Operator:

Good day and welcome to this Tapestry Conference Call. Today’s call is being recorded. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations, Christina Colone.

Joanne Crevoiserat:

Good morning. Thank you, Christina and welcome, everyone. As noted in our press release, our third quarter earnings results outperformed expectations, reflecting an unwavering commitment to disciplined brand building and operational excellence. Our talented global teams continued to advance our long-term initiatives, fueling innovation and consumer connections, while successfully harnessing the power of our customer engagement platform to navigate the dynamic backdrop with focus and agility. Touching on the highlights for the quarter. First, we delivered total revenue in line with the prior year on a constant currency basis, consistent with the low end of our guidance range. These top line results were led by international growth of 3% at constant currency, which included increases of 19% in Europe, 15% in Other Asia, and 2% in Japan, with each region expanding versus the prior year fueled by traction with tourists. In Greater China, as anticipated, sales declined 2% against last year's strong revenge spending. We remain confident in the long-term opportunity in China, despite a more gradual recovery in the region than originally expected, and we continue to invest in our brands, teams, and platforms to support our growth. Finally, in North America, revenue declined 3% compared to last year, amid a challenging consumer backdrop. Importantly, we are continuing to drive a healthy business, underscored by significant gross margin expansion compared to last year and our plan. Second, we continue to put the consumer at the center of everything we do to drive engagement and emotional connections with our brands. In the quarter, we acquired approximately 1.2 million new customers in North America alone, of which over half were Gen Z and millennials, consistent with our strategy to recruit younger consumers to our brands. And we continue to see new customers transact at higher AUR than the balance of our customer base. At the same time, we improved lapsed customer reactivation in North America. Third, we delivered unique omni-channel experiences with a focus on driving brand desire, consumer connections and cultural relevance. We launched immersive retail experiences across brands globally with highlights that include the continued rollout of the Coach play concept and Kate Spade's successful renovation of the Gotemba outlet in Japan. And just last month, we introduced the Stuart Weitzman shop-in-shop in Nordstrom in New York City. We believe these locations drive awareness and customer acquisition, notably with younger cohorts. Further, we maintained our strong digital positioning with sales more than three times above pre-pandemic levels, which represented over 25% of revenue. Importantly, our digital business is underpinned by Tapestry's data-rich platform and leading capabilities, which has enabled us to seamlessly meet consumers where and how they're shopping across their purchase journey. Fourth, we fueled fashion innovation and product excellence by delivering compelling assortments to consumers with particular success at Coach, where we drove handbag AUR gains at constant currency. Importantly, this focus also continued to drive operational gross margin expansion, helping to fuel our highest third quarter gross margin in nearly two decades. We understand innovation wins with consumers, and we are committed to bringing creativity, quality and compelling value to customers around the world. Overall, we generated third quarter operating income and earnings above expectations, driven by stronger-than-anticipated margins, highlighting the power of brand building, consumer centricity and operational agility. We achieved these results while making strategic investments in our brands to support healthy, sustainable growth into the future. Now turning to highlights across each of our brands, starting with Coach. Our team delivered another strong quarter with the power of the brand's unique expressive luxury positioning once again on display. We continue to infuse innovation across all customer touch points driving engagement, cultural relevance and emotional connections with customers globally. Importantly, the success of our strategies, together with consistent execution is evident in our financial results, with revenue growth at constant currency, significant gross margin expansion and profit gains with further runway ahead. Now touching on some details of the third quarter. We continue to drive growth in our handbag offering, led by our iconic platforms. The Tabby family delivered another quarter ahead of expectations and nearly doubled versus last year. The introduction of our Quilted Tabby was an incredible success fueled by the top-selling Black Tabby with brass hardware at a premium AUR of $550. At the same time, Core Tabby styles remain strong, and we see further opportunity ahead across the entire family. While we continue to animate this family, we're leaning into key styles including Quilted Tabby and see further opportunity ahead. Across the balance of the assortment, our Timeless Willow and Rogue families remain foundational volume drivers. And we augmented our offering to build relevance with younger consumers, including the Coach original Swing Zip, which has gone viral on social media as well as the ACE Tote, both of which over-indexed with Gen Z customers. Overall, our creative and innovative products supported an increase in global handbag AUR at constant currency, including growth in North America. Looking forward, we see continued runway longer-term, given our innovation pipeline and brand heat. At the same time, we advanced our focus on building out the lifestyle assortment to expand the brand's reach with consumers with the goal of powering customer recruitment, purchase frequency and ultimately, customer lifetime value. In footwear, sales rose against last year, reflecting success in our core styles, notably the low line sneaker as well as strength in newness, including our BRENT sandal. In men's, the Gotham, Charter and recently launched Coach Family led in the quarter. And in ready-to-wear, we debut classic denim styles contributing to the strong success of denim across all categories in keeping with market trends. Next, we created purpose-led storytelling, building meaningful emotional connections with brand. We again blended purpose and product with our spring 'Find Your Courage' campaign, inspiring consumers to embrace confident self-expression. The campaign takes place between the physical and virtual worlds, brought to life with the help of members of the Coach Family, including Lil Nas X, Camila Mendes, Youngji Lee, Kōki, and Wu Jinyan as well as our newest member, imam, a virtual model and digital creator. Further, we launched deeply unique and immersive retail experiences across the globe, engaging the consumer across all five senses. We took Coach Play to Tokyo, opening our largest concept store yet on Cat Street, which celebrates the brand's heritage, self-expression and local Japanese culture. Importantly, the store resonates with younger consumers and has outperformed expectations. In March, we launched the brand's first full-service restaurant at the Grand Indonesia Mall in Jakarta, highlighting Coach's expanding presence in Southeast Asia and our strategy to connect with consumers through experiences beyond product. Overall, the brand's marketing and focus on omnichannel experiences helped to drive new customer acquisition, including nearly 800,000 new customers in North America, of which nearly 60% were Gen Z and Millennials. And we've seen gains in brand awareness in the US per our brand tracking work, underscoring that our investments in brand building are working. Finally, we continue to build our sub-brand, Coachtopia, our reimagination of the product creation process to evolve our vision of circularity, which has driven incremental brand relevancy and desire. During the quarter, we launched the road to circularity, a Coachtopia docu series that explores how we're reimagining waste as a valuable raw material. And in April, we unveiled Coachtopia's inaugural store in Hainan, an initiative that combines our mission of sustainability and our commitment with investing in brand building in China and with Chinese consumers. While Coachtopia remains a small portion of the assortment, we're excited by the momentum we're building specifically with younger audiences. In closing, Coach is fueling consumer desire, bringing expressive luxury to life while driving sustainable, healthy profit growth that funds investments in brand building. We are confident in the future and the tremendous potential for this iconic brand. Now moving to Kate Spade. During the quarter, while top line results were challenged as anticipated, profit exceeded expectations in prior year, led by continued gross margin expansion and disciplined expense management. Importantly, we advanced our strategic agenda, sharpening our execution to bring enhanced innovation to consumers. And where we've offered newness, we've seen our customer respond. This progress reinforces our path forward as we build a more profitable business, while remaining focused on driving the top line growth required to realize the long-term potential of the brand. Now touching on our strategic priorities and results in more detail. First, we remain focused on strengthening the brand's core handbag foundation, a requirement to win in today's dynamic consumer backdrop. During the quarter, we broadened the core assortment across channels through new introductions, including the Suite Work Tote, Seabee and Spade Flower Signature programs. Importantly, newness drove higher customer recruitment, AUR and gross margin versus the balance of the offering. At the same time, the performance of newness also reinforces our sense of urgency to refresh our carryover families, which remain pressured. To this end, the pipeline of handbag newness will continue to increase into fiscal year 2025, building on the progress we're seeing today and supporting the brand's runway for enhanced revenue and profitability. And as we innovate our core handbag offering, we will also continue to deliver emotional lifestyle assortments, a differentiator for the brand. During the quarter, we delivered growth in jewelry, which is a key recruitment vehicle and profit driver for the brand. Now, turning to our second strategic focus area, powering the omnichannel experience to drive customer engagement. As you know, we recently launched a dedicated katespadeoutlet.com site, replacing the brand's surprise site and providing a more seamless way for outlet consumers to discover and shop the brand online. As a result of this effort, our outlet omnichannel customer penetration increased in the quarter and remains an opportunity to drive customer lifetime value over time. Further, by bringing a more unified experience to consumers across all brand touch points, we can continue to more efficiently scale our marketing and merchandising efforts, supporting our goal of driving sustainable direct-to-consumer growth. Third, we are focused on creating emotional marketing that fuels brand relevance and heat. During the quarter, we launched a new global campaign Time to Spring, anchored in the brand codes of joy, color in New York City, which garnered significant media impressions and strong engagement on social platforms. Our marketing investments supported the acquisition of approximately 400,000 new customers to the brand in North America. Moving forward, we will continue to distort our marketing efforts to top and mid-funnel activations that support brand building and growth. And finally, we will maintain a commitment to operational excellence, positioning the brand for long-term success, this focus has underpinned the brand's meaningful gross margin and profit expansion this year and is embedded in our strategies and ways of working for the future. Overall, we continue to advance our long-term strategies with a relentless focus on accelerating our progress. Our path forward is clear, and our vision for the brand and its potential is unchanged. Turning to Stuart Weitzman. Results in the quarter were pressured, reflecting headwinds in the brand's two key markets of North America and Greater China. Despite the challenged financial performance, we remain focused on supporting brand health by investing in product and marketing to drive growth and profitability long-term. Touching briefly on these focus areas. During the quarter, we expanded our assortment of casual styles in keeping with market trends. This included new block heels, wedges, bale flats and loafers, which are performing particularly well across key full-price wholesale accounts, supporting strong sales gains at POS in North America. Further, our fall and pre-spring wholesale bookings are up meaningfully, reflecting our progress in delivering product innovation and relevancy. Further, we continued to build out new categories with the launch of the brand's men's collection and an expanded sneaker assortment. At the same time, our handbag collection, while still a small portion of the assortment, drove growth at high AUR. Now, turning to marketing. During the quarter, we drove relevance by tapping into cultural moments to amplify our key product strategies, for example, we launched our pre-spring collection with the backdrop of Palm Beach and leveraged a multifaceted influencer approach to reinforce our recently launched sneaker offering with Sofia Richie Grainge, Suki Waterhouse, and Jenna Dewan showcasing Stuart Weitzman Trainers. As a result of these efforts, U.S. Google search queries for the brand increased, while consideration also rose in the U.S. per YouGov. Overall, the Stuart Weitzman team is leaning in to accelerate progress and enhance profitability longer term through relevant, differentiated product and emotional marketing to fuel brand desire. In closing, Tapestry delivered third quarter earnings ahead of expectations, successfully advancing our strategic agenda to power our iconic brands to move at the speed of the consumer in an ever-changing environment, while investing in our future. We remain confident in our vision and the significant long-term opportunity to drive sustainable organic top and bottom-line gains and meaningful shareholder value. Before turning the call over to Scott to discuss our financial performance and outlook in more detail, I'd like to provide an update on our pending acquisition of Capri. First and foremost, we remain excited by the opportunity to expand our house of powerful brands, positioning Tapestry as a leader in innovation. The combined company will bring significant benefits to customers, employees, partners, and shareholders around the world. By investing in and growing Capri's brands, we will bring more innovation to more consumers globally, positioning us to better compete within the growing over $200 billion global luxury market for handbags, accessories, footwear, and apparel. Further, through this combination, we will be a home and incubator for talent, driving our purpose-led and people-centered mission and continuing to elevate employee and consumer experiences. With regard to the transaction timeline, following unconditional approval from the European Commission and regulatory approvals in China and Japan, the FTC filed a suit on April 22nd to block the proposed acquisition. We remain confident in the merits and pro-competitive pro-consumer nature of this transaction and look forward to presenting our strong legal arguments in court. Our timeline always contemplated the potential for litigation and we continue to expeditiously work to close the transaction in calendar year 2024. In the meantime, and as always, we remain focused on continuing to execute on our current business and strategic growth agenda. I'll now turn it over to Scott.

