Tapestry lifts outlook as young shoppers snap up Coach bags, shares jump

By Danielle Kaye and Anuja Bharat Mistry

Nov 5 (Reuters) - Tapestry raised its annual revenue and profit forecasts on Thursday, betting on younger affluent shoppers buying its Coach handbags during the holiday season, even as the broader luxury sector grapples with a spending slowdown.

Shares of the company were up nearly 12% in premarket trading. The stock had fallen about 2% so far this year, up to the last close.

The high-end handbag maker also beat first-quarter revenue estimates and saw sales accelerate in China in particular, where revenue jumped 43%. The quarterly earnings beat was driven by Coach sales in North America, executives told Reuters.

Tapestry has benefited from Coach's growing popularity among Gen Z shoppers in North America, China and Europe, a group the company has targeted through products such as bag charms and campaigns featuring celebrities including actress Elle Fanning and K-pop star So-yeon.

But overall momentum slowed slightly in North America, its biggest market, as the Kate Spade brand grapples with a sales slump.

Quarterly revenue at Coach rose 16% on a reported basis, while Kate Spade sales fell 10% from a year ago.

"We've seen across every cohort - both economically and in terms of age - compelling growth," Coach CEO Todd Kahn told Reuters.

"Our product and the value proposition is compelling at our price points, so we're not going to be any more promotional," Kahn added, referring to the upcoming holiday season and the brand's "sweet spot" for items priced between $200 and $500.

Tapestry now expects to buy back shares worth $1.7 billion in the fiscal year, up $350 million from its prior guidance.

Wealthier shoppers in the US have have kept spending on "accessible" luxury goods from brands including Coach and Ralph Lauren, even as lower-income consumers pull back on nice-to-have items. This helped US retail sales rise more than expected in September despite economic unease.

Tapestry expects fiscal 2027 revenue of between $8.5 billion and $8.6 billion, compared with its prior range of $8.4 billion to $8.5 billion.

It also expects annual earnings per share of $8.25 to $8.35, compared with its previous forecast of $7.80 to $7.90.

Meanwhile, global luxury brands including Gucci owner Kering, French luxury group LVMH and Hermes are contending with fresh headwinds from the expanding conflict in the Middle East and China's tax crackdown on affluent shoppers, adding to existing pressure from sluggish demand in China and the US.

Tapestry's quarterly sales rose 11.1% to $1.89 billion, compared with analysts' estimates of a 9.12% rise to $1.86 billion, according to data compiled by LSEG.

Its adjusted profit of $1.82 per share topped estimates of $1.57.

(Reporting by Anuja Bharat Mistry in Bengaluru and Danielle Kaye in New York; Editing by Devika Syamnath)