to scale profitably within Tapestry’s portfolio. Impairments are non-cash, but they highlight that the prices paid may have been too high relative to the long-term earnings potential. Beyond the financial risks, acquisitions can also disrupt operations. Integrating a new brand requires significant management attention and resources, which can distract from core priorities at Coach and Kate Spade. Cultural differences, supply chain integration, and aligning marketing strategies add to the complexity. There is also regulatory risk, as illustrated by the blocked Capri Holdings deal in 2024, which consumed time and resources without resulting in growth. In short, while acquisitions offer Tapestry the opportunity to expand its brand portfolio and global reach, they also expose the company to risks of overpaying, underperforming assets, integration challenges, and potential impairments.

Reasons to invest

Tapestry’s brand portfolio is a reason to invest. At its core is Coach, an 85-year-old heritage brand that is currently experiencing the strongest momentum in its history. Coach combines creativity, craftsmanship, and disciplined brand building, which has translated into consistent gains in average unit retail and gross margin. Its products, such as the Tabby family and the recently launched New York collection, have become global successes, demonstrating that the brand can repeatedly create must-have items that drive both desirability and profitability. The company has also deliberately streamlined Coach’s product offering, focusing on fewer, bigger ideas and reducing reliance on promotions. This has strengthened brand equity, boosted pricing power, and created durable growth, proving that Coach can consistently outperform the broader handbag and accessories industry. Kate Spade, while earlier in its journey, adds further upside potential to the portfolio. Management is deliberately resetting the brand by simplifying assortments, elevating the handbag offering, and applying the same disciplined approach that turned around Coach. Though this reset will pressure short-term results, early signs such as stronger engagement and growing brand consideration point to progress. If successful, Kate Spade could follow the same trajectory as Coach, moving from inconsistency to sustainable profitable growth. Finally, the recent sale of Stuart Weitzman shows management’s discipline in managing the portfolio. By divesting a lower-margin, underperforming brand, Tapestry has sharpened its focus on Coach and Kate Spade, which carry the strongest long-term potential. The divestiture also provides a structural benefit to gross margins. Together, these actions highlight the strength of Tapestry’s portfolio strategy: concentrating resources on its most iconic and scalable brands while stepping away from those that dilute returns.

Direct-to-consumer sales are a reason to invest because they provide the company with higher profitability, stronger customer connections, and long-term growth opportunities compared to wholesale. Direct-to-consumer channels capture more margin by cutting out middlemen, and they also give Tapestry access to valuable customer data. That data allows the company to personalize marketing, tailor assortments, and strengthen loyalty programs, which in turn drive repeat purchases and higher customer lifetime value. This creates a structural advantage, as every incremental sale through DTC not only adds more profit but also deepens the relationship with the consumer. The strength of this model is supported by omnichannel execution. Tapestry engages with consumers wherever they shop, online, in stores, or through hybrid experiences, and its technology platform turns customer insights into action. For example, Coach has used data to identify that Gen Z customers still value in-person shopping. In response, the company has launched new store concepts, pop-ups, and even food-and-beverage experiences that create brand excitement and drive traffic. These initiatives not only build emotional connections but also expand the brand’s reach into new locations and nontraditional formats, fueling further growth. DTC also supports healthier brand positioning. By pushing for higher full-price sales and reducing reliance on discounting, Tapestry is improving gross margins and increasing the profitability of its stores. As store productivity rises, the company creates room to expand its footprint and introduce new formats, further reinforcing growth. Altogether, Tapestry’s DTC business is more than just a sales channel, it is a flywheel that powers growth, strengthens brand equity, and sustains profitability. It allows the company to better understand its consumers, adapt more quickly to trends, and scale its most successful products across geographies and formats.

Winning new customers is a reason to invest in Tapestry because it directly fuels long-term growth and strengthens the foundation of its brands. In fiscal year 2025, the company added millions of new customers, including over 6,8 million in North America alone, with Coach welcoming more than 4,6 million new customers in that region. Importantly, nearly 70 percent of these new Coach customers were Gen Z and millennials, demonstrating that the brand is successfully connecting with the next generation of consumers. These younger customers are spending more per purchase and showing stronger retention rates than the broader client base, which makes them especially valuable for driving future sales and brand loyalty. This momentum is significant because luxury and fashion brands depend heavily on relevance across generations. By building emotional connections and positioning Coach as a modern, expressive luxury brand, Tapestry has been able to reimagine a heritage label for a younger audience while maintaining its craftsmanship and authenticity. Kate Spade is also contributing to this trend, with collections like Deco and Kayla attracting younger customers at healthy price points. These results show that the company’s investments in marketing, technology, and customer engagement are working. The strategic benefit of this customer acquisition goes beyond one-off sales. Younger customers often enter the brand through an initial purchase, such as a bag, and then return soon after for accessories or complementary products. This behavior increases purchase frequency and customer lifetime value, creating a compounding effect. By capturing these consumers early and keeping them engaged through personalization, loyalty programs, and innovation, Tapestry is laying the groundwork for durable, recurring growth.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an adjusted EPS of 5,10, which is from the fiscal year 2025. I have selected a projected future EPS growth rate of 7%. Finbox expects EPS to grow by an average of 6,9% in the next 5 years. Additionally, I have selected a projected future P/E ratio of 14, which is double the growth rate. This decision is based on Tapestry's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $34,72 We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Tapestry at a price of $17,36 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 1.217, and capital expenditures were 123. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 86 in our calculations. The tax provision was 33. We have 207,7 outstanding shares. Hence, the calculation will be as follows: (1.217 – 86 + 33) / 207,7 x 10 = $56,04 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Tapestry's free cash flow per share at $5,27 and a growth rate of 7%, if you want to recoup your investment in 8 years, the Payback Time price is $57,85.

Conclusion

I find Tapestry to be an intriguing company with good management. Its moat rests on brand strength, direct-to-consumer scale, global operations, and strong customer connectivity. The company has consistently achieved high ROIC outside of the pandemic, and free cash flow has been near record levels in the past two years. Macroeconomic factors remain a risk because Tapestry’s products are discretionary and sensitive to shifts in consumer confidence, inflation, and economic cycles, while its reliance on Asian manufacturing exposes it to tariffs and trade policy changes that can pressure margins and demand. Competition is another risk in the fast-moving and crowded fashion industry, where luxury houses, accessible-luxury peers, and digital-first brands compete aggressively, and rivals that adapt more quickly to consumer trends could erode Tapestry’s pricing power and customer loyalty. Mergers and acquisitions also carry risk, as past deals like Kate Spade and Stuart Weitzman resulted in impairments and underperformance, showing the potential downside of overpaying or integration challenges, while future deals could again divert management focus or dilute shareholder value. On the positive side, Tapestry’s brand portfolio is a strength, with Coach delivering record momentum through pricing power, margin expansion, and global relevance, while Kate Spade represents meaningful upside as its turnaround progresses. The divestiture of Stuart Weitzman sharpened the focus on the most profitable and scalable brands, reinforcing a portfolio strategy built for durable growth and shareholder value. Direct-to-consumer sales further strengthen the investment case by delivering higher margins, deeper customer relationships, and better brand equity than wholesale, supported by data-driven insights and immersive omnichannel experiences that drive repeat purchases and long-term profitability. Finally, strong new customer acquisition, particularly among Gen Z and millennials, shows the brands are resonating with the next generation of consumers, who are spending more, returning more often, and building long-term loyalty. While there are many attractive aspects to Tapestry, I believe there are better opportunities elsewhere in the market, and therefore I will not be investing at this time.

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