Operator:

[Operator Instructions] We'll take our first question from Bob Drbul of Guggenheim.

Joanne Crevoiserat:

Sure. Maybe, Bob, starting with this year, fiscal 2024, I want to acknowledge that we just delivered a strong earnings fee in our third quarter and we reiterated our outlook for fiscal 2024. That's an important step in getting to our fiscal 2025 target. And I would say despite the dynamic environment that we've operated in since sharing those targets three years ago, we remain confident in our ability to deliver the earnings target we set. That really reflects our commitment to brand building and our track record of disciplined execution, both of which are driving our results and hats off to our teams around the world who are maniacally focused on serving our customers with the agility required in this environment. And what gives us confidence, I would say, Coach, our largest brand, is in a position of strength. Expressive luxury is driving new customer acquisition, new and younger customer acquisition and strong engagement globally. We have brand heat and a pipeline of innovation to come, and I am pleased with the execution and the discipline that's allowed us to grow profit even in a challenged environment. And we do have a sense of urgency to drive stronger top line growth across our portfolio. We remain focused on those initiatives and investments that will fuel that long-term growth and we see tremendous runway ahead, but maybe I'll turn it over to Scott to share a little more detail.

Bob Drbul:

Great. Thank you very much.

Ike Boruchow:

Good morning, everyone. Congrats on the quarter in a tough date. I guess a question and a clarification. I guess maybe, Scott, just can you give us a little unpack Q4 a little bit more, specifically Coach in North America and China expectations that are embedded in that quarterly guide. And then I just wanted to make sure I understand. So when you have said the double-digit accretion on the deal for some time. I guess what I'm trying to understand is, is that a year one number? I mean I think we all know that since the deal went through. I think that company's EBITDA, at least on the Street estimates have been cut 30%, 40%. So is that more of a multiyear accretion expectation? Or is that a year one double-digit accretion number that you guys are kind of talking to. Just trying to understand more. Thank you.

Todd Kahn:

Good morning. Thanks, Scott. Again, we feel very good about where we're at Coach. As you saw this quarter, we delivered our highest gross margin in almost 20 years. And we see continued growth. We're not chasing the last dollar. We're being very disciplined and prudent. But we're growing with the people we want to grow with in North America, Joanne mentioned, we grew 800,000 new consumers, 60% are young, Gen Z and millennials. And what's exciting about that is that is the future fuel for sustainable long-term growth. So I'm pleased where we're at. I'm pleased with what we're going to deliver in the year in total and how -- and what it means for our future.

Operator:

We'll take our next question from Matthew Boss of JPMorgan.

Joanne Crevoiserat:

Sure. I'll kick it off with an overview of North America, and it's really a continuation of what we've been seeing in the market. The consumer is being more choiceful despite some positive factors in the market, certainly, the labor market is a positive in the market. We do see consumer confidence is low in North America, likely impacted by sticky inflation. And so we are seeing an overall more cautious consumer. But in that context, we're seeing innovation continue to win, and Coach has been doing a phenomenal job at delivering innovation. And we're being quite disciplined in terms of how we manage our business for the long term and our expectations for the business to reflect that. Where we're meeting the high bar, we're winning. We're driving higher gross margins. As Todd just mentioned, highest gross margin in nearly two decades. We're driving higher AUR. We're delivering the innovation, and we're acquiring more new consumers to brands. And those new consumers are transacting at higher AUR and higher gross margin. As we see the business unfolds, we're planning prudently to continue to build our brands for the long term. And then maybe for the second part of your question, Scott, pass it to you.

Scott Roe:

Thank you, Todd. Sorry about that. Yeah. So in the fourth quarter, we're going to grow almost 200 basis points in terms of gross margin, I'd say for the full year or two, if you just think about the overall performance, 230 basis points for the full year, which includes about 130 basis points of freight. So that freight benefit, we said, starts to wane as you move through the year, but it's still a contributor in Q4. As you think about going forward, as I said in an earlier comment, the gross margin drivers are still intact, right? We are investing in our businesses. We are increasing our marketing investment consistently over time. It's about triple where it was several years ago, and that engagement with the consumer gives us confidence in our ability to continue to get them to both the consumer is in charge. They decide that they continue to vote. In terms of our products and the AUR that comes with that as well as opportunities on the cost side. We see that we have AUC benefits that we're achieving this year, and we see that continuing on a go-forward basis.

Scott Roe:

Yes, thanks Matt.

Lorraine Hutchinson:

Thanks. Good morning. Joanne, you just discuss the challenging macro environment in North America. Are conditions deteriorating enough to cause you to change your strategy? Would you give up some of this gross margin strength to give some of the value back to consumers and drive sales growth?

Lorraine Hutchinson:

Thank you.

Brooke Roach:

Good morning and thank you for taking our question. As you think about the opportunity for Tapestry to gain share in North America against this challenged macro, can you talk a little bit more about the innovation pipeline you have on the horizon? And how you're thinking about engaging customers between the outlet and the value-focused channels relative to the full-price channels and what you're seeing there currently? Thank you.

Todd Kahn:

Thank you, Joanne. I couldn't be more excited with what I see, what we're seeing now both in our stores. But I have the benefit and the privilege of walking through our showrooms and seeing what we're going to deliver nine months from now. And -- what we're seeing is innovation across all price points. We're not just innovating at the top. We're innovating at our value channel, and at our retail channel. And we're doing some really interesting things. We talk a lot about the strength of Tabby. One of the things you're going to see when you visit stores in June, we're going to take Tabby at full price to 100 outlet stores in North America. Because what we recognize is we're spending quite a bit on marketing our image, leaning in on Tabby. Consumers don't always see the difference like we see between a outlet store and a retail store. And with taking those Tabby, they will be sold at full price in outlet because the consumer is coming in with their iPhones and say, "I want this bag" and we want to make sure we deliver what our customers want wherever they shop. And that's what's so exciting. And ultimately, yes, we talk a little bit about the overall backdrop, but we're in an emotional category. And what we've seen, we haven't seen any degradation in consumers at our economic levels. So again, we win when we deliver newness, we deliver a motion when we have purpose-led campaigns. You're seeing that at Coach. This year, we will end over $5 billion. It's the first time in over a decade where Coach has done that. But we're ending at $5 billion in a very healthy, sustainable way. And that's what I feel so good about our future.

Michael Binetti:

Thanks for taking our questions here. Congrats on a nice quarter. I have two. I guess, if we think about what's baked into the guidance you just gave us for fourth quarter and some of the dynamics and what it could mean as we look to the second half of the calendar year, Scott, would you mind helping us think through maybe the upside and downside scenarios after your fourth quarter or maybe the puts and takes around the multiyear revenue CAGRs you spoke to at the 2022 Analyst Day in regards to fiscal 2025. And then on the AUR comments that you guys made earlier, I know you mentioned some confidence in the ability to keep driving AURs, handbag AURs, maybe walk us through some of the drivers that you look at to build to that. We've heard, I guess, as earnings season starts and retailers maybe pointing some concerns that the luxury brands have taken too much pricing on handbags and may need to start moderating a bit. Have you seen anything in the marketplace yet? What levers do you think about in your business if you need to kind of defend pricing if you do see that spread to luxury brands has provided a nice umbrella than you've spoken to over the last few years starts to reverse a little.

Scott Roe:

Yes, sure. Michael, you're probably not surprised. We're not giving any guidance on 2025, right? So I would just repeat a couple of things that I said earlier. First of all, there's agility in the model, it's on display. It has been since the Investor Day and our ability to deliver earnings on a lot of different conditions and difficult backdrop. The other thing I'd say is, we continue to invest in the brands, continue to invest in marketing, but we're also reading and reacting, right? And so I'll give you an example. We talked about in this last quarter, we have made a decision within our brands to spend more on the top of the funnel and less on the bottom of the funnel. That can hurt sales in the short term. You get bottom of the funnel sales, but from the quality of sales and the acquisition of new customers, which you saw 1.2 million in the quarter, about half of which are millennial and Gen Z. That really speaks to confidence in the future, and these are some proof points that help us or give us confidence that we can grow both top line and bottom line in the future.

Scott Roe:

Yeah. Thank you.

Oliver Chen:

Hi. Thanks so much. The Coach gross margin continues to really impress. What are your thoughts longer term? And should you invest more just to make sure you're being proactive about how well you're doing there? And as you think about pricing, it continues to impress as well, what are you seeing with elasticity? And how are you thinking about like-for-like relative to mix, the Tabby momentum is really impressive. Lastly, about the geographies. Would love your thoughts on the China customer relative to US, China has been fairly mixed with some of the macros and housing and traffic being general concerns. Meanwhile, we've seen a linear US customer. Just would love thoughts on that. Thank you.

Todd Kahn:

Perfect. Thanks. Yeah, we feel good Oliver about our gross margin and the sustainability of our growth margin. Now obviously, this was a not quarter. I want to make sure no one expects every quarter to be 77%, but we like the neighborhood, and we're delivering on an annual basis. And we are investing. I mean, again, when we talk about investing, we're investing in the quality of our product. We're investing in marketing. If you think about it, historically, Coach spend 3% on marketing. We're spending over 8% on marketing today. And as Scott indicated in the last question, we've shifted even more recently, how we're spending that marketing. We're spending more and more on top of the funnel marketing to tell stories, to create more connection with our consumers. We're doing that because we believe in the long-term sustainability and the customer acquisition that, that brings to the brand. In terms of pricing, I mean, we touched on this a little bit, but I feel -- and Joanne touched on this, but I think in terms of AUR, at Coach brand specifically, we feel very good about sustaining AUR growth for four reasons. Again, it goes back to innovation and storytelling, something I've talked about over and over again. A motion always trumps price. Consumers have hundreds of choices. Every day, we win because we connect with them emotionally. Third, traditional European luxury dominate the category. And when we compare our product with that traditional European luxury, the consumer is seeing the value, and that's very important. And lastly, something that Scott always touches on, we're so disciplined in our inventory. We are -- our whole structure, if you think about the last four years, Joanne led this, we reduced our SKU count dramatically, and we leaned in on important family. And that takes a lot of the pressure off that constant churn on fashion. That's what you're seeing with Tabby, that's what you're seeing with Willow, Rogue Rose, we have families that are sustainable, that are emotional that the consumer connects with. Back to Joanne, on China.

Oliver Chen:

Very encouraging. Thanks. Best regards.

Operator:

Our next question is from Mark Altschwager of Baird.

Joanne Crevoiserat:

No, our opportunities with Kate, and I appreciate the question, Mark. At Kate, we are focused on building a stronger brand and a bigger brand. We see tremendous potential in the future for Kate. And we're doing both building the profitability of the brand as well as establishing a stronger brand with our consumers. So in the quarter, you saw us expand gross margin, operating margin and profit versus last year. It exceeded our expectations. So the discipline management of the business remains intact. We're executing with discipline, and that is embedded in our ways of working going forward. So we're focused on increasing the profitability of the brand and from that base, also an opportunity to grow the top line. And in that, we see an opportunity to increase the -- or improve the execution in three areas, and we've talked about this. One is strengthening the core handbag foundation. Coach has 80 years of archives that we're pulling from and really driving. Kate is building those core handbag ideas and the delivering of innovation, you've heard that as a theme at Tapestry, where we're really winning and where we see the customer respond is when we're delivering newness and innovation in our assortments. And that's what we're focused on delivering. And we're increasing that newness and innovation at Kate, where we're delivering that. It's working. And that newness and innovation will grow, as we've mentioned, into fiscal 2025. We're also focused on the omnichannel experience. We launched outlet.com. We have more omnichannel customers, but that seamless experience and driving more emotional marketing. We're talking about shifting our investments into top of funnel. So all the things that Todd just talked about at Coach are things we're applying to Kate. Kate in earlier innings. And we continue to have confidence in the runway that we see ahead for the brand. We're being disciplined about our execution and building the profitability while we continue to execute on the things that will drive and help us achieve that long-term brand ambition.

