Tapestry (TPR): Tariffs, an $855M Impairment and Cash-Flow Reshuffle Reshape FY26

FY25 shock: revenue up modestly but profit and cash tell a different story#

Tapestry reported FY25 revenue of $7.01B (+5.10% YoY) while consolidated net income collapsed to $183.2MM (-77.56% YoY) after an $855 million non‑cash impairment at Kate Spade and other one‑time items, even as free cash flow stayed robust at $1.09B. The company flagged a roughly $160MM incremental tariff exposure for FY26 and completed the sale of Stuart Weitzman for $105MM in early August—moves that together force a near‑term earnings reset and a reallocation of capital toward Coach and Kate Spade. The shares traded near $99.24 at the most recent quote (market cap $20.61B), reflecting a market attempting to price a bifurcated operating story. (Company FY25 filings and slides; earnings summaries) Source: Tapestry FY25 filing and slides.

This opening contrast—top‑line growth with sharply lower GAAP profit—is the single most important development for investors. Revenue growth was driven by Coach momentum, but fiscal year economics were materially affected by impairment and tariff-driven cost pressure plus heavy financing flows that drained cash balances. The combination creates a transitional FY26 where management must show that Coach’s cash engine can underwrite Kate Spade’s reset while tariffs are absorbed and capital allocation priorities are re‑set.

Financial performance: growth, margin decomposition and one‑time effects#

Tapestry’s FY25 income statement shows a clear bifurcation between top‑line resilience and earnings compression. Revenue rose to $7.01B from $6.67B in FY24, a YoY gain of +5.10% [(7.01−6.67)/6.67 = +5.10%]. Gross profit increased to $5.29B, lifting gross margin to 75.44% from 73.29% (+215 bps), indicating favorable product mix and pricing power in the core business. Yet operating income fell to $415MM from $1.14B in FY24, a decline of -63.60%, and operating margin compressed by -1,117 bps to 5.92%. The net result was the dramatic net income decline to $183.2MM, a -77.56% drop. (FY25 income statement) Source: FY25 Income Statement filing.

Two forces explain the divergence between gross margin strength and operating margin collapse. First, the $855MM non‑cash impairment tied to Kate Spade materially reduced operating income and equity book value in FY25 and shows up as a one‑time charge that depresses GAAP profit but not cash flow. The impairment also reduced goodwill and intangible assets on the balance sheet from $2.56B (FY24) to $1.70B (FY25), broadly consistent with the reported write‑down. Second, an explicit tariff exposure managed at the corporate level and reinvestment behind Kate Spade raised operating expenses and diluted operating leverage. Management quantified the tariff exposure at roughly $160MM for FY26—equivalent, management said, to a mid‑to‑high‑hundreds of basis point margin headwind before mitigation. (Impairment disclosure; tariff comments) Source: AINVEST report on impairment; StockStory tariff analysis.

Table 1 below summarizes the income statement trend and margins across FY22–FY25 to make the inflection explicit.

(Income statement figures are drawn from the company FY filings for each fiscal year.) [Source: FY filings accepted dates 2022–2025].

Cash flow and the balance sheet: strong FCF, compressed liquidity after financing activity#

One of FY25’s most striking items is the disconnect between continued free cash flow generation and a steep decline in cash balances. Tapestry generated $1.09B of free cash flow in FY25 (down slightly from $1.15B in FY24), while net cash provided by operating activities remained solid at $1.22B. Despite this, cash and cash equivalents fell from $6.14B at FY24 year‑end to $1.10B at FY25 year‑end, a net decline of $5.04B. The primary driver was financing cash flows: FY25 shows net cash used in financing activities of -$7.18B, which included $1.72B of share repurchases and $299.3MM of dividends paid; the remainder of financing flows appears linked to debt transactions and other financing reclassifications. (FY25 cash flow statement) [Source: FY25 Cash Flow filing].

This pattern—healthy operating cash flow but sharply lower cash on hand—reflects active capital allocation (buybacks, dividends) and balance sheet restructurings in the year, not a collapse of the operating business. Yet the liquidity shift is meaningful for financial flexibility heading into FY26 when tariff pressure and reinvestment needs are expected to compress near‑term earnings. Management now carries total debt of $3.9B and net debt of $2.8B at year‑end FY25. Using FY25 EBITDA of $415MM, the company’s net debt / EBITDA computes to roughly 6.75x (2.8 / 0.415 = 6.75x), materially higher than some reported TTM ratios because those alternate ratios use differing EBITDA constructs; this matters when assessing covenant headroom and refinancing risk. (Balance sheet and cash flow lines) [Source: FY25 Balance Sheet & Cash Flow filing].

