Coach is growing fast. What are buybacks adding to Tapestry's upgrade?

Tapestry is raising its annual earnings target after Coach sold more handbags at higher average prices. The owner of Coach and Kate Spade also added $350 million to its planned share repurchases, giving earnings per share another source of support.

Coach's quarterly revenue rose 16% to $1.66 billion, with growth in both North America and international markets. Tapestry's adjusted earnings reached $1.82 a share, above the roughly $1.55 it had forecast in August.

The new annual adjusted earnings range is $8.25 to $8.35 a share, up from $7.80 to $7.90. Our comparison of the two forecasts shows how stronger profit and fewer shares each contribute.

Our Tapestry company profile follows the brands, financial results, forecasts and capital-return plans.

Coach is carrying the growth

Tapestry said Coach's average handbag selling price increased at a low-double-digit rate while the number sold rose by low single digits. The company gained 2.6 million new customers across its brands during the quarter, and demand from existing customers also increased.

The growth was profitable. Coach's adjusted operating income rose to $590 million from $488 million. Kate Spade moved in the other direction: sales fell 10% to $233 million, and an adjusted operating profit of $6 million became a $6 million loss.

Across Tapestry, sales rose 11% to $1.89 billion. Excluding the prior year's sales from the since-sold Stuart Weitzman business, growth was 12%. It had forecast high-single-digit growth on that basis in August. Adjusted operating income increased 24% to $439 million, while reported operating income rose to $424 million from $328 million.

What fewer shares add

Tapestry now plans $1.7 billion of buybacks this fiscal year, up from $1.35 billion, under its existing authorization. It lowered its forecast for average diluted shares to about 200 million from 203 million.

Research by Ticker Byline shows that the lower assumed share count explains about a quarter of the increase in the annual adjusted earnings forecast's midpoint. Our calculation holds the total profit implied by August's forecast steady, then spreads it over the new, smaller share count.

On that basis, fewer shares add about $0.12 of the $0.45 midpoint increase. Higher implied total profit accounts for the rest. That profit forecast also benefits from a lower expected tax rate, now 18% rather than 18.5%.

The operating outlook improved too. Annual sales guidance rose to $8.5 billion to $8.6 billion from $8.4 billion to $8.5 billion. Tapestry now expects its adjusted operating margin to expand by about one percentage point, twice the previous forecast. These annual forecasts use a comparable 52-week year and exclude fiscal 2027's extra week.

The cash plan has a different pace

Expected annual adjusted free cash flow stays close to $1.7 billion. Planned buybacks and dividends together are about $2.0 billion. Tapestry entered the fiscal year with $975 million in cash and cash equivalents and ended the first quarter with $599 million, after repurchases and seasonal investment in the business. It also borrowed $200 million through commercial paper.

Quarterly operating cash flow rose to $197 million from $113 million, helped by collecting tariff refunds largely recognized in the previous fiscal year. Adjusted free cash flow fell to $56 million from $103 million after the company's adjustments, including removing the cash effect mainly associated with those refunds. Inventory and wholesale receivables absorbed more cash as Coach grew.

Tariffs also helped the quarter's profit: $9 million from previously refunded duties in inventory and $4 million of related interest remained in adjusted earnings. The earnings increase therefore combines stronger brand performance, lower share counts and some benefits from tariffs and taxes.

For the holiday quarter, Tapestry expects 5% to 6% revenue growth at constant exchange rates and adjusted earnings of about $3.05 a share. Those results will give investors the next check on Coach's momentum as the larger buyback program continues.