Scott Roe:

Yes. So again, I'm not going to get into that level of specificity, but let me be clear, we expect to grow, right? We've got the building blocks in place. We're acquiring consumers that we believe have a strong lifetime value. We're putting the investments in marketing and behind the business, and we've got an innovation pipeline. So we'll come back and give you more soon, but we do expect to grow. That sai, dwe demonstrated this year that even on no growth essentially flat business, we can and have the levers to deliver profitability. So a combination of both those things that give me a lot of confidence. Think about what this model does as it's been remade and the efficiency that we've been talking about as we achieve the growth that we expect to in the future. And this becomes a profit and a cash machine on an even higher level than the commitments that we've made publicly.

Rick Patel:

Thank you. Good morning. Really good control of SG&A. Can you talk about which levers you pulled in the quarter to pare back the growth there and touch on how we should think about OpEx going forward in terms of areas where you see opportunity for better control versus areas you need to make more investments in?

Rick Patel:

Thanks very much.

Joanne Crevoiserat:

Well, thank you. And thank you for joining us and for your interest in our story, and thank you to our incredible teams around the world who continue to drive our results against the dynamic backdrop. Our disciplined approach to brand building and our commitment to operational excellence were once again on display in the third quarter. We're delivering innovation for consumers and driving profit and earnings growth. I'm confident in our future and the significant opportunity to drive sustainable growth and shareholder returns. Thanks, again, and have a great day.

Operator:

Good day and welcome to this Tapestry Conference Call. Today's call is being recorded. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations, Christina Colone.

Joanne Crevoiserat:

Good morning. Thank you, Christina, and welcome, everyone. As noted in our press release, we delivered a strong holiday quarter, achieving record second quarter revenue and earnings per share with growth outpacing expectations. Importantly, we advanced our strategic agenda, driving consistent progress through the power of brand building, customer centricity and disciplined execution. I want to recognize our talented global teams whose creativity, passion and agility continue to fuel consumer engagement and our standout financial results. Touching on the highlights for the quarter. First, we powered global growth to achieve a 3% sales gain, demonstrating the benefits of our diversified business model. This increase was driven by 12% growth at constant currency internationally, which included 19% growth in Greater China, consistent with our expectations. Further, sales to Chinese consumers globally grew at a mid-teens rate, which included continued growth with Chinese tourists. Looking ahead, we remain committed to investing in our brands, leveraging Tapestry's established platform in the region to build our business not only in China, but with this important cohort worldwide. Turning to Japan. Revenue rose 6%. And in Other Asia and Europe, sales increased 9% and 11%, respectively with each delivering strong growth against last year's double-digit gains. Finally, in North America, we delivered revenue in line with last year and better than our expectations. We are continuing to drive a healthy business, underscored by significant growth and operating margin expansion compared to last year and plan. Second, we remain focused on building customer engagement across our brands. In the quarter, we acquired approximately 2.5 million new customers in North America alone, of which roughly half were Gen Z and Millennials, consistent with our strategy to recruit younger consumers to our brands. And we continue to see new customers transact at higher AUR than the balance of our customer base. At the same time, we improved lapsed customer reactivation in North America, demonstrating our ability to engage with our existing customer base while bringing new customers to our brands. Third, we delivered unique and seamless omni-channel experiences, reinforcing the benefits of our data-rich direct-to-consumer operating model. To this end, we drove mid-single-digit growth on a constant currency basis, both in stores and online as we continue to meet our customers where they choose to shop. Our exceptional retail teams welcome more customers to our stores around the world, while we maintained our strong positioning in digital, which represented one-third of revenue. During the quarter, we were proud to open a new multi-brand fulfillment center in Las Vegas as we continue to invest in our omni-channel capabilities, supporting speed, sustainability and growth. Fourth, we fueled fashion innovation and product excellence by delivering compelling newness and value to consumers, which supported overall handbag AUR gains globally. At the same time, we drove growth in our small leather goods and lifestyle offerings, important for the holiday gifting season. Overall, we generated record second quarter EPS, which exceeded expectations and increased significantly compared to the prior year, highlighting the power of brand building and disciplined execution. We achieved these strong results while making strategic investments in our brands to accelerate future growth. Now turning to the highlights across each of our brands, starting with Coach. We delivered another standout quarter as our team continues to fuel brand desire by bringing expressive luxury to life, a positioning that is relevant and unique to Coach. Our strategy supported by consistent execution are driving strong innovation, consumer connections and financial results, highlighted by revenue growth across geographies and significant margin expansion. Now touching on some details of the second quarter. We achieved growth in our leather goods offering fueled by our iconic platforms. Tabby again, outperformed expectations, nearly doubling versus last year and over-indexing with new and younger consumers at above-average AUR. We're continuing to bring newness to this iconic family across bags and small leather goods, including the recently launched Quilted Tabby with further runway ahead. At the same time, we drove growth across the balance of the assortment anchored by our Willow and Rogue families, which remain foundational volume drivers. We also drove momentum with the recently introduced Idle Family, expanding the offering with new sizes. Overall, our creative and innovative products supported a mid-single-digit gain in global handbag AUR including growth in North America. Looking forward, we see continued opportunity for pricing improvements given our innovation pipeline and brand heat. At the same time, we fueled gains in lifestyle as we focus on building the brand's reach with consumers with the goal of powering customer recruitment, purchase frequency and ultimately, customer lifetime value. In ready-to-wear, we advanced our strategy to build a core assortment of key styles that represent compelling value. Growth in the quarter was driven by outerwear. In footwear, the Leah Loafer continued to outperform. And in men's leather goods, growth was driven by success in the key Gotham, Charter, Hitch and Relay families. Next, we created purpose-led storytelling, building meaningful emotional connections with the brand. We continue to lean into the strength of the Wear your Shine campaign, which inspires consumers to use fashion as a means for personal expression and empowerment. The Shine collection included a range of gold and metallic bags, ready-to-wear and accessories, allowing customers to own their shine with confidence. We also delivered emotional content through our More than a Gift campaign, which celebrates the gifts that give us the confidence to be ourselves. Overall, the success of these campaigns helped to support the acquisition of approximately 1.5 million new customers in North America, including a growing number of Gen Z and Millennials. And according to US brand tracking work fielded during the quarter, Coach saw a lift in unaided awareness versus prior year led by gains with Gen Z consumers, underscoring that our investments in brand building are working. And finally, we continue to build momentum in our sub-brand Coachtopia, a re-imagination of the product creation process to evolve our vision of circularity. During the quarter, Coachtopia's Ergo shoulder bag made with either repurposed leather or leather scraps was the top-selling style. While Coachtopia remains a small portion of the assortment, we are excited by the significant consumer attention it's receiving specifically with younger audiences. In closing, Coach continues to build strength on strength, with a clear strategy, unique purpose and commitment to investing behind sustainable growth. The power of expressive luxury rooted in deep consumer insights and consistent execution is bringing new innovation, new customers and new potential to this iconic brand, and we're confident in the tremendous runway ahead. Now moving to Kate Spade. During the quarter, we continued to advance our long-term priorities, reinforcing our strategic direction. Profits were ahead of both expectations and the prior year, led by gross margin expansion, demonstrating our agility and discipline. Having said that, top line trends remain challenged. In order to realize the ambition we have for the brand, we need to accelerate our progress through improved execution. To this end, we see an opportunity in three key areas. First, strengthening Kate Spade's core bag offering. Second, powering the omni-channel experience and third, driving more emotional marketing that fuels brand relevance and heat. Now I'll touch on our quarterly results in each of these focus areas in more detail. First, we are reimagining and broadening the brand's core handbag assortment across channels, creating the foundation to be a larger and more profitable brand consistent with our strategic intent. And where we've provided more newness, innovation and emotion, our customers have responded. However, the traction we've seen with new products was offset by declines in carryover families, which underperformed our expectation. This reinforces the need to move faster to build a more innovative core assortment that's required to win in today's dynamic consumer backdrop. Moving forward, we are laser-focused on improving the execution of our handbag offering, bringing more relevancy to the assortment. The pipeline for the back half of the year and into fiscal year '25 will increase the penetration of newness across channels with the launch of bags featuring new materials, silhouettes and distinctive branding elements. This innovation builds on the green shoots we're seeing today, while incorporating consumer feedback and insights, which help to inform our product strategies and investments. At the same time, we'll maintain the strength of our novelty and lifestyle offerings, differentiators for the Kate Spade brand. To this point, footwear rose double-digits in the quarter, while jewelry remains an important acquisition vehicle consistent with our strategy and focus on enhancing customer lifetime value. Second, the execution of a cohesive omni-channel strategy is a key opportunity to drive stronger customer engagement. During the quarter, we launched a dedicated katespadeoutlet.com site, replacing the brand' surprise site and providing a more seamless way for outlet consumers to discover and shop the brand online. Overall, by bringing a more focused and unified experience to consumers across all brand touch points, we can more efficiently scale our marketing and merchandising efforts, supporting our goal of driving sustainable direct-to-consumer growth. Third, we are focused on creating emotional marketing that fuels brand relevance and heat on a global scale. During the quarter, our marketing investments supported the acquisition of approximately 950,000 new customers to the brand in North America. In keeping with our strategy to become a more global brand, we launched a series of physical activations from London to Shanghai that brought the brand's codes to life and helped to grow brand awareness internationally Moving forward, we recognize the need to distort our marketing efforts to brand building to enhance our impact. Unique storytelling has been a strength of the brand over time. And as we move into spring, we will focus on creating marketing to drive fashion credibility and customer engagement by shifting our investment to top-of-funnel marketing through the launch of our campaign anchored in the brand codes of joy, color and New York City. Finally, as we fuel enhanced innovation, we will maintain a commitment to operational excellence, positioning the brand for long-term success. This focus has supported the brand's meaningful gross margin and profit expansion thus far this year and is embedded in our strategies and ways of working for the future. Overall, while we're continuing to advance our long-term strategies at Kate Spade, we're leaning in with intention to accelerate our progress. Our path forward is clear and our vision for the brand and its potential is unchanged. Turning to Stuart Weitzman. Top line results in the quarter were pressured, reflecting in part the on-going strategic reduction and off-price wholesale shipments. These headwinds were partially offset by growth in China against last year's COVID-impacted compare and continued positive wholesale POS trends. Further, we grew AUR, expanded gross margin and improved profitability versus prior year. That said, we remain unsatisfied with the brand's pace of recovery, and we continue to focus on prioritizing brand health and delivering innovation for consumers. Touching on key elements of the brand's strategic growth pillars from the quarter. First, we curated a relevant offering of emotional product. We delivered growth in our core boot classification, fueled by gains in the SoHo and 5050 families. Further, we continued to build out our assortment with more seasonless casual styles, including loafers and belle flats. During the quarter, we also launched a new sneaker assortment featuring a range of innovative designs, engineered to combine fashion and function. At the same time, our handbag collection, while still a small portion of the assortment, drove growth at high AUR. As we move forward, we will deliver more newness into the core assortment in keeping with rapidly evolving consumer trends. Next, we created engaging marketing to fuel brand heat and consideration. In celebration of the brand's 30th anniversary, we employed a multipronged approach to our marketing, including utilizing an array of influencers to organically engage with consumers from He Kong to Kim Kardashian to Sofia Richie Grainge. As a result, we saw brand awareness improve in the US per YouGov and drove increased customer engagement across our social channels. Similarly, in China, brand exposure rose significantly following the launch of this campaign. Overall, the Stuart Weitzman team is focused on executing against its strategic priorities, fueling brand heat and deepening customer engagement through a stronger, more diversified foundation of differentiated product and emotional purpose-led storytelling to drive enhanced growth and profitability long term. In closing, Tapestry delivered a strong second quarter, positioning us to raise our earnings per share outlook for the fiscal year. Importantly, this reflects the progress we're making to advance our strategic agenda and power our iconic brands to move at the speed of the consumer in an ever-changing environment while investing in our future. We remain confident in our vision and in our ability to bring that vision to life, putting the customer at the center of everything we do to drive sustainable organic top and bottom line gains. Further, through the planned acquisition of Capri, we see a significant opportunity to accelerate our strategies while driving accretion to our strong stand-alone financial plan. Overall, we remain excited by the opportunity to expand our house of powerful brands, positioning Tapestry as a leader in innovation, talent development and shareholder returns for years to come. We continue to make progress towards closing the transaction and look forward to sharing more detailed growth strategies for the future at an appropriate time. With that, I'll turn it over to Scott, who will discuss financial results, capital priorities and fiscal '24 outlook. Scott?

