Q2 2025 Earnings Summary
- Coach's strong and sustainable growth is driven by multiple focused product families—no single platform accounts for more than 10% of sales, including the Tabby and New York families. This approach attracts younger consumers, with over 60% of new customers being Gen Z and millennials, who transact at higher Average Unit Retail (AUR) and have higher retention rates, reinforcing the opportunity to build lifetime value.
- Coach achieved record profitability with gross margins over 77% in the quarter—the highest second-quarter gross margin in Coach's history—and operating margins exceeding 33%. This success is driven by strategies to increase AUR and manage costs, including the use of AI for price elasticity and a focus on delivering compelling products with strong value propositions. The company expects continued margin expansion due to its unique supply chain advantages.
- Tapestry returned to growth in Greater China, delivering low single-digit revenue growth in Q2 and significantly outpacing the industry. This momentum is attributed to effective brand-building strategies, increased marketing investments, strong performance across channels and city tiers, and a focus on the growing middle class and younger consumers, positioning Coach for further growth in this key market.
- Kate Spade's underperformance and need for a brand reset may impact near-term profitability and indicates challenges in turning around the brand. The company acknowledges that resetting the brand is a multi-quarter journey and is accelerating investments, which could pressure financial results in the near term. ,
- Over-reliance on increasing Average Unit Retail (AUR) prices for growth, while unit volumes may not be growing, raises concerns about the sustainability of growth purely through price increases. Analysts noted that unit growth might be negative when backing out AUR increases, questioning whether growth is coming largely from higher prices rather than increased sales volumes. ,
- Dependence on growth in China exposes the company to risks associated with economic slowdowns or geopolitical tensions in the region. While the company is optimistic about growth in Greater China, any adverse developments in this key market could negatively impact future performance. ,
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | FY 2025 | Over $6.75 billion, 1–2% growth | Over $6.85 billion, 3% growth | raised |
Operating margin | FY 2025 | Expansion of over 50 basis points | Expansion of 100 basis points | raised |
Gross margin | FY 2025 | Expected expansion | Expected expansion | no change |
SG&A expenses | FY 2025 | Increase roughly in line with revenue growth | Expected to grow above the pace of revenue growth | raised |
Net interest | FY 2025 | Net interest income $20 million | Net interest expense $35 million | lowered |
Tax rate | FY 2025 | 19% | 17–18% | lowered |
Weighted average diluted share count | FY 2025 | 238 million shares | 223 million shares | lowered |
EPS | FY 2025 | $4.50–$4.55 | $4.85–$4.90 | raised |
Free cash flow | FY 2025 | $1.1 billion | $1.2 billion | raised |
Capital expenditures | FY 2025 | $190 million | $170 million | lowered |
Europe revenue | FY 2025 | High-teens growth | 30% growth | raised |
Other Asia revenue | FY 2025 | Mid-single-digit gains | High single-digit gains | raised |
Japan revenue | FY 2025 | Low single-digit decline | Low single-digit decline | no change |
North America revenue | FY 2025 | In line or slightly above prior year | Slight revenue increase | no change |
Greater China revenue | FY 2025 | In the area of prior year | Low single-digit growth | raised |
EPS | Q3 2025 | No prior guidance | Approaches $0.85 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q2 2025 | Expected to grow ~1% to 2% year-over-year | $2,195.4 million, which is ~5.3% above Q2 2024 revenue of $2,084.5 | Beat |
Operating Margin | Q2 2025 | Expansion expected | 22.4% (derived from $492.8M operating income ÷ $2,195.4M revenue), up from ~21.5% in Q2 2024 | Met |
EPS | Q2 2025 | Forecasted to approach $1.70 | $1.40 (Basic) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Coach brand's consistent growth and margin expansion | 2% constant currency revenue growth with 330 bps of gross margin expansion and 90 bps lift in operating margin in Q1 2025 ; record annual revenue and 250 bps of gross margin expansion in Q4 2024 | 10% revenue gains, 270 bps gross margin improvement, and 210 bps operating margin lift in Q2 2025 | Continues as a recurring bull case driver |
Kate Spade brand underperformance and need for a reset | Acknowledged recent declines with no growth expected in Q1 2025 ; Q4 2024 noted new CEO appointment but did not explicitly detail underperformance | 10% revenue decline, brand reset efforts, and multi-quarter turnaround plan in Q2 2025 | Ongoing bear case with long-term brand rehabilitation focus |
Proposed acquisition of Capri | Paused integration and appealed court order in Q1 2025 ; touted as strategic fit in Q4 2024 | Terminated merger agreement and executed $2B share repurchase in Q2 2025 | No longer relevant as the deal ended |
Shifting sentiment on China from macro headwinds to renewed growth | Q1 2025 saw -5% revenue in Greater China but outpacing a steeper industry decline ; cautious near term but bullish long term in Q4 2024 | Low single-digit growth, significantly outpacing the category and signaling renewed optimism in Q2 2025 | Improving bull case in this key market |
