Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2025-08-14, FY ended June 28, 2025) + Yahoo Finance
Auditor: Deloitte & Touche LLP — Unqualified opinion
One-line verdict: Tapestry's FY2025 financials are distorted by the aftermath of the failed $8.5B Capri Holdings acquisition. Net income collapsed 78% to $184M from $822M as the company absorbed $1.1B in incremental SG&A — including transaction costs, restructuring charges, and the write-off of Stuart Weitzman goodwill. Cash of $1.1B covers only 29% of $3.9B in debt, goodwill and intangibles at 199% of equity dominate the balance sheet, and Debt/EBITDA spiked to 7.4x. Beneath the noise, Coach remains a cash machine generating $1.2B in operating cash flow and 75.4% gross margins. But the balance sheet is scarred, and the framework correctly flags it.
| Metric | Result |
|---|---|
| ❌ Red Flags | **2** (cash/debt 29%; goodwill/intangibles 199% of equity) |
| ⚠️ Watch Items | **2** (SG&A/GP 76%; Debt/EBITDA 7.4x) |
| Checks Completed | **17/18** (1 N/A: impairment data) |
| Beneish M-Score | **-3.02** (clean; threshold is -2.22) |
| Altman Z-Score | **0.54** (distress zone) |
| Auditor | Deloitte & Touche LLP — Unqualified opinion |
A House of Brands After a Failed Mega-Deal
Tapestry operates two brands after divesting Stuart Weitzman: Coach (79.9% of FY2025 revenue) and kate spade new york. Per the filing, "Tapestry, Inc. is a house of iconic accessories and lifestyle brands. Our global house of brands unites the magic of Coach and kate spade new york."
The Capri Holdings acquisition was blocked by regulators in late 2024, and the company reversed course — writing off transaction costs, restructuring, and ultimately divesting Stuart Weitzman. The filing shows operating income collapsed from $1.14B (17.1% margin) to $415M (5.9% margin).
| Metric | FY2022 | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $6.7B | $6.7B | $6.7B | $7.0B | Flat, then slight growth |
| Net Income | $0.86B | $0.94B | $0.82B | $0.18B | Collapsed in FY2025 |
| Gross Margin | 69.6% | 70.8% | 73.3% | 75.4% | Steadily expanding |
| Operating Margin | — | — | 17.1% | 5.9% | SG&A explosion |
Per the 10-K, "Gross profit 5,288.9 75.4% 4,889.5 73.3%" — gross margins expanded 210 basis points year-over-year. The margin improvement is real, driven by Coach's pricing power and reduced promotional activity. The earnings collapse is entirely below the gross profit line.
Cash Flow: The Hidden Strength
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Operating Cash Flow | $1.0B | $1.3B | $1.2B |
| Net Income | $0.94B | $0.82B | $0.18B |
| **CFFO / Net Income** | **1.06** | **1.59** | **6.64** |
| Free Cash Flow | $0.8B | $1.1B | $1.1B |
| **FCF / Net Income** | **0.85** | **1.34** | **5.97** |
The CFFO/NI ratio of 6.64 looks bizarre but makes sense: net income was crushed by non-cash charges (goodwill write-downs, restructuring reserves) while operating cash flow remained robust at $1.2B. Per the filing, "Net cash provided by operating activities decreased $39.0 million primarily due to lower net income of $632.8 million and changes in operating assets." The $39M decrease in CFFO despite a $632M decrease in net income tells you the earnings drop was almost entirely non-cash.
The accruals ratio of -15.7% is deeply negative, confirming that reported earnings massively understated cash-generating ability.
The Debt and Balance Sheet Problem
| Metric | FY2024 | FY2025 | Change |
|---|---|---|---|
| Cash | $7.2B | $1.1B | -$6.1B |
| Total Debt | $8.8B | $3.9B | -$4.9B |
| Goodwill + Intangibles | $2.5B* | $1.7B | -$0.8B |
| Equity | — | $0.85B | — |
| Debt/EBITDA | — | 7.4x | Distress |
In FY2024, Tapestry had borrowed $8.8B in debt and held $7.2B in cash — the war chest assembled for the Capri acquisition. When the deal collapsed, the company paid down $4.9B in debt and returned excess cash to shareholders. The resulting balance sheet — $1.1B cash, $3.9B debt, $1.7B goodwill — is the cleaned-up version, but Debt/EBITDA at 7.4x remains elevated because the EBITDA denominator was compressed by transaction-related charges.