Operator:

[Operator Instructions] Our first question comes from Bob Drbul of Guggenheim.

Joanne Crevoiserat:

Good morning, Bob. We delivered a solid holiday quarter, which is a testament to the strong and passionate teams we have around the world. And first, I want to recognize that we are executing consistently. We delivered growth across revenue, operating income and earnings per share. In fact, we delivered record second quarter earnings per share. And at the same time, we're delivering gross margin and operating margin expansion, really showing that we're maintaining brand health while delivering against our earnings commitments, which is protecting the bright future we see for our brand. These results speak to the operational excellence and the discipline that we've shown now for over three years, and we're driving strong and consistent free cash flow. And to your point, importantly, we are gaining momentum at Coach. And instead of stealing all of Todd's thunder, maybe I'll pass it to him to let him comment on that momentum, the sustainability of that momentum and then I'll come back at the end and pick up your question on the acquisition. Todd?

Joanne Crevoiserat:

Well, thanks, Todd. And let me pick up on your question on the acquisition. I'll start by saying these are great brands, and we remain excited about the runway ahead. We recognize the opportunity to unlock value by improving execution, leveraging the Tapestry platform, and we have continued confidence evidenced by the coach results that Todd just referenced, that our strategies and our execution deliver. And in terms of the deal, the economics remain strong. We're making progress as we expected towards the close in this calendar year that's unchanged from our prior outlook. And in the meantime, integration planning efforts continue. I've been impressed with how the teams are working together. And we continue to gain confidence in the opportunities where we can add value. Importantly, though, we remain laser-focused on driving our organic business, which is reflected in the strong second quarter beat and raise we reported today.

Operator:

We'll take our next question from Ike Boruchow of Wells Fargo.

Scott Roe:

Yes, sure. I'm happy to take it. So just to reiterate, first of all, the $465, which is really the -- as you said, the $5was the curtailment of the share repos, we still have confidence. And yes, has it evolved a little differently? It has. But I think not only is this a testament to the momentum that you see in Coach, but also, I think it speaks to our model, right? And the discipline being capital allocators. We're feeding those opportunities where we see growth. You're seeing the discipline across the P&L, as Joanne mentioned, in terms of gross margin expansion. We're getting leverage across most cost areas and reinvesting back where we see points of difference in the ability to drive the brand. So while it's evolved a little bit differently, yes, we still have the confidence, and I think that just speaks to the diversity of the model and I think the discipline in this organization.

Operator:

Our next question is from Matthew Boss of JPMorgan.

Joanne Crevoiserat:

Thanks, Matt

Joanne Crevoiserat:

So I'll kick it off on our customer -- what we call customer obsession. And it is really the engine that drives growth for our brands, but frankly, for all brands. And it really does start with being curious about the customer and understanding how to bring our brand to the market with even more relevance, more connectivity and truly a more emotional -- creating a more emotional connection with the consumer. We start that -- it really permeates our entire value chain. So we start early with understanding who our target customer is and what the true DNA of each of our brands is and how that fits. But then we talk to a lot of customers. We do a tremendous amount of customer research, not only research that does our brand tracking, but deeper ethnographic research to understand how the customer feels in a store environment feels about our product, feels about their outlook on the world, and that's something that always changes. So it's a continuous curiosity, I would say, in the company. We ingest those -- that data across our company. And I talk a lot about putting the data and the insights in the hands of decision makers, the ways of working have changed at Tapestry over the last four years. And our teams are better and better gaining these insights and applying them to all of our work across the value chain. So we are using this not only in our brand positioning, but also in our product development, understanding as we develop products who we are speaking to and what value we are delivering, both emotional value as well as functional value, what needs we're fulfilling for the consumer. And then we leverage data and insight as it relates to pricing, as it relates to our assortment, the breadth and depth of our assortment and allocation across the world and where that product and how that product shows up around the world, we test and learn on our website and some of our marketing capabilities so that we can continue to improve our execution. So all the way -- and I don't know if I mentioned pricing, but pricing as well. So all the way through the value chain. And importantly, our focus has been to attract younger consumers to our brands. And we've seen a lot of traction with our execution behind the insights that we found. And you can see that, as we talked about the 2.5 million new customers we attracted the brands in this past quarter, nearly half being Gen Z and Millennial that is critical for us to continue to create the momentum we want to create for each of our brands. And then Scott I don't know if you want to pick up the gross margin drivers?

Matthew Boss:

Great. Best of luck.

Lorraine Hutchinson:

Thanks. Good morning. I wanted to focus on China for a minute. Understanding the year-over-year comparisons are pretty volatile. Joanne, can you just zoom out and give us your view on the health of the Chinese consumer? And what's driving the Coach brand strength in China specifically?

Todd Kahn:

Well, I won't give away the full secret sauce, but I will say building on your comment. We feel really good about China, particularly the long-term opportunities in China. And one of the things that I point to and one of the questions all of you ask me every quarter is how do you continue to AUR growth and expansion. When you look at where the Coach brand sits today and the white space between us and traditional European luxury, that's at an all-time high. And in a market like China, where maybe people are being more frugal and thoughtful about their purchase, that bodes very well for Coach. So I'm excited by the white space. I'm excited by our brand positioning, expressive luxury is working, as Joanne said in the prepared remarks. Our last quarter, we saw growth in all markets, including China. So excited by what we have coming up and we're already seeing Coachtopia take hold in that market in a really meaningful way.

Operator:

Our next question is from Brooke Roach of Goldman Sachs.

Joanne Crevoiserat:

Yes. North American market is always competitive. We love a competitive market, and we're performing. What we saw in Q2, our business was flat with last year, in line with last year, but above our expectations. And we're driving that business at higher margins. So we continue to prioritize a healthy business and healthy -- and managing a healthy business, and we will focus on healthy growth in the market. What we see happening in the market is, frankly, the consumer is being choiceful and they're responding to newness and innovation and the elevated brand messaging that we're delivering in the market. And we'll continue to do that. Our outlook for the rest of the year is, frankly, in line with where it was in the first half. So no dramatic inflection in the first -- between first half and second half of the year. We think trends will be in line. But again, we're managing the business in a healthy way. We grew AUR last quarter, expanded gross margin and operating margin. Our inventories importantly are well positioned, not only in North America, but globally. So we expect to continue to manage a healthy business in North America as we move forward.

Todd Kahn:

And the only thing I'll add for Coach is, obviously, we're always aware of competition, but we're playing our own game. And this new virtuous flywheel where we're really growing these new customers, 1.5 million in North America last year. They're younger, they're transacting at a higher AUR, that's the fuel, that's the cogenomics that will play out in many quarters ahead. So they're coming in our brand. We're touching them through expressive luxury through with purpose and innovation. And as long as we keep doing that, using our data, I think there's so much room for growth in North America. We feel really stronger – good about what's ahead of us, particularly in the fourth quarter where we have easier comps, obviously. But beyond the comp issue, we just see a lot of growth ahead even in our most mature market because as we saw, we can continue to grow awareness. So that's really important for us.

Michael Binetti:

Hey, guys, thanks for taking our question. I'll add my congrats on a nice quarter. Maybe just a near-term one first. On the revenue guidance for flat in third quarter, is that what you're seeing today? Maybe just comment there? It sounded like you're seeing an inflection in China with some of the comments on tourism, but then Todd also mentioned some choicefulness from the consumers as well. Maybe just a little color on what you expect in China in the second half. And then maybe jump ball, Joanne and Scott. Scott since we've talked about this for a lot of years at your previous life about the philosophy and the filters you used to assess which brands belong in a portfolio of brands. I'm curious how you guys look ahead to being a house of six brands on of different scales, different market shares within the sub-categories, different global opportunities. And maybe speak a little bit about what are the lenses you use at Tapestry to determine which brands are best fit within this platform?

Michael Binetti:

Got it.

Michael Binetti:

Thanks a lot, guys. Again, great quarter.

Operator:

Our next question is from Mark Altschwager of Baird.

Joanne Crevoiserat:

Thanks, Mark. We remain confident, to your point, in the strategies and our long-term vision for Kate Spade. The team exercised incredible discipline and agility in the quarter. To your point, we expanded gross margin, operating margin and profit. All of those were ahead of last year and ahead of our expectations. But to your point, the top line remains challenging. We didn't see an inflection from first quarter. So we saw a continuation of our first quarter trends. And we have higher aspirations for the brand as it relates to growth. We noted an opportunity to improve our execution and really three key areas we talked about in our prepared remarks. We've been focused on strengthening the core handbag foundation. And that continues to be an opportunity. Where we've delivered newness and innovation in our core handbag assortment, we are seeing the customer respond. And we will see as we move into the back half newness grow, both in the back half and into fiscal 2025. Newness will grow as a percent in penetration in our assortment. The second opportunity that we see is an opportunity to power the omni-channel experience with our consumers. You saw us launch outlet.com in the last quarter. That is an important foundational element to provide consumers a real 360 experience and a quality 360 experience with the brand. We believe that we can build on that foundation as we move forward. And then last, it's an opportunity to drive more emotional marketing to fuel brand heat. So it's around the execution in these three points. You'll see us -- actually, this week, we launched our spring campaign. We'll be investing more in top-of-funnel marketing to cut through the noise and drive more brand heat. We have clear actions in place. We're moving with speed to achieve those higher aspirations we have for the brand. The pace of the margin improvement is welcome this year, again, ahead of expectations in the quarter. And we expect continued growth, both on the top line as well as margin. And certainly, top line growth is a part of it. But as we demonstrated this quarter, there are other opportunities that we are leveraging to drive growth in operating margin.

Mark Altschwager:

Thank you.

Oliver Chen:

Hi. Thank you very much. Tabby has been a really great platform. What do you see ahead? And will there be others that will be great second platforms in addition to Tabby? As we think about that average unit retail, is it more mix or like-for-like or a combination of both? And then on the Kate Spade side, why was now the right time for outlet? And you mentioned strengthening the core a few times. Just would love thoughts on what that really means and what your consumer research is indicating that you need there? And finally, Todd, Coachtopia has been amazing. Just how material is that for our modeling? And where do you see that heading at the penetration over time? Thank you.

Joanne Crevoiserat:

We'll kick it off with Tabby, Todd. I think that's a great place to start.

Joanne Crevoiserat:

And I'll pick up the Kate question quickly here as we approach the end of our time. But for outlet.com at Kate, it really is about creating a better experience for our customers and a more 360 experience that customers in all channels at Kate Spade or served a tremendous experience in outlet.com allows us to do that, and we're excited about building on that foundation. And what we hear from our customers about strengthening the core handbag. Kate has very strong core equities. They're clear and enjoy and self-expression, but where they tell us Kate is not known for signature product or branding codes. That's the opportunity that we continue to build. You saw with Dakota that we launched stronger hardware, stronger branding codes. We're excited about the Madison launch. It's a coated cannabis spade flower signature program at outlet last quarter, and that's off to a good start, and that's the work of the work. That's what we're focused on doing at Kate. But we're excited about the runway ahead there.