Table 2 presents the balance sheet and key cash flow items across FY22–FY25 so readers can track the change in liquidity and leverage.

(Balance sheet and cash flow figures drawn from company filings; the sharp decline in cash in FY25 follows financing outflows and the Stuart Weitzman divestiture timing.) [Source: FY filings; BusinessWire on Stuart Weitzman sale].

Strategic drivers: Coach’s strength, Kate Spade reset, Stuart Weitzman exit#

Strategically, Tapestry’s FY25 and FY26 narrative centers on a concentrated portfolio. Coach remains the growth and margin engine: management and third‑party coverage reported sustained comp performance, strong margins and customer acquisition gains—Coach drove the consolidated top‑line and gross margin expansion in FY25. In contrast, Kate Spade requires a material reset; the company recorded an $855MM non‑cash impairment in FY25 and plans to apply the Coach playbook—assortment simplification, increased marketing, refreshed retail experience and digital investment—to restore growth over multiple years. The divestiture of Stuart Weitzman (sale proceeds $105MM) simplifies the portfolio and frees capital for these priorities. (Company slides; AINVEST; BusinessWire) [Source: AINVEST impairment coverage; BusinessWire on Stuart Weitzman sale].

Operationally, management highlighted that Kate Spade will be repositioned with fewer SKUs (management cited an >30% reduction in handbag styles), higher marketing intensity (targeted marketing‑to‑revenue north of 11%), and supply chain shifts. Those investments, combined with the explicit tariff exposure, are the core reason for the FY26 guidance calling for modest consolidated earnings pressure. Coach’s performance will be the offset: if Coach maintains product momentum and margin strength, it underwrites the company’s reinvestment and supports multiple expansion. If Coach softens or Kate Spade’s reset lags, consolidated operating leverage will be limited.

Tariffs: a quantifiable near‑term headwind with partial mitigation expected#

Tapestry disclosed an estimated $160MM annual incremental tariff exposure entering FY26—management described this as roughly a 230 bps headwind to operating margins before mitigation. For FY26 management flagged a smaller gross margin impact (management commentary suggested roughly 70 bps of gross margin contraction for the year as some mitigation and price actions are phased in). Mitigation levers include shifting sourcing footprints, selective price increases, SKU rationalization and logistics optimization; management aims to offset a portion of the tariff impact over several years but expects persistent residual pressure into FY27 and beyond absent policy changes. (Earnings call summaries; StockStory coverage) [Source: Q2 FY25 call transcript and analysis].

For investors, the tariff item is important because it is a known, quantifiable external shock that reduces margin carryover from Coach into the consolidated P&L. The company’s guidance implies partial mitigation in FY26 and incremental offsetting actions by FY28, but the timeline and magnitude of offset are execution‑dependent and therefore a key monitoring point.

Valuation signals and data conflicts: reconciling P/E and leverage metrics#

Publicly available multiples and internal metrics show some conflicts that require reconciliation. The most immediate is P/E: the current quote lists EPS = 3.8 and P/E = 26.12x on the snapshot quote; however, the company TTM metrics included in the dataset show netIncomePerShareTTM = 0.88 and a TTM P/E of ~112x, a large divergence. The difference stems from differing EPS definitions (GAAP annual EPS versus TTM adjusted or GAAP measures that are affected by timing of impairment and other non‑cash items) and timing of inputs. For transparency we prioritize the company’s reported FY EPS constructs in filings when discussing FY results, and we present both P/E views to show how EPS treatment affects multiples. (Stock quote data; TTM metrics) [Source: MarketBeat earnings report; internal TTM metrics].

Similarly, leverage measures vary with the EBITDA basis used. Using the FY25 EBITDA of $415MM, net debt $2.8B implies ~6.75x net debt/EBITDA. The dataset’s TTM ratio shows ~5.35x, indicating the dataset uses a higher TTM EBITDA or a different net debt definition. Investors should therefore treat published leverage metrics with attention to the underlying EBITDA period and adjustments. Our conservative presentation uses FY25 figures to compute leverage where possible and flags the discrepancy for readers. (Balance sheet lines; ratios data) [Source: FY25 Balance Sheet & TTM ratios].