Use of AI-driven price elasticity | No previous mention in Q1 2025 or Q4 2024 | Introduced for sophisticated pricing and margin growth in Q2 2025 | New initiative potentially bolstering long-term profitability |
Concerns about over-reliance on increasing AUR for revenue growth | Addressed in Q1 2025 as not solely reliant on price but also reduced discounting and product demand ; Q4 2024 emphasized operational efficiencies alongside AUR | Emphasized “and, not or” approach, balancing AUR and unit growth in Q2 2025 | Stable mention but tempered by broader growth strategies |
Reduced references to digital and omnichannel strategies | Q1 2025: 25% of revenue from digital, high single-digit growth ; Q4 2024: digital at 30% of sales, tripling pre-pandemic levels | Still noted as one-third of revenue, with no explicit sign of declining focus in Q2 2025 | No significant change in strategy or emphasis |
Expansion into lower-margin categories posing risks to profitability | Q1 2025 highlighted potential lower gross margin but overall margin stability ; Q4 2024 made no mention | No mention in Q2 2025 | Not a current focus in the latest quarter |
Focus on younger consumers as key drivers of brand growth and retention | In Q1 2025, over 50% of new customers were Gen Z/millennials, transacting at a higher AUR ; Q4 2024 continued this focus with 6.5M new customers, half in younger demographics | Over 60% of new Coach customers were Gen Z/millennials, fueling higher AUR and retention in Q2 2025 | Key bull case with consistent investment in youth-focused strategies |
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Sustainability of Coach's Growth
Q: Is Coach's strong performance sustainable?
A: Management affirmed that Coach's strong revenue and profitability growth is sustainable, based on four key pillars: a changed culture emphasizing creativity and innovation, deep consumer insights informing scalable strategies, focus on customer acquisition of Gen Z consumers who transact at higher AURs and frequency, and emphasis on handbags and leather goods offering value and craftsmanship at scale. -
Kate Spade Turnaround
Q: What's the plan for Kate Spade's growth?
A: The company is implementing changes at Kate Spade, including appointing a new CEO, Eva Erdmann , and focusing on sharpening execution by reducing style counts and promotional activity , and investing in marketing to drive brand interest and new customer acquisition. They view it as a multi-quarter journey with clear strategies to reset the brand for long-term growth. -
Gross Margin Outlook
Q: How will Coach's margins expand further?
A: Coach achieved a record gross margin of over 77% in the quarter, the highest in its history , and sees sustainable growth ahead by continuing to create desirable products, leveraging the scale of Tapestry's supply chain, raising prices, and reducing costs. They also anticipate operating margin expansion, with management targeting an additional 200 basis points in gross margin and about 100 basis points in operating margin expansion. -
China Sales Momentum
Q: How is Coach performing in China?
A: Coach saw Greater China return to growth in the quarter, delivering low single-digit growth that significantly outpaced the industry. They attribute this to strong brand positioning, broad-based performance across channels and city tiers, and investments in marketing targeting younger consumers, including Gen Z. They remain confident in the long-term opportunity in China. -
AUR and Unit Growth
Q: Will unit growth follow AUR gains?
A: While AUR is currently driving growth with double-digit increases in handbag AUR, management sees opportunities for unit growth going forward through market expansion, new customer acquisition, and category expansion as they continue to attract new customers and retain them with increased frequency of purchases. -
New Product Pipeline
Q: How do you maintain new product momentum?
A: The company balances near-term success of product franchises with ensuring a strong innovation pipeline by focusing on fewer, deeper ideas and innovating within existing platforms. An example is the Tabby line, where they launched the Pillow Tabby to reinvigorate the franchise rather than retiring it, avoiding markdown cycles and keeping product offerings fresh and compelling. -
Customer Acquisition Trends
Q: What's driving new customer acquisition?
A: Management attributes accelerated new customer acquisition to their targeted focus on younger consumers, with 60% of new Coach customers being Gen Z and millennials. These customers are transacting at higher AURs and returning with greater frequency, driven by relevant products, emotional brand experiences, and effective storytelling. -
SG&A Priorities with Revenue Upside
Q: How will you invest if revenue exceeds expectations?
A: Management plans to continue investing where they see real opportunities, balancing short-term profitability with long-term growth. They are leaning into investments that drive brand building and customer engagement, as seen with Kate Spade's increased marketing spend. While they will see some flow-through from revenue upsides, they prioritize investments that support sustainable growth. -
Target Consumer for Kate Spade
Q: Who is Kate Spade's target consumer now?
A: Kate Spade is aiming to build more relevancy with a younger target consumer, focusing on attracting new and younger consumers essential for future growth. They are sharpening execution based on consumer insights, removing deselection barriers, reducing style counts, lowering promotional activity, and investing in marketing to reach the target consumer with relevant messaging.
Research analysts covering TAPESTRY.