Operator:

And we'll take a question from Paul Lejuez of Citi.

Scott Roe:

Yes, happy to. What a great story, right? Over 300 basis points in the quarter and about 170 of that was freight. And as you correctly said, we expect it to moderate but still be positive in the second half. And I think for the full year with a 200 basis point expansion in our outlook, there's about 120 of freight benefit for the full year. So it's still positive, but moderating somewhat in the second half. And again, I'll reference an earlier comment. As you think forward, obviously, we're not going to give any outlook for '25. But I would just say that operationally, which is really what Todd was talking about in Coach. And by the way, we grew gross margin across all our brands. I don't know if I said that earlier. But really, it's that pricing power, which is a combination of headline prices and discipline around discounts. We see that coming through underneath all the freight noise and mix and all that stuff quarter-by-quarter, and we would expect, based on our reinvestment in our brands, increased marketing and the insights and understanding we have of the consumer that we expect that to continue as we move forward.

Scott Roe:

Thanks, Paul.

Joanne Crevoiserat:

Well, thank you for joining us and for your interest in our story, and thank you to our talented global team who continue to build our brands and our relationships with consumers. It's clear that our strategies and consistent disciplined execution are delivering. We achieved record second quarter revenue and earnings per share and raised our earnings outlook for the full year while investing for the future. I'm confident in our significant runway ahead to drive sustainable growth and shareholder returns from this strong foundation. Thanks again and have a great day.

Operator:

Good day, and welcome to this Tapestry Conference call. Today's call is being recorded. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations, Christina Colone.

Joanne Crevoiserat:

Good morning. Thank you, Christina. And welcome everyone. As noted in our press release, we achieve record first quarter earnings per share as we meaningfully advanced our strategic priorities against the dynamic external backdrop. Our consistent progress demonstrates the power of brand building, customer centricity, and disciplined execution, which enable us to fuel innovation and cultivate new and lasting relationships with consumers around the world. I want to thank our talented global teams for their passion and unwavering focus, which continue to drive our strong and differentiated results. Touching on the strategic and financial highlights for the quarter. First, we powered global growth, achieving 2% constant currency revenue gains consistent with our outlook and underscoring the benefits of our globally diversified business model. This top line growth was fueled by a 7% gain internationally, which included a 9% increase in Greater China, again surpassing our peak in FY21. In addition, our business with Chinese consumers globally rose low double digits, supported by improving tourist trends in Asia and Europe. Looking ahead, while the consumer environment in China continues to be volatile, we remain committed to investing behind our brands, leveraging Tapestry’s established platform in the region to drive long-term growth both in China and with this important consumer cohort worldwide. Turning to Japan, we drove continued momentum with revenue rising 12%. And in other Asia and Europe, sales were relatively in line with the prior year. Finally, in North America, we delivered revenue roughly in line with last year and consistent with our expectations. Despite the challenging consumer backdrop in the United States, we are driving a healthy business underscored by significant growth and operating margin expansion compared to last year. Second, we remain focused on building customer engagement across our brands, harnessing the power of our data-rich platform. In the quarter, we acquired over 1.2 million new customers in North America alone, of which roughly half were Gen Z and Millennials as we advance our strategy to attract younger consumers to our brands. Importantly, we continue to see new customers transact at a higher AUR than the balance of our customer base. Third, we delivered unique and seamless omnichannel experiences, reinforcing the benefits of our operating model. We drove growth in direct-to-consumer sales on a constant currency basis, including a low single-digit gain in brick-and-mortar sales supported by our world class field organization and a store fleet that is proven and highly profitable. In addition, we maintained our strong positioning in Digital, leveraging our established capabilities to connect with consumers across their purchase journey. While sales declined slightly, revenues still represented nearly 25% of sales, approximately three times pre-pandemic levels. Fourth, we fueled fashion innovation and product excellence, delivering compelling newness and value to customers around the world, with success in new launches and branding elements outperforming expectations and fueling handbag AURs globally. At the same time, we delivered outsize top line gains in our small leather goods and lifestyle offerings, key to enhancing brand relevance and fueling customer lifetime value. Taking together, we generated record first quarter earnings per share, increasing at a high teens rate compared to the prior year, which we accomplished despite a volatile demand backdrop. Our strong and consistent results reinforced the power of our brands and strategies, amplified by the advantages and agility of our model. As we look forward, we remain laser-focused and confident in our ability to drive sustainable, profitable growth. Now, turning to the highlights across each of our brands, starting with Coach. Our team continued to bring expressive luxury to life, building the brand through emotional consumer connections, innovation that encourages self-expression and immersive, omni-channel experiences. These strategies are driving sustainable momentum and exceptional financial results, highlighted by 5% constant currency revenue growth and 180 basis points of operating margin expansion, supported by strong gross margin gains. Touching on some details of the quarter. First, we fueled growth in our leather goods offering by leaning into our iconic platforms. We reinforced our key families, including Tabby, Willow and Rogue, through a continued focus on core style while animating the icons to drive excitement. Tabby again outperformed expectations nearly doubling versus last year with strength across bags and small leather goods as strong AUR relative to the balance. We are continuing to iterate on this icon including a new size in our shoulder bag, which over indexed with the younger consumer, as well as a braided option of our soft style. Overall, Tabby remains an important volume and recruitment driver for the brand. And we see even further runway ahead. At the same time, Willow and Rogue remained important volume drivers within the assortment. In keeping with consumer trends, we also launched new silhouettes across a range of price points and sensibilities, including the idle shoulder bag, which was a notable highlight in Greater China, where AUR was well ahead of the average. Overall, our creative and innovative products supported a mid-single-digit gain in global handbag AUR at constant currency, including growth in North America. Importantly, we see continued runway for pricing improvements given our innovation pipeline and brand heat. Second, we delivered gains across lifestyle, an area of long-term opportunity for the brand. We drove top-line growth and ready-to-wear footwear in men as we develop our core families with a goal of driving customer recruitment, purchase frequency, and ultimately, customer lifetime value. In ready-to-wear, we focused on our strategy of building a timeless assortment of key styles that represent a compelling value. This included the successful launch of our snap front leather jacket at a $695 price point, as well as success in our evergreen trench coats. In footwear, the Leo Loafer remained a top seller and delivered significant growth. And in men, we delivered outsized gains, driven by the performance of our Relay Tote, which was again a top style, while the newly introduced Beck family of sporty and sophisticated options also delivered strong results. Third, we created purpose-led storytelling directly tied to our product. We began the quarter with a debut of our third purpose campaign, Wear Your Shine, which inspires consumers to express themselves authentically using fashion as a means for personal expression and empowerment. The Shine collection includes metallic and sparkle bags ready-to-wear and accessories, allowing customers to shine brightly. Our campaign featured new global ambassadors including Dove Cameron and Youngji Li. We've brought the campaign to life through experiences across the world with physical and digital activations, from campus takeovers in the US to a partnership with Vogue World in Europe to pop-up installments across Asia. Overall, the success of this campaign helped to support the acquisition of approximately 800,000 new customers in North America, including a growing number of millennials and Gen Z. Fourth, we focused on deepening connections with consumers by further developing our customer insights capabilities to build stronger and longer-term connections. In keeping with this strategic pillar, we launched a trial on Amazon in September. The platform provides broad consumer reach and plays a vital role in the customer's discovery and purchase journey, specifically for younger cohorts. And finally, we built momentum in our sub-brand Coachtopia, our reimagination of the product creation process to evolve our vision of circularity. We expanded our reach in North America while launching in Japan with additional international opportunities in the pipeline. We've also further innovated across the assortment, including our Coachtopia loop collection, designed with a mono material approach, recycled PET plastic. While Coachtopia remains a small portion of the assortment, we are very excited by the significant consumer attention, specifically with younger audiences. Looking ahead to holiday, we're continuing to focus on building stronger emotional connections with our consumer base while prioritizing brand health. And we remain disciplined in our approach to discounting in an increasingly promotional environment. We're bringing our purpose to life, delivering an emotional narrative through our more than a gift holiday campaign, which celebrates the gifts that give us confidence to be ourselves. We're also leaning into the strength of our Shine campaign, layering onto the successful launch of our metallic series with a gold addition to capitalize on the holiday theme. In closing, Coach continues to deliver with a clear strategy, unique and authentic purpose, and commitment to driving sustainable, healthy growth through profit gains that fund brand building. We remain focused on fueling further momentum and are confident in the tremendous runway ahead for this iconic brand. Now, moving to Kate spade. During the quarter, top line performance improved sequentially amid a difficult demand backdrop. Importantly, we expanded gross margin and delivered another quarter of handbag AUR gains which fueled increases in operating profit and margin. At the same time, we continued to invest in the brand and capabilities that underpin our long-term ambition. We remain confident in our strategies and our agile as we focus on driving enhanced innovation and financial results. In the quarter, we advanced our strategic initiative. First, we remain focused on building a compelling and innovative handbag offering. We launched the Dakota family in retail, which features new signature hardware. The bold and modern collection outperformed our expectations, resonating with younger consumers at an above average AUR. Based on Dakota's initial performance, we're excited to build momentum through marketing amplification and the introduction of new styles within the family. And an outlet, we accelerated the introduction of Madison, a collection of reinvigorated Saffiano leather styles to build out the core offering. The family outperformed plan and over-indexed with new and younger customers, while also driving an increase in customer reactivation, underscoring future opportunity. Having said that, performance in carryover families declined, reinforcing our strategic decision to move with urgency to accelerate the pace of newness to drive stronger customer engagement and financial results. Touching on novelty, which continued to bring heightened emotion to the brand and build out the world of Kate spade, our Martini collection embedded across our lifestyle categories resonated with our customer base, notably among our highest spending customers. Overall, our product initiatives, coupled with our use of data to deepen our understanding of consumer preferences, supported mid-single-digit, handbag AUR growth globally, demonstrating our commitment to brand building and fueling innovation. Next, we advanced our strategy to become more lifestyle with momentum in jewelry and footwear where we deliver double digit top line growth. Jewelry remained an important acquisition vehicle with outsized resonance among younger consumers while footwear outperformed on strength in loafers and sneakers as we infuse Kate spade’s branding and codes into key styles. We know that customers who shop across categories are our highest value customers demonstrating the importance of the brand's lifestyle offering as a long-term growth driver. Now touching on marketing, we delivered campaigns that express the world of Kate spade with a direct link to our product offering. In the quarter, we evolved our New York Fashion Week presentation to further engage the broader community including our creators loft, a three day pop up designed to support up and coming Gen Z creators. Further, in keeping with our brand values, we hosted the Global Summit on Women's Mental Health and Empowerment in partnership with Pinterest, which brought together leaders from Kate spade’s Social Impact Council and key industry partners to encourage conversation, education, and research around this important cause. These campaigns and engagements, alongside our compelling product offering, drove an improvement in brand consideration in the U.S. compared to last year, which included notable increase among young female millennials per YouGOV. At the same time, our efforts helped to support the recruitment of over 400,000 new customers in North America alone. Next, consistent with our priority of becoming more global, we invested in brand activations across international markets to drive awareness, a key opportunity. As such, we launched experiential events supporting the introduction of Dakota, including a playful giant Dakota bag in Japan, a traveling bus serving Matcha across Singapore, and branded taxis featuring our iconic green dots and stripes in the U.K. These activations successfully introduced new and younger customers to our brand. Finally, we remain focused on the omnichannel opportunities for the brand. In October, we launched a dedicated Kate spade Outlet.com site replacing the brand's surprise site in order to provide a more cohesive way for outlet consumers to discover and shop the brand online. Importantly, the seamless launch of the site enables us to offer our customers a consistent omnichannel outlet experience across product, marketing, and messaging. For the upcoming holiday shopping season, we will lean into Kate spade's unique positioning as a brand that embodies joy and celebration. We're launching distinctive newness in core platforms across channels. In retail, we will expand the Dakota family building on our recent success. In Outlet, we will animate the Madison Collection with the introduction of a mini duffel. We're also excited to launch our Spade flower coated canvas pattern, establishing a new signature branding platform for the channel. We also have compelling gifting and novelty assortments designed to drive differentiation and customer engagement. In marketing, we will focus on storytelling, highlighting Kate spade's optimistic and playful spirit, true to the brand and the holiday season. In addition, we are launching physical activations of our brand codes globally while delivering content that reinforces our product strategies. Overall, we're making important progress at Kate spade, executing with intention and agility to forge strong emotional bonds with consumers, while at the same time driving enhanced profitability. Our go-forward strategy is clear, and we are well positioned to successfully navigate the dynamic environment in the near term while delivering on our long-term ambition for the brand. Turning to Stuart Weitzman. Results in the quarter were pressured against the volatile external backdrop. Specifically, top line trends reflected a continued reduction in off-price wholesale shipments as well as a slower than anticipated recovery in China. That said, we achieved positive wholesale trends at POS and expanded gross margin. While we are unsatisfied with the brand's performance, we are focused on prioritizing brand health and delivering innovation for consumers. Touching on key elements of the brand's strategic growth pillars. First, during the quarter, we curated a relevant offering of emotional product. Our core collection of boots and booties drove outsized recruitment of younger customers, while at the same time driving last customer reactivation. Our expanded 50-50 family outperformed expectations as we introduced modern takes on the iconic boot, including new colorways backed by our fall campaign, which I'll touch on in a moment. Further, we continued to build out the brand's offering, notably with more seasonless, casual styles, and keeping with evolving consumer preferences. To this end, loafers as well as our assortment of on-trend ballet-style flats resonated with consumers highlighting potential in these relatively under penetrated categories. And just this month, we launched a new sneaker campaign, featuring an extensive range of innovative designs engineered to combine fashion and function, a hallmark of the brand. At the same time, our handbag collection, while still a small portion of the assortment, drove engagement with both new and existing clients at high AUR. Next, we leveraged new marketing tactics to fuel brand heat and consideration. In September, we launched the invincibly iconic fall campaign centered around a nostalgic 50-50 boot in celebration of our 30th anniversary. We've employed a multi-pronged approach to our marketing, including utilizing an array of influencers to organically engage with consumers, from He Kong to Kim Kardashian to Sophia Richie-Grange. For holiday, we will continue to drive engagement through this campaign, celebrating the brand's heritage and capitalizing on its strength and boots and booties during the peak season. Overall, while the brand has seen continued pressure from external conditions in its core markets, the Stuart Weitzman team is focused on executing against the brand's strategic priorities, building a stronger foundation with relevant assortments and new categories to deepen consumer engagement and improve profitability over the long term. In closing, we have meaningfully advanced our strategic agenda, remaining focused on powering our iconic brands to move at the speed of the consumer in an ever-changing environment. As a result, we are in a position of strength with meaningful runway for sustainable growth. Through a relentless drive to fuel brand magic and deliver for our customers, we are confident in our ability to achieve organic top and bottom line gains. Further, through the planned acquisition of Capri Holdings, we see a significant opportunity to accelerate our strategies while driving accretion to our strong standalone financial plan. Importantly, this combination establishes a new powerful global house of luxury and fashion brands that expands our portfolio reach across consumer segments, geographies, and product categories. By bringing together six iconic brands with heritage and design and craftsmanship and leveraging our modern consumer engagement platform, we will drive greater innovation, consumer connectivity, and cultural relevance, creating superior value for our consumers, employees, communities, and shareholders around the world. We are making progress towards closing the transaction and look forward to sharing more detailed strategies for the future at the appropriate time. With that, I'll turn it over to Scott, who will discuss our financial results, capital priorities, and fiscal ‘24 outlook. Scott?

