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Good morning. New York City-based Tapestry, Inc., parent of luxury brands Coach and Kate Spade New York, is executing a three-year strategy focused on profitable growth and strong shareholder returns.
The “Amplify” strategy is anchored on four pillars: building emotional connections with consumers (especially Gen Z), advancing fashion innovation, delivering compelling global experiences, and fostering an agile, consumer-focused culture.
These priorities build on proven strategies, especially at Coach, according to CFO and COO Scott Roe, who spoke with me on Tuesday ahead of the company’s investor day.
Millennials and Gen Z are increasingly choosing Coach, driving a beat for the quarter that ended June 28, fueled by these demographics. “By 2030, Gen Z and millennials will make up over 70% of the market,” Roe said. Tapestry aims to capture their first luxury purchase.
“The long-term value of acquiring customers at this initial entry point is substantial,” he said. “While others talk to millions, we’re talking to billions of potential consumers.”
In the same quarter, Tapestry reported a non-cash impairment charge of $855 million related to Kate Spade and a 13% revenue decline for the brand, Fortune reported. Despite this, having achieved previous goals, the company is confident its strategy can drive future growth for both Coach and Kate Spade, Roe said.
Tapestry plans for Coach to deliver mid-single-digit annual revenue growth (CAGR) and expand its operating margin to the mid-30% range over the next three years, with a longer-term goal of reaching $10 billion in annual revenue.
And the company expects Kate Spade to return to profitable top-line growth in Fiscal 2027 and target mid-single-digit revenue growth and high single-digit operating margin by Fiscal 2028.
“Scale and investment in marketing have never been more important,” Roe emphasized. “There are no barriers to entry in our category, but significant barriers to scale.” Over the past three years, Tapestry’s marketing investment has grown from 3.5% to more than 11% of revenue, with plans to increase it by another 200 basis points.
Tapestry plans to return $4 billion to shareholders by fiscal 2028, representing 100% of adjusted free cash flow from FY26 to FY28, even after capital expenditures, Roe said. The business now operates at a sustainable mid-single-digit growth rate, driven by a self-reinforcing model focused on quality growth and margin expansion, he said.
This performance enables significant reinvestment in the business, resulting in robust earnings and cash flow, Roe said. Capital allocation priorities include growing the dividend (targeting a 30% payout ratio) and a recently authorized $3 billion share repurchase, returning all free cash flow to shareholders.
“This is a powerful message that truly reflects our conviction in the future,” Roe said.
Sheryl Estrada
sheryl.estrada@fortune.com
This story was originally featured on Fortune.com
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