Corrects to remove erroneous reference to marketing campaigns by celebrities for Tabby that appeared in paragraph 4. Those campaigns were for Kate Spade, not Tabby

By Juveria Tabassum and Angela Christy M

Feb 5 (Reuters) - Tapestry TPR.N raised its annual earnings targets on Thursday for a second time after strong demand for its Tabby handbags helped the affordable luxury retailer comfortably beat holiday-quarter estimates.

Affluent Gen Z customers have been snapping up Tabby handbags, priced between $295 and $725, boosting sales for the company's Coach brand when rivals such as Michael Kors have struggled to attract discerning shoppers.

Coach revenue surged 25% to $2.14 billion in the second quarter, beating estimates of a growth of 14.5%, according to data compiled by LSEG.

The company increased its spending on marketing by 40% in the reported quarter.

"These investments are helping solidify our brand building. We see the opportunity for Coach to be a $10 billion brand," Tapestry CEO Joanne Crevoiserat told Reuters.

The company raised its full-year adjusted earnings forecast to $6.40 to $6.45 per share from $5.45 to $5.60 expected earlier. It projected annual operating margin growth of about 180 basis points, from an earlier target of about 50 basis points.

Tapestry expects full-year revenue of more than $7.75 billion, compared with about $7.3 billion previously.

The company also bumped up its share buyback expectation for fiscal 2026 to about $1.2 billion, from $1 billion expected earlier.

KATE SPADE RESET CONTINUES

Coach's success also gives the company some cushion, as it works through a long Kate Spade reset where sales have dropped for the last 13 quarters, and fell 14% in the second quarter.

Kate Spade has also been hit by tariffs, as well as the removal of the de minimis exemption, but Tapestry expects to fully mitigate the roughly 200 basis points impact on its margins from tariffs this year.

Tapestry sources products from countries such as India, Vietnam and Cambodia that were hit with steep U.S. tariffs.

The company's second-quarter revenue came in at $2.5 billion, edging past analysts' estimates of $2.32 billion.

Adjusted earnings per share were $2.69, compared with analysts' estimate of $2.22.

Last year, Tapestry divested Stuart Weitzman to Dr Scholl's owner Caleres CAL.N for $105 million as the luxury footwear brand struggled with weak spending in North America and China.

(Reporting by Angela Christy M and Juveria Tabassum in Bengaluru; Editing by Sriraj Kalluvila)

((AngelaChristy.M@thomsonreuters.com;))