Operator:

[Operator Instructions] We'll take our first question from Bob Drbul of Guggenheim Securities.

Joanne Crevoiserat:

Thanks, Bob, and good morning. First, I want to recognize that we delivered growth across revenue, margin, and earnings. And we delivered record earnings per share in the first quarter. We are executing consistently in a volatile environment, which I think speaks to the operating discipline that we've been showing now for over three years. Our focus is on maintaining brand health, expanding gross margins, and delivering against our earnings commitments. And we continue to drive strong and consistent free cash flow against the dynamic backdrop. And to your point at Coach, the brand is strong, and we're driving continued momentum behind the brand. We're delivering sales growth and margin improvement on top of already strong margins. And we see significant runway ahead. Our team isn't thinking the next quarter and for the fiscal year, which we're confident in. We're thinking 10 years out for the Coach brand. And I think it speaks to the innovation that they're delivering, the relevance and the differentiation we're building in the market. The operational excellence this team is building a reputation for. They're executing with agility, really taking the data that we have and consumer insights. And that's fueling the brand magic that Stuart Vevers and our creative teams are delivering. So we are confident into holiday and beyond.

Joanne Crevoiserat:

Yes, sure. Thanks, Bob. We continue to see this as a great acquisition. It is really transformational for our business and for our industry. We are adding truly iconic brands to our platform. And it's extending our reach across customer segments, across geographies, and product categories. And I can't think of a better home for these brands. Tapestry's platform and our disciplined operations will unlock significant value across the broader portfolio. And we are making progress as we expected towards a calendar year ‘24 close. That's really unchanged from our prior outlook. In the meantime, integration planning efforts, they're in full swing. We continue to make progress in integration planning. And we remain really excited about this transaction. We're confident in the strategic and the financial rationale and the targets we've outlined. But importantly, as you can see from our performance, we are laser focused on our existing brands and our business. And we remain confident in the runway ahead.

Ike Boruchow:

Hey, good morning, everyone. So for Joanna and Scott, I wanted to ask about North America. So the guide for the year didn't really move that much. It was up slightly, I think, before. Now it's kind of more in line, was in line with plan for Q1. I guess specifically embedded in that Q2 guide. What are you guys expecting for North America? It would be great to know Coach specifically in North America. And then it just seems like you guys are expecting kind of more stability in the back half. I guess the shaping of how you're thinking about that geography relative to your guide would be very helpful.

Scott Roe:

Yes, I think that pretty much covers it. Honestly, the trends that we see are what we've projected forward, as Joanne just said. I would just point out a couple things. The continued gross margin strength in addition to, while we see the demand backdrop is a little uncertain, we continue to operate the business for the quality of the sales, not chasing the last sale. You see that in the gross margin performance in the first quarter with over 100 basis points from operational gross margin, that continues into the second quarter and into the second half of the year, which is one of the reasons that we can reaffirm our profit guidance, even with a modest decline in the top line, which really just reflects the current trends that we're seeing in the business today.

Scott Roe:

Yes, that's right. Yes, we took about $100 million out of FX as you saw this predominantly in the Yen and RMB is where we see the biggest impact there, that $100 million.

Lorraine Hutchinson:

Thank you. Good morning. I wanted to shift gears to Kate spade. It seems like when you're launching newness, it's working. It's well received. Do you think you have sufficient newness coming through the pipeline to turn sales positive this year and then separately any update on Kate's progress in building out their China business?

Operator:

Our next question is from Matthew Boss of JPMorgan.

Joanne Crevoiserat:

Yes, I'd love to go into the details of the Coach brand, but I fear that I'd feel Todd's thunder. So why don't Todd, I push it to you. And we're delighted with what we're seeing at Coach. Todd?

Scott Roe:

Yes, and Matt, just to speak to your question on gross margin cadence, first of all, what a strong Q1 we had, right? At 250, strongest gross margin expansion that we've seen. And yes, it's true that 150 basis points of that was free. A 100 of it was operational, which is all the things that Todd just talked about, right? Our continued investment in the brand focused on engagement versus just the pricing message, the innovation that's coming down the pipeline. All those things combined are given as pricing power. And when you look at the full year, we said that our freight tailwinds would moderate in the second half. They don't go to zero, but it's 150 basis points. It's very significant in the first half. It'll be similar in the second quarter, and then waning in the second half. But importantly, our gross margin for the entire year, including the back half, it remains very strong because of that operational gross margin performance that we just talked about. I mean, we're up in 150 basis points kind of range for the full year. So I don't want the freight to become the message. The message is operational discipline, continuing to reinvest in the brand, focused on quality of sales and engagement, is driving gross margin. And that's what's really holding this guide together for the full year, where even on a little bit moderated top line, we're able to hold our profitability guidance. That coupled with the expense control that we talked about, we'll start to see expense leverage in the second half, which combined with the gross margin is what allowed us to hold that profitability forecast. Balance first half, second half, op income. Really, why EPS is front-ended is more about the shares and tax cadence as we stop the repurchase, which is going to benefit us less in the second half.

Michael Benetti:

Hey, guys, congrats on a nice quarter. Thanks for taking our question here. I just want to clarify one thing you just said to Matt's question there, Scott. You said that we're up 150 basis point range for the year. Was that referring to the total gross margin or the underlying operational portion of the gross margin that you and Todd spoke about?

Michael Benetti:

Understood. I guess then, maybe we could speak to the, I know I asked about this a little bit, but what you're embedding in the trajectory for Coach, China sales 2Q in the second half within the, I know you gave us the year. And then, Joanne, you're about to own a huge share of the aspirational handbag market globally. I know you don't have the Capri brand in-house yet, but I know you've studied them a lot. And as you look ahead, and as the acquisition comes forward here and we start to sink in, what are some of the most attractive things you see as opportunities to drive the category in the global marketplace with all three of these big brands on the handbag side in-house, that some of the opportunities that are incremental to what you think you can do today.

Scott Roe:

And I'll just chip in real quick, Michael, on your China question. I think you asked about Coach, China, our China business in total of which obviously Coache is the driver. We grew 9% in the first quarter. We expect mid-single digit for the full year, which would have us about flattish in the second half. We still think we'll be above 2021 levels or slightly above 2021 levels for the full year. But that's really reflecting the trends that we're seeing on the ground right now.

Mark Altschwager:

Good morning. Thanks for taking the questions. I guess first for Scott, just a question regarding the transaction. Any changes to how you're thinking about initial revenue and EBITDA contribution from Capri Holdings, timing, magnitude of accretion, just in light of the evolving macro environment? And also curious if you're going to share any expectations you have for interest rates on the deal financing.

Mark Altschwager:

Okay, thank you. Maybe switching gears. I guess first for Scott or Joanne. The execution on gross margin, really putting you in a healthy position to be able to invest, how are you thinking about the balance between letting the gross margin flow to the bottom line versus maybe investing more aggressively in marketing to drive the top line in a tougher consumer backdrop? Thank you.

Scott Roe:

Yes, maybe just a quick build, Mark. a lot of times a question that we get is, where do you see the evidence of the platforms that you've built your data and analytics capabilities? Where's the evidence in the P&L? I would say in two areas. Number one, the ability to understand the trends in our business and the fact that we're a data business and we use that data has helped us moderate our spending and that's why you're going to see leverage in light of a lighter demand environment in the second half. And then secondly, we don't guess on those decisions that Joanne just mentioned. We're very thoughtful in looking at the returns as we make these investments. We don't just say we're going to invest more in our brands. We're looking at those returns. We're leaning in where they work. We're leaning back where they don't. And that discipline is helping us to, I think, have a high-quality P&L in a very tough environment right now. And the last proof point is our inventory, right? That down 17%. Mostly that's in transit, but the combination of strong gross margins and really well-positioned inventory, I think, is just testing the insights that we're getting into the business and the discipline that you see.

