Tapestry Faces Profitability Struggles Amid Rising Tariffs Despite Increasing Sales
How Tariff Hikes Are Impacting tapestry’s Earnings
Tapestry, the parent company behind brands like Coach and Kate spade, recently saw its stock price tumble nearly 16%, closing at $95.69 after announcing that escalating tariffs will considerably weigh on its profit margins even as sales continue to climb.
The company forecasts that new tariff expenses will amount to roughly $160 million in the next fiscal year, creating a notable drag on earnings. For fiscal 2026, Tapestry expects earnings per share (EPS) between $5.30 and $5.45, slightly trailing analysts’ average estimate of $5.49.
Strong sales Growth Confronts Rising Cost Pressures
During the latest earnings call, CFO Scott Roe highlighted encouraging sales momentum but acknowledged unforeseen profitability challenges due to increased tariffs and duties. A major contributor is the early termination of de minimis exemptions-which previously allowed imports valued under $800 to enter the U.S. tariff-free-intensifying cost burdens for importers.
This change follows broader tariff escalations on imports from various countries initiated during prior U.S.administrations.
Revenue Projections and Portfolio Streamlining
Tapestry anticipates revenue growth near $7.2 billion for fiscal 2026 (excluding Stuart Weitzman),representing modest single-digit percentage gains compared with last year’s results. Earlier this year,Tapestry agreed to divest Stuart Weitzman-the footwear brand-to Caleres for $105 million as part of a strategic effort to optimize its brand portfolio.
Retail Industry Strategies Addressing tariff-Driven Cost Increases
The retail sector is actively adjusting operations in response to surging import costs triggered by recent tariff policies that have faced multiple delays before implementation; notably some high tariffs on Chinese goods were deferred an additional 90 days earlier this month.
- Shifting Production Locations: Numerous companies are relocating manufacturing away from regions with steep tariffs toward countries offering more favorable trade conditions.
- Adjusting Pricing Models: Businesses are selectively raising prices on certain products while scaling back promotions to protect profit margins amid rising costs.
- Narrowing Product Focus: Retailers emphasize popular or essential items with strong consumer demand to improve inventory turnover despite cost headwinds.
An example: Crocs’ Adaptive Inventory Strategy Amid Demand Fluctuations
Crocs CEO Andrew rees recently revealed that softer retailer demand during the latter half of the year has led them to reduce order volumes and reclaim older Heydude shoe inventory from partners in favor of newer stock-a tactical approach demonstrating how brands manage supply chain complexities amid tariff uncertainties today.
Tapestry’s Balanced Outlook: Cautious Yet Confident
CFO Roe stressed that even though external factors like tariffs have prompted a conservative financial forecast rather than any essential business weakness, consumer demand remains robust-and has even accelerated early into the current quarter.
“We believe it is wise at this point to adopt a cautious stance when setting our full-year guidance,” Roe remarked.
He also highlighted ongoing initiatives within tapestry’s global manufacturing network aimed at lessening tariff impacts through enhanced operational efficiencies and diversified sourcing strategies.
the Broader Retail Environment Moving Forward
This week marks an important moment as leading U.S.-based retailers such as Walmart, home Depot, and Target prepare their quarterly earnings reports-offering further clarity into how persistent inflationary pressures combined with evolving trade policies continue shaping consumer behavior across national markets in 2024.
navigating Trade Policy Volatility Through Strategic Flexibility
the shifting global trade landscape underscores how companies like Tapestry must carefully balance growth objectives against geopolitical risks disrupting supply chains worldwide-a challenge echoed throughout industries striving for resilience amid fluctuating international commerce dynamics well into 2024 and beyond.
