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Tapestry has a theory about why Gen Z keeps buying Coach bags: The brand is just fancy enough to feel like an achievement, and just affordable enough to actually be one.<\/p>\n
\u201cOur price and brand positioning of expressive luxury is truly the Goldilocks of brand positioning in our industry,\u201d Todd Kahn, CEO and brand president of Coach, told analysts on Wednesday. \u201cOn the one hand, we\u2019re aspirational in design, fashion, and quality, yet extremely approachable in price positioning.\u201d<\/p>\n
The results suggest the formula is working. Tapestry, the luxury accessories conglomerate that also owns Kate Spade, reported a record third fiscal quarter on Wednesday, with pro forma revenue up 23% year-over-year, operating margin expanding 490 basis points, and earnings per share surging 62% to $1.66\u2014all beating guidance. The company raised its full-year outlook, now targeting $7.95 billion in revenue and EPS of $6.95, representing 35% earnings growth.<\/p>\n
Coach, the engine of it all, posted constant currency revenue growth of 29%. North America rose 27%. Greater China surged 58%. Europe climbed 27%. The brand welcomed 2 million new customers in the quarter alone, with Gen Z acquisition accelerating \u201cmeaningfully,\u201d according to CEO Joanne Crevoiserat.<\/p>\n
\u201cWe can literally add millions of new customers every quarter for the next 10 years, and we\u2019ll just scratch the surface,\u201d Kahn said.<\/p>\n
The first-bag moment<\/p>\n
At the heart of Tapestry\u2019s growth thesis is a bet on what executives call the \u201cfirst luxury bag\u201d milestone\u2014the idea that Coach can own the emotional and commercial moment when a young consumer makes their inaugural foray into luxury goods.<\/p>\n
\u201cWhen we talk to consumers, we hear stories over and over and over again about remembering their purchase of the first bag and how important that milestone is in their life,\u201d Crevoiserat said. \u201cWe want to earn the right to be our consumer\u2019s first luxury bag purchase.\u201d<\/p>\n
That bet is grounded in hard math. Gen Z customers, executives noted, show higher retention rates than other cohorts, meaning the earlier Coach acquires them, the longer the lifetime value runway. And the influence flows upward: Crevoiserat pointed to a \u201creverse influence\u201d dynamic in which Gen Z buyers are pulling older generations back to the brand as well. She didn\u2019t say it quite in this way, but essentially millennials are no longer cool and Gen Z decides which brands\u2014and which bags\u2014make the cut.<\/p>\n
\u201cNot only are we fueling this customer acquisition flywheel, but this customer is influencing all generations,\u201d she said. <\/p>\n
The flywheel logic is central to how Tapestry pitches its long-term story to Wall Street. New customers drive brand heat. Brand heat justifies higher marketing investment: Coach is now approaching $1 billion in annual marketing spend. More marketing drives broader awareness and more new customers. Repeat purchases from maturing Gen Z consumers thicken the existing customer base. Rinse, repeat.<\/p>\n
Fewer SKUs, more heat<\/p>\n
The product strategy backing all of it is disciplined to the point of being almost counterintuitive: less variety, more impact.<\/p>\n
\u201cWe\u2019re doing it with fewer SKUs,\u201d Kahn said. \u201cWe\u2019re doing it in a much more controlled manner than ever before, and we\u2019re doing it by amplifying major families.\u201d<\/p>\n
That means doubling down on marquee franchises\u2014the Tabby, the New York family (Brooklyn, Empire, and the newly launched Chelsea), plus Teri, Laurel, and Rowan\u2014while engineering scarcity through limited drops that sell out in days. <\/p>\n
\u201cWe had a pink drop that I thought was going to last between the third and fourth quarter,\u201d Kahn said. \u201cI think it lasted days, not weeks. Those are good problems to have.\u201d<\/p>\n
The creative stability behind the assortment\u2014Kahn credits longtime creative director Stuart Vevers and a team that has been together for years\u2014is itself a competitive moat, he argued. <\/p>\n
\u201cThe most important thing is for our creatives to have an informed gut,\u201d Kahn said. \u201cWe\u2019re not outsourcing design, nor are we outsourcing our commercial excellence to AI just yet.\u201d<\/p>\n
Core leather goods unit volumes grew over 20% in the quarter, while average unit retail (AUR) rose at a low double-digit rate\u2014rare simultaneous expansion of both price and volume that analysts flagged as a sign of genuine brand strength.<\/p>\n
\u2018Where do we go from here? We\u2019re just getting started\u2019<\/p>\n
The bullishness extended to the long-term outlook. Analyst Bob Drbul of BTIG noted on the call that Tapestry\u2019s FY26 guidance would deliver on its Investor Day financial targets two full years ahead of schedule. Crevoiserat\u2019s response set the tone for the rest of the Q&A.<\/p>\n
\u201cWe\u2019re just getting started,\u201d she said.<\/p>\n
Kahn went further, reiterating a long-term aspiration that might have sounded far-fetched a few years ago: \u201cI have more conviction now that the Coach goal of $10 billion at best-in-class margins is more attainable than ever.\u201d<\/p>\n
Not everything in the Tapestry portfolio is humming. Kate Spade revenue declined 11% in the quarter, slightly missing expectations, weighed down by a strategic pullback in promotions and ongoing brand investment. The brand is profitable on a gross margin basis, and individual products like the Duo Mini, which sold out after being spotted on Kendall Jenner, show the formula can work. But management acknowledged the road back is neither fast nor straight.<\/p>\n
\u201cWe also know that turnarounds take time, and the path to long-term growth is not always linear,\u201d Crevoiserat said.<\/p>\n
For now, Tapestry\u2019s narrative\u2014and its stock story\u2014belongs to Coach. And executives are betting that as Generation Alpha ages into the luxury market behind Gen Z, the addressable opportunity only grows.<\/p>\n
\u201cSoon there\u2019ll be Generation Alpha, and they\u2019ll be part of this new customer acquisition strategy,\u201d Crevoiserat said. \u201cThat\u2019s the formula for us.\u201d<\/p>\n
For this story,\u00a0Fortune\u00a0journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.<\/p>\n
#Tapestry #thinks #cracked #code #expressive #luxury #Gen<\/p>\n","protected":false},"excerpt":{"rendered":"
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