Brook Roche:

Good morning, and thank you for taking our question. Can you elaborate on what you're seeing with consumer engagement in North America by brand across outlet versus full line and also household income cohort? What changes have you seen in the consumer environment that are developing differently than your prior outlook? And are you seeing any signs of increased price sensitivity among consumers in North America?

Todd Kahn:

Oh, no, sorry. I just quickly add, Brook, I mean, globally, we, our direct business was up. North America was up. And we feel good because, again, it goes back to the emotion and the connection we're making with the consumer. And by way of example, even in a value channel, we're introducing more Tabby bags directly at full price because it's just a point of distribution. And we're seeing that in North America resonate, and we're going to roll that out over time to more and more doors. So it's very interesting. We're finding sometimes even the young cohort might come into the Coach brand buying a wristlet. That might be the first thing they buy. They might even buy it at one of our value channels. Then they end up buying a Tabby bag. So this concept of one Coach, of this desirability that we're creating, that people are coming in into an outlet store with its image of the Coach Tabby bag and wanting that, that to me creates so much more desire across all value channels and full price channels.

Joanne Crevoiserat:

Well, we have seen, I think in North America in the market, generally more pressure in the wholesale channel over the last year. That's not something new. To your point, our business is roughly 90% direct. And we like that direct relationship that we have with the consumer. It allows us to understand and see trends faster as they're happening. There is a reason to have wholesale. I think they're wholesale and we appreciate the partners that we have in the wholesale market that provide exposure of the brand to a broader base of consumers. But again, we like the direct relationship that we have with our consumers. We worked to build our platform to be able to reach consumers if their shopping habits evolve and our focus is really following the consumer. And I would say we see an opportunity to build the direct business with the Capri brands. That's something that our platform will provide and we see runway ahead.

Operator:

And we'll take our final question from Oliver Chen with TD Cowen.

Todd Kahn:

I guess you have a question for every one of us.

Todd Kahn:

I'll do the Amazon one. Thank you.

Todd Kahn:

Okay, thank you. Oliver, it's interesting. We did a lot of due diligence on Amazon and we talk a lot at the Coach brand about being consumer obsessed. And through that due diligence and through this trial that we've launched with Amazon. We recognize, particularly with a young consumer, that the journey, the discovery, the particularly of fashion brands in our category, starts at Amazon. And we've been on Amazon. And one of the things that I love with this trial that we're working with Amazon is, we opened up a beautiful brand enhancing shop on Amazon. We're learning, we're using their technology. Their 3D technology alone is fascinating in terms of showing the functionality and the desirability of our product. They've been a very good partner. It's a hostile relationship. And to date, we've seen no cannibalization. So again, when you put things through a consumer lens and say, how does the consumer see a brand? How do you create desirability? How do you create accessibility? This looks like a pretty great start for us, and we're happy with the performance we've seen.

Operator:

Thank you. That concludes our question and answer session. I’d now turn it over to Joanne for some concluding remarks.

Operator:

This concludes Tapestry’s earnings conference call. We thank you for your participation.

Operator:

Good day, and welcome to this Tapestry conference call. Today's call is being recorded. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations, Christina Colone.

Joanne Crevoiserat:

Good morning. Thank you, Christina, and welcome, everyone. As noted in our press release, we achieved record EPS this fiscal year, reinforcing the power of brand building, consumer-centric strategies and disciplined execution. Importantly, we meaningfully advanced our strategic priorities, engaging with consumers around the world through product excellence, unique storytelling and distinctive omnichannel experiences. At the same time, we continue to invest in our brands and our data-rich consumer engagement platform, which underpin our growth agenda. I want to thank our talented global teams for continuing to drive our strong results. Touching on the strategic and financial highlights for the year. First, we powered global growth achieving 3% constant currency revenue gains consistent with our outlook and underscoring the benefits of our globally diversified business model. These top line results were led by our international businesses, which grew 13% excluding FX. This included a 5% increase in Greater China despite facing incremental COVID-related pressures in the first half of the year. Importantly, our business in China rebounded in the second half achieving 50% growth in the fourth quarter supported by a strong improvement in traffic and representing an increase compared to the region's peak fiscal '21 levels. Our international results were also fueled by strong momentum in Other Asia with sales growth of 36% as well as in Japan, where revenue rose 15%. In Europe, sales increased 7% for the year. In North America, sales for the year declined low-single digits against a challenging consumer backdrop. In the fourth quarter, our business decreased 8% versus last year, though, we delivered significant gross margin improvement and handbag AUR growth, consistent with our commitments to prioritize long-term brand health. Importantly, our business in North America has improved meaningfully on a sequential basis quarter-to-date in Q1 with revenue trending in line with prior year on continued higher margins as we began to anniversary easier comparisons. Second, we continue to focus on building new and lasting customer relationships. To this end, we acquired approximately 6.5 million new customers in North America alone during the fiscal year. Importantly, these new customers transacted at higher AUR than the balance of our customer base and approximately half were Millennial and Gen Z consistent with our strategy to attract younger consumers to our brands. Third, we delivered seamless omnichannel experiences, harnessing the power of our direct-to-consumer business model and highlighting our ability to meet consumers where they are shopping. We drove 3% growth in direct-to-consumer sales on a constant currency basis. This was led by mid-single digit growth in brick-and-mortar sales as we welcome an increasing number of consumers to our stores. In addition, we maintained our strong positioning in digital. While sales were down slightly compared to the prior year, revenues still represented nearly 30% of sales, approximately 3 times pre-pandemic levels. Importantly, we enhanced our capabilities this year, bringing all of our brands on a unified digital enterprise platform. Fourth, we fueled fashion innovation and product excellence informed by data analytics and consumer research. To this end, we drove handbag AUR growth globally and in North America for both the quarter and the year. We also delivered outsized top line gains in our small leather goods and lifestyle offerings, key to enhancing brand relevance and fueling customer value over time. Taken together, we generated record fiscal year earnings per share, increasing at a double-digit rate compared to the prior year, which we accomplished despite a volatile demand backdrop and currency headwinds. This included a strong finish to our year with EPS growth of over 20% in the fourth quarter. Overall, our fiscal '23 results reinforce the meaningful progress we've made in differentiating our brands and our business. Further, our performance highlights our agility and the advantages of our model, underscoring our confidence in our ability to drive sustainable, profitable growth. Now turning to the highlights across each of our brands, starting with Coach. At the start of the year, we introduced our brand positioning of expressive luxury, laying the groundwork for deeper customer connections. Our team has brought this concept to life through impactful marketing campaigns, unique retail experiences and relevant and innovative product designs. As a result, the brand delivered revenue of nearly $5 billion on stronger operating margin, fueled by a material improvement in gross margin. Now touching on some of the details of the fourth quarter. We built on the momentum of our leather goods offering, reinforcing our icons to drive consumer engagement. We innovated across our key families, Tabby, Willow, Field and Rogue by introducing new iterations and launching strong go-to-market activations. Tabby outperformed expectations with notable success in our shoulder bag. Additionally, we have seen strong results from extensions of the family into small leather goods, including a wristlet and chain clutch, both of which over-indexed among younger customers. Willow continued to be a volume driving style, while the Rogue family fueled stronger AUR aided by animations, including our Tea Rose. The introduction of Field tote and washed signature denim was a success, which bodes well for our various denim introductions in the year ahead. Our innovative product supported by data and consumer insights throughout the creation process, fueled a low-double digit gain in global handbag AUR at constant currency, including an increase in North America. Importantly, we see continued runway for pricing increases into fiscal year '24, given our commitment to expanding gross margin as well as benefits from outsized growth in higher AUR international markets. Next, we focused our marketing investments on brand-building activities, connecting emotionally with customers through the unique purpose of the brand. This spring in North America, we supported the important Mother's Day holiday with a two-pronged marketing approach. First, we led with content from Gen Z creators, highlighting Coach is a gifting destination. We followed this with an iconic Mother's Day campaign featuring Jennifer Lopez. Overall, our marketing activities helped to support the acquisition of over 900,000 new customers in North America in the fourth quarter or approximately 3.9 million for the fiscal year. Turning to Greater China. We saw strong growth in brand momentum, delivering a 50% top line gain versus last year, excluding FX. In the quarter, we continued to recruit new customers with our product offering resonating with the younger consumers. This further supports our optimism for the future of this market. Moving to lifestyle. We drove a strong top line increase in the offering, an area of long-term opportunity for the brand. In ready-to-wear, we continue to see success, delivering mid-single digit constant currency growth fueled by success in our branded denim options and T-shirt assortment. In men's, we delivered outsized growth driven by leather goods, including the successful launch of a cross grain leather program. At the same time, our Gotham, Charter and League families remained top sellers. And finally, we created omnichannel experiences that resonate with consumers by communicating our brand purpose, the courage to be real through self-expression. As such, we continued to roll out multi-sensory immersive concepts. This included the extension of In My Tabby activations with bespoke events and pop-ups across the globe. And in Malaysia, we launched Coach Airways, a full takeover of a retired airplane featuring our brand codes, a coach cafe and content creation opportunities throughout. Looking ahead to fiscal year '24, we're building on our success, focused on

Operator:

[Operator Instructions] Your first question is from Bob Drbul of Guggenheim Securities.

Joanne Crevoiserat:

Thanks, Bob, and good morning. We are closing out the year with record earnings per share, and we're operating from a position of strength. And I think what our results show is the power of our brand and the power of our business model. And we do see this acquisition is compelling. And we do also have a lot of learnings that we can apply from Coach's success over the last few years. And there are three or four things, I think, that come top of mind as I think about your question. First, and probably most importantly, we've clarified our brand positioning. We've done that across our portfolio and really clarifying the unique position within the market for each of our brands. And as we've done that, we've crystallized our target customer and really getting to know these customers on a deeper level, fielding a lot of research, ethnographic research, quantitative, qualitative that and those insights have driven the acquisition of new and younger customers. We talked about it in our prepared remarks, half of our acquisitions in the last year being new and younger customers (ph) -- of our new customers were young Millennial and Gen Z consumers. I think second, we strengthened our teams and ways of working and I talk about this, but it's about applying data and analytics, and consumer insights in the business. Putting it in the hands of decision makers so that it influences action and that's how we deliver results behind those capabilities. And third, they're all important, but maybe most importantly, we're investing in brand building activities. That includes doubling our marketing spend over the last few years and the capabilities to meet the consumer where they are. We have a strong direct-to-consumer platform. We continue to invest in that. And we have -- it starts with a productive and profitable store fleet and we don't talk a lot about this, but our store fleet today is more profitable than it was pre-pandemic. In addition, we've created capabilities to meet consumers in digital and social channels that is increasingly important and we've tripled our digital business versus pre-pandemic levels. And we supported all of this with disciplined operating principles and disciplined inventory management. So -- that's what's driving our business. It's working and our progress is reflected. You can see that increases in AUR, increases in gross margin that we're seeing across our brand and they've enabled us to consistently deliver strong results in the face of a volatile environment. Coach is a great example I'm going to steal a little thunder from Todd, is a great example of the power of these strategies. In fiscal '24, Coach is tracking to achieve its highest annual sales and earnings in its history and we see tremendous runway ahead for that brand. So overall, we’re excited about the opportunities we see in our current portfolio and with the potential of this acquisition.

Operator:

Your next question comes from Lorraine Hutchinson of Bank of America. Your line is open.

