Coach Could Become a $10 Billion Brand. More Takeaways From Tapestry’s Investor Day.

A Coach bag is displayed at a store on Sept. 13, 2024 in New York City. (Michael M. Santiago/Getty Images)

Tapestry stock has been on a run in the past year, gaining more than 150% in 12 months. At its investor day Wednesday, management tried to convince the market there is more upside ahead.

Tapestry, which owns Coach and Kate Spade, provided investors with a preview early Wednesday morning. Its new “Amplify” growth strategy focuses on four pillars, Tapestry said: customer acquisition with a focus on Gen Z; fashion innovation and expansion into footwear; sustaining growth in North America and accelerating momentum in international markets, such as China and Europe; and developing a “consumer-obsessed” company culture.

Tapestry stock fell 0.6% to $104.52 Wednesday. Shares are up 60% this year.

The company is projecting full-year revenue will increase by mid-single digits annually in fiscal 2027 and fiscal 2028. Adjusted earnings per share will grow by low double-digit percentages both years, driven by margin gains, the company projects.

Operating margin is forecast to expand to more than 22% by fiscal 2028, Tapestry said, improving roughly two percentage points compared with fiscal 2025.

“We have transformed our company to become consumer obsessed brand builders, and we are winning with a new generation of consumers,” said CEO Joanne Crevoiserat. “This is driving our global momentum and our growth is durable well into the future.”

Coach—Tapestry’s biggest driver of both sales and profit—will boost revenue by a compound annual growth rate in the mid-single digits over the next three years. Tapestry hopes it can harness Coach’s current popularity among younger trendsetters to reach $10 billion in revenue in the long run.

“Our data shows that we are seeing growth across all generations once we unlock the growth with Gen Zs,” said Sandeep Seth, Tapestry’s chief growth officer.

To keep these shoppers engaged, Coach is planning on opening new stores worldwide to meet Gen Z “where they are.” By fiscal 2028, Coach plans to operate over 1,100 stores, up from 931 in fiscal 2025. Those stores will be a mix of larger and smaller full-price and outlet stores, as well as locations with built-in Coach coffee shops as the brand pursues a foray into so-called experiential retail.

“Especially in some locations where there’s not a lot of food options, this can be a really interesting way for us to attract people into the store via the coffee, or if you’re already in the store, increase the dwell time,” said Scott Roe, Tapestry’s chief financial officer, on a call with Barron’s.

Kate Spade, which hasn’t been performing as well as Coach in recent quarters, will return to profitable top-line growth in fiscal 2027, Tapestry estimates. The company reported more than $800 million of impairment charges in its latest quarter partially tied to efforts to reinvigorate the Kate Spade brand, which saw revenue drop 13% year over year in the quarter.

Executives outlined their plan for Kate Spade on Wednesday. It includes investing on marketing, selling more items at full price, innovating in terms of the materials used in its products, and scaling back the variety of items the brand sells.

“We’re playing the Coach playbook in a very Kate Spade-appropriate way,” Roe said. “Same tactics, very different manifestations because it’s a different brand, it’s a different target consumer, and a different voice. But we know that these tactics work.”

Tapestry plans to return $4 billion to shareholders through fiscal 2028 through both an increase to its dividend payouts and share repurchases. It continues to expect to pay an annual dividend of $1.60 a share in fiscal 2026, but plans to increase that “at least in line” with earnings growth through fiscal 2028. The payout ratio will be about 30%. Tapestry also expects to buy back about $3 billion in common stock from fiscal 2026 through fiscal 2028.

Tapestry’s long-term outlook factors in tax and trade policies as of Aug. 1, and assumes no significant worsening of inflation or consumer confidence. It excludes one-time costs associated with the sale of its Stuart Weitzman footwear brand.

Write to Sabrina Escobar at sabrina.escobar@barrons.com