Coach is entering its new fiscal year from a position of strength, but an unexpected policy change has thrown a multimillion-dollar hurdle in its path.
Parent company Tapestry reported a record fourth quarter for 2025 while sharing its full-year 2025 fiscal year results, with Coach delivering the strongest year in its 85-year history: It saw 10% revenue growth, a mid-teens percentage increase in average unit retail (AUR) for handbags in the fourth quarter, and 4.6 million new North American customers, 70% of them being Gen Zers or millennials.
But even with sales momentum accelerating into the new year, CEO Todd Kahn is preparing for a significant profitability headwind from tariffs — most notably, the sudden end of the U.S. “de minimis” exemption for low-cost imports.
Under the de minimis rule, shipments valued under $800 could enter the U.S. duty-free if sent directly to the consumer from abroad. Many brands, including Coach, leveraged this for cross-border e-commerce fulfillment, particularly for products manufactured in Asia. The arrangement allowed them to avoid both regular import duties and the additional Section 301 tariffs on China-made goods.
The exemption was due to expire on January 1, 2027, under the existing trade legislation. However, on August 4, 2025, President Trump signed an executive order ending the exemption immediately.
“The de minimis 321 was something that, under the bill, wasn’t supposed to sunset until at least 2027. That changed dramatically,” Kahn told Glossy after the earnings. “The good news is some of this is just going to take time. I am confident that Coach will work our way through it. I don’t see this as a huge issue. What matters is making sure we continue to innovate, we continue to provide our customers with great product, and we remain very efficient in our SG&A.”
Tapestry CFO Scott Roe quantified the impact on the earnings call: About one-third of the $160 million tariff and duty impacts that Tapestry expects in 2026 come from the de minimis change alone. That equates to roughly $53 million in extra costs from the loss of duty-free status on certain direct-to-consumer shipments.
Kahn emphasised that pricing decisions won’t be dictated purely by cost inputs. “Our cost input is not the biggest motivator for pricing. Since 2019, average unit retail is up over 80%, driven by the brand, the innovation and what we’re bringing to market,” he said.
Hero products like the Tabby and Kisslock bags sell out at full price and, in the latter’s case, have spawned secondary market markups of 100%. “We will keep up with inflation, but ultimately, we want to be top of mind for that young consumer, particularly the woman going from college to her first job. I [may] have to take a bag up $10 or $15, but it’s not going to be hundreds of dollars to capture the same margin.”
On the sourcing side, Coach is taking a measured approach. “I don’t want to compromise quality,” Kahn said. “We’ve been partners with some of these suppliers for 25-plus years, and our people are in the factories. We’re not going to try to just squeeze them. We’re not in the highest tariff countries as it is, so there isn’t going to be a big shift. A structural benefit we have is that 40% of our business is outside the U.S., so it’s not impacted by tariffs.”
The de minimis change comes on top of other tariff increases and retaliatory duties, making full-year 2026 one of the most challenging cost environments Coach has faced in recent years. Roe told investors the company is already implementing mitigation strategies, including supply chain optimization and efficiency gains, but stressed that not all solutions can be immediate. “We have momentum, and the first word in supply chain is ‘supply,’” he said on the earnings call. “We’re not going to sacrifice service to our business. As we start to understand the rules of the game, I have every bit of confidence that our gross margins and operating margins will continue to expand as we move into next year and beyond.”
With next year’s guidance calling for high-single-digit growth at Coach, despite the $160 million tariff drag, Kahn remains focused on maintaining the brand’s upward trajectory. “We have such a huge opportunity to bring something beautiful and engaging to millions of new customers over the next five years and, perhaps, capture them for their lifetime, as long as we keep innovating and delivering compelling products,” he said.