Goodwill and intangibles at $1.7B represent 199% of total equity of $850M. This is dominated by the Coach and kate spade brand intangibles from their original acquisitions. Per the risk factors, "goodwill associated with" the brands is subject to annual impairment testing. Stuart Weitzman goodwill was already written down — the question is whether kate spade's intangibles are fully supported by that brand's performance.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | ✅ | DSO 12 days, unchanged YoY |
| A2 | AR vs Revenue Growth | ✅ | AR +4.9% vs revenue +5.1% |
| A3 | Revenue vs CFFO | ✅ | Revenue +5.1%, CFFO -3.1% |
Revenue quality is clean. AR tracking revenue closely, DSO stable at 12 days.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | ✅ | Inventory +4.4% vs COGS -3.4% |
| B2 | CapEx vs Revenue | ✅ | CapEx +12.7% vs revenue +5.1% |
| B3 | SG&A Ratio | ⚠️ | SG&A/Gross Profit = 76.0% |
| B4 | Gross Margin | ✅ | 75.4%, +2.1pp |
SG&A surged to 69.5% of revenue from 56.2% — the filing shows "SG&A expenses 4,873.9 69.5 3,749.4 56.2" — an increase of $1.12B or 30%. This includes Capri transaction costs, Stuart Weitzman wind-down costs, and restructuring charges. Normalized SG&A should revert toward historical levels in FY2026.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | ✅ | CFFO/NI = 6.64 |
| C2 | Free Cash Flow | ✅ | FCF $1.1B, FCF/NI = 5.97 |
| C3 | Accruals Ratio | ✅ | -15.7%, deeply negative |
| C4 | Cash vs Debt | ❌ | Cash $1.1B covers 29% of $3.9B debt |
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | ❌ | $1.7B = 199% of equity |
| D2 | Leverage | ⚠️ | Debt/EBITDA = 7.4x |
| D3 | Soft Asset Growth | ✅ | Other assets -27.2% |
| D4 | Asset Impairment | — | No write-off data |
Acquisition Risk & Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | ✅ | FCF positive |
| E2 | Goodwill Surge | ✅ | Goodwill -33% YoY (Stuart Weitzman write-off) |
| F1 | Beneish M-Score | ✅ | -3.02 (clean) |
The M-Score of -3.02 — well below -2.22 — confirms no earnings manipulation. The collapse in reported earnings was driven by disclosed one-time items, not undisclosed accounting tricks.
Key Risks from the 10-K
1. Tariff Exposure — Immediate and Material
The filing warns extensively: "There has been significant reform in U.S. trade policy following the change in U.S. presidential administration in January 2025. International trade disputes as well as changes and uncertainty regarding international trade and trade policies, including the imposition of new tariffs or changes to existing ones, could have a material adverse effect." Most Tapestry products are manufactured outside the U.S. — primarily in Vietnam, Philippines, China, India, and Cambodia.
2. Coach Concentration Risk
Coach represents 79.9% of total revenue. Kate spade is the only other brand after Stuart Weitzman's divestiture. If Coach stumbles — through brand fatigue, competitive pressure, or macroeconomic downturn — there is no diversification cushion.
3. Post-Deal Strategic Uncertainty
The failed Capri acquisition consumed management attention for over a year. The filing discusses returning capital to shareholders via dividends and buybacks: "In fiscal 2025, the Company returned $X in capital to shareholders." The strategic question — how to grow beyond Coach — remains unanswered after the regulatory block.
Summary
Grade: F. Two red flags driven by post-acquisition cleanup; underlying cash generation is strong.
Tapestry's FY2025 results are a mess of one-time charges from the failed Capri acquisition. Strip out the noise and the core business is solid: Coach generates 75.4% gross margins, the company produced $1.2B in operating cash flow and $1.1B in free cash flow, and the M-Score of -3.02 shows no manipulation. But the balance sheet is genuinely stressed — goodwill at 199% of equity, Debt/EBITDA at 7.4x, and cash covering only 29% of debt are real constraints, not just accounting artifacts.
FY2026 should show normalization as one-time charges roll off and debt continues to be paid down. Watch for kate spade's trajectory and whether the tariff environment forces margin compression.
**Disclaimer**: This report is based on Tapestry's FY2025 10-K filed with SEC EDGAR on August 14, 2025. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Deloitte & Touche LLP (Unqualified opinion)
Fiscal year ended: June 28, 2025