Capital allocation: buybacks, dividends and the cash trade‑off#

Tapestry continued to return capital in FY25 while funding Kate Spade’s reset. The company paid $299.3MM in dividends and repurchased $1.72B of stock in FY25, consistent with a capital returns posture that balances shareholder returns with strategic reinvestment. The Stuart Weitzman sale adds $105MM in near‑term liquidity. That said, the significant decline in cash balances and the higher computed net debt / EBITDA raise questions about flexibility if tariffs or sharp macro changes force either additional reinvestment or balance sheet remediation. Management has stated shareholder returns will be calibrated to maintain flexibility while prioritizing the Kate Spade turnaround and tariff mitigation. (Cash flow & press release on divestiture) [Source: FY25 Cash Flow; BusinessWire].

Risks, monitoring points and potential catalysts#

Key risks are clear and measurable. First, execution risk on the Kate Spade reset—inventory management, SKU simplification and marketing effectiveness—will determine whether the impairment proves a one‑time book event or the start of prolonged weaker economics. Second, tariff policy and the effectiveness of supply‑chain mitigation determine whether the $160MM exposure becomes a multi‑year drag. Third, liquidity and leverage dynamics—given the cash decline and elevated net debt/EBITDA—create sensitivity to interest rates and refinancing markets if EBITDA recovery stalls. Finally, a concentrated portfolio after Stuart Weitzman’s sale increases reliance on Coach and Kate Spade performance.

Key catalysts that could re‑rate the business include: (1) tangible sequential improvement at Kate Spade (stabilizing sales and margin expansion in H2 FY26), (2) evidence of tariff mitigation beyond current assumptions (larger supply‑chain shifts or price realization), and (3) a measured return of cash on the balance sheet or reduced net debt via less aggressive buybacks should management shift priorities. Conversely, slower Coach comps or additional impairment charges would be negative triggers. (Earnings call commentary and analyst notes) [Source: Earnings call transcript; analyst write‑ups].

What this means for investors#

Tapestry is operating as a concentrated two‑brand company where the margin and growth profile of Coach must underwrite an active turnaround at Kate Spade while tariffs remove some of the margin cushion. The FY25 filings show that despite a GAAP profit shock driven by an impairment, the underlying cash machine (operating cash flow and free cash flow) remained intact. That preserves management options, but the steep fall in cash balances to $1.10B at year‑end constrains discretionary actions absent a rebuilding of liquidity.

Investors should therefore monitor three execution metrics closely: (1) Coach comps and gross/operating margins for evidence of sustained premiumization, (2) Kate Spade sequential revenue trends, SKU simplification progress and marketing ROI metrics that indicate a credible path to margin recovery, and (3) tariff mitigation outcomes and their effect on gross margin recovery. These milestones are the real determinants of whether the company’s premium multiple is warranted or should be re‑rated for execution risk and external policy headwinds.

Key takeaways#

Tapestry’s FY25 results deliver a compact set of messages. First, revenue growth (+5.10%) and gross margin expansion (+215 bps) show product and pricing strength driven by Coach. Second, a large one‑time impairment ($855MM) and tariff exposure (~$160MM) drove operating income and net income sharply lower, producing a GAAP net income of $183.2MM. Third, the company continues to generate solid free cash flow ($1.09B) but has seen cash fall $5.04B year‑over‑year after aggressive financing outflows. Finally, the balance sheet and leverage metrics require careful interpretation because published TTM ratios use different EBITDA bases; our conservative FY25 calculation shows net debt/EBITDA ≈ 6.75x. (Company filings and press releases) [Source: FY25 filings; AINVEST; BusinessWire].

Conclusion#

Tapestry emerges from FY25 as a company with a clear strategic focus but with a tougher near‑term earnings profile. Coach’s performance remains the primary value driver and appears durable; Kate Spade is now a reset call that requires disciplined reinvestment and time to prove out. Tariffs are a transparent, quantifiable headwind that will weigh on margins into FY26 and beyond unless faster mitigation or policy relief materializes. Financially, the company still produces healthy operating cash, but material cash outflows and the impairment have reshaped the balance sheet and increased sensitivity to execution. For market participants, the FY26 narrative will hinge on sequential evidence: can Coach sustain premium growth and margins, and can Kate Spade stabilize as reinvestment ramps? Those answers will determine whether Tapestry’s premium multiple is justified or should be re‑rated for execution and policy risk.

( Figures and trend tables in this article are built from Tapestry’s FY filings and company disclosures; impairment, tariffs and the Stuart Weitzman divestiture are documented in company releases and market reporting.) [Sources: Tapestry FY25 filings and slides; AINVEST impairment coverage; BusinessWire Stuart Weitzman sale; MarketBeat earnings summary].