Joanne Crevoiserat:

Perfect. I would cover the both of those together, Lorraine. Thank you for the question. North America, the environment is challenging. The aspirational consumer, it's -- particularly, the lower income cohort is under pressure on a relative basis and being more choiceful. We see that in our conversion results. Importantly, though, we entered the quarter with our eyes open on some of the challenges in North America with an intention on continuing to drive our business in a healthy way. And you can see that we continue to grow AUR and expanded gross margin and we were disciplined as we managed through it. And what we're seeing with this more considered purchase in North America is that innovation is what's driving engagement. And we know that, that bar is high for the consumer. In terms of your question, in terms of what's changing it, we're focused on brand building, delivering product excellence and great execution, including with strong inventory management. And what's changed the trend and it's changed pretty dramatically in the first quarter, we see an improvement. I think, number one, we're up against easier compares from a year ago, but we've also accelerated newness. As we -- being a direct-to-consumer model, we see the trends happening and we understand what consumers are responding to. And we've leveraged our agile supply chain to pull forward newness and that's had a big impact on our results. As we've talked about in the first quarter, quarter-to-date, our business running roughly in line with last year. So we've seen a nice turnaround there. And we're continuing to focus on driving a healthy business staying close to our consumer and delivering that great product that the consumer continues to respond to.

Lorraine Hutchinson:

Thank you.

Matthew Boss:

Great. Thanks. So Joanne, with the improvement in North America, how would you assess the overall health of the handbag and accessories category globally today or maybe how best to break down your 3% to 4% revenue guidance between AUR and units? And then, Scott, excluding the pause in share buyback associated with the transaction, I guess, has anything changed with your underlying plan for $5 earnings in FY '25? And can you speak to the free cash flow profile post integration and just the opportunity that this provides multiyear?

Scott Roe:

And that's the perfect build, Matt, on your question around how we see the $5. The business has momentum, we're coming from a position of strength and there's no change in the fundamental outlook that led us to talk about our confidence in hitting the $5. As you rightly pointed out, the pause in share repurchase does impact EPS, but not operating earnings in terms of those assumptions, right? So if you think about that impact, there's two factors. We don't buy back as many shares. So the average share count is obviously going to be higher than previously assumed. On the other hand, we're accumulating cash, right? And that cash will be available at closing to help pay down debt. In the meantime, it's going to earn interest. So the net of those two things on a cumulative basis are about $0.35 and we've previously already said, I think, in the press release, that's about $0.10 in fiscal '24. And then you asked about free cash flow, that's the exciting part sitting as a CFO here. When I look at the potential of this transaction, first of all, just a couple of data points that maybe ground everybody, there's about $1 billion in cumulatively, if you just add up the two companies today and the generation of cash flow, right now at this point is in excess of $1.5 billion per year, right? And we've said that when you consider synergies and growth over time, that number exceeds $2 billion on an annual basis. So $2 billion of free cash flow focused really acutely in the short term on paying down debt. And then over time, the optionality that, that gives us from a capital allocation is, I think, a difference making as you think about this as a combined company in the future.

Brooke Roach:

Good morning. Thank you very much for taking our question. I was hoping you could talk a bit more about the drivers of the positive handbag AUR that you saw in the quarter and your outlook for additional ticket and AUR increases as you move into FY '25? How are you planning for AUR growth, in particular, pricing growth in North America against what we perceive to be a slightly more promotional competitive industry backdrop? Thank you.

Todd Kahn:

Thank you, Joanne. And I said this before, innovation creates desire. And we have created a desire not just in the product, but the way we present the product. Joanne has talked a lot about how we use our Tapestry platform to inform our understanding of our customer. And we do this with coupled with the idea of expressive luxury. So when we look at expressive luxury, we talk about the actual product. We talk about the place, what's the environment we put it in. If you saw this year, we created so much innovation with the Tabby pop-ups globally, that created excitement. And so I'm very confident that the storytelling that we've really led with this purpose-led storytelling. We started last year with Lil Nas. We moved into connecting the product and the storytelling together with our Tabby campaign, which has drove incredible desire for Tabby. So I feel very good about our continuing AUR both in North America and globally. We'll see low to mid-single digits there. And we're doing it on both sides of the equation. We've raised the floor over the last couple of years, our consumers are coming into the brand at higher price points. We're extraordinarily focused on that 300 to 500 price range. And that has created even greater white space between us and European luxury. So for us, the desire of our product, the innovation we're bringing, the storytelling around it, all under the umbrella of express of luxury is working and I believe will continue to work.

Todd Kahn:

Thank you.

Mark Altschwager:

Good morning. Thanks for taking my question. Just first, with respect to Kate Spade, I think you said you saw more pressure in the value channel. Was AUR up at Kate adjusted for what may have been a mix shift to retail from outlet? And then with respect to the acceleration in product launches early in Q1 here. What's your level of confidence that the acceleration in the revenue trend can be sustained? It sounds like there may be a bit of pull forward here to the extent you pushed up product releases? And then separately for Scott, just with freight, how much break recapture opportunity is left at this stage? Just if you could quantify that for us, it would be helpful. Thank you.

Scott Roe:

Yes. And so, as you think about the pace of the year or two, just maybe a little more on that. So first of all, we'll see a significant sequential improvement in Kate in the first quarter. I don't know, if we said that already. But just like we do in the overall business. So while that's certainly positive news, and we -- and Joanne already said, we're tracking quarter-to-date, very much in line with that. Also remember, the comps get a little squirrely between the quarters here. And when we look at a multiyear stack in Q1 and really the balance of the year in our guided outlook. It's a fairly consistent theme with international being relatively stronger in the first half. Again, comps being a lot of the driver of this and then a little more in North America in the back half. But when you zoom out a couple of clicks and just look at the trajectory, this is very much the current pace of business being projected in our outlook going forward. And again, I would just repeat, it's not heroic in the way we've done it, and it's very balanced. It's not back half loaded. It's very consistent in terms of the way we guided. You had a specific question on freight. We didn't identify it. I would tell you, freight is largely behind us now. The one quarter where we're going to see a benefit is Q1. And if you recall, from years past, that's when we started seeing the big freight and then we had one quarter where we were still down last year in gross margin because of freight. So we’ll get that benefit on a year-on-year basis in Q1. But for the balance of the year, it’s a much more moderate benefit as we look forward. So less than a full point as we look at this year.

Operator:

Your next question is from Dana Telsey of Telsey Group.

Joanne Crevoiserat:

Yeah. So let me start with China. Our categories and our brands are resonating with Chinese consumers. We drove 50% growth at constant currency in the market in the last quarter. And I know that the last year number was COVID disrupted, but that was an increase to our prior peak at constant currency. So we're seeing a consistently strong business in China the consumer continuing to value what we represent in the market. And our teams in China are doing an excellent job building our brands and connecting with consumers. As you know, we've been in that market for two decades, building brands, understanding the landscape and we've been agile to be able to pivot with the consumer and deliver in a way that they continue to respond to. As we look forward, we see an opportunity for continued performance in China. We talked about our guide high-single digit growth for this year. And just to frame it, it continues to expect that growth to our prior peak. So we do expect gradual recovery in China continuing throughout the year and as Scott mentioned, it's based on what we're seeing and the trends we see in the market today. So we expect a continuation. To your point, we're seeing tremendous opportunity as well in other Asia. And that's a part Japan and the rest of Asia is a part of the market that is now almost equal to China in terms of size, and it is also growing fast. We expect high-single digit growth in that region as well as in Europe. And in those markets, we're increasingly engaging the local domestic consumer base. And that's what's been driving, if you can think about it over the last three years, that's what's been driving our business. We also expect that there'll be some benefit of tourism as tourism recovers. We're seeing some of that today, mostly in Asia, a little bit in Europe, but not as much in the West at this point. We're not counting on that in our outlook. Again, we're taking the trends that we're seeing in the business and we're projecting those forward and we think a prudent way. But our international business is strong and our teams on the ground are engaging consumers in effective ways and the consumer is responding to the product and experiences which we're delivering.

Dana Telsey:

Thank you.

Dana Telsey:

Thank you.

Oliver Chen:

Hi. Thanks a lot. As we look forward to holiday, what are your thoughts in terms of the inventory as well as planning around gifting and also you’ve been on a great journey to make the inventory breadth more efficient. And a follow-up question, would love you to talk to us a little bit about the approval process or major hurdles or catalysts ahead. And also, how you thought about the differences and the opportunity of the Michael Kors brand given that you have so much research -- consumer research there. We're looking at cross-product elasticity and diversion ratios, just to understand the relationships between the two brands and the big opportunity, financial and strategic? Thank you very much.

Todd Kahn:

Yeah. Hi, Oliver. And I kind of was hoping you were going to ask me a Coachtopia question, but we feel very good about holiday. You're going to see clarity of products, building on our really significant platforms with Tabby. We're going to be launching starting in the fall, which will lead into holiday, and I won't give too much away on the holiday campaign. But our Shine campaign, which again is a further extension of connecting product with purpose (ph). We feel very, very good about that. We feel like we done a good job, but there's always room to improve on the animation of both the product and how we look at holiday. So I'm very excited for the holiday quarter. I think both in brick-and-mortar offerings as well as our digital offerings. And I will say, even though you didn't ask me, we are very excited about where we are with Coachtopia and as Joanne said, while still relatively small at the year ahead of where we thought we would be, more importantly, I'll quote Scott here. It's hitting above its weight class in terms of being a driver of younger consumers creating interest in the brand. So you'll see Coachtopia play really a significant factor as we start expanding the product offering and start putting it in more doors right around that holiday gift-giving period. So we'll have something for everyone at Coach and I know the same is true at our sister brand.

Operator:

Thank you. That concludes our Q&A. I will now turn it over to Joanne for some concluding remarks.

Operator:

This concludes Tapestry's earnings conference call. We thank you for your participation.

Operator:

Good day, and welcome to this Tapestry Conference call. Today's call is being recorded. [Operator Instructions] Please note this call may be recorded. At this time, for opening remarks and introductions, I would like to turn the conference call over to the Global Head of Investor Relations, Christina Colone.

Joanne Crevoiserat:

Good morning. Thank you, Cristina, and welcome, everyone. As noted in our press release, we delivered strong revenue, margin and earnings growth in the third quarter, significantly outpacing expectations. This demonstrates the power of brand building, customer centricity and our agile operating model. Importantly, we continue to advance our long-term strategic agenda, creating lasting customer relationships around the world through product innovation and compelling omnichannel experiences a testament to the ingenuity of our talented global teams who continue to drive our results. Touching on the strategic and financial highlights of the quarter. First, we powered global growth achieving 9% constant currency revenue gains, meaningfully surpassing our outlook. These top line results were led by our international businesses, which grew nearly 20% excluding FX. This included a greater-than-anticipated inflection in Greater China, where sales increased 20%, supported by a strong rebound in traffic and returning to growth compared to the region's peak fiscal '21 levels. Importantly, given our history in the market and the brand building investments we've made, our brands are well positioned to capture the opportunity with the Chinese consumer, both in Greater China and around the world. In the quarter, we also drove continued momentum in Japan and other Asia with sales growth of over 20% as well as a mid-single-digit increase in Europe. In North America, sales rose low single digits against an increasingly challenging consumer backdrop. Of note, these results benefited from growth in January as we anniversaried more acute COVID-related disruptions in the prior year. Taken together, we delivered strong sales growth globally, while driving higher growth and operating margins compared to prior year, underscoring our commitment to being disciplined stewards of our brands and business. Second, we continue to build lasting customer relationships. During the quarter, we acquired over 1.2 million new customers in North America alone. Importantly, these new customers transacted at higher AUR than the balance of our customer base and approximately half of these customers were millennial and Gen Z, consistent with our strategy to attract younger consumers to our brands. At the same time, we reactivated lapsed customers across the portfolio. Third, we delivered seamless omnichannel experiences, harnessing the power of our direct-to-consumer business model and highlighting our ability to meet consumers where they are shopping. We drove 10% growth in direct-to-consumer sales on a constant currency basis. This was led by low-teens growth in brick-and-mortar sales as we welcome an increasing number of consumers to our stores. In addition, digital sales rose mid-single digits and remained over 3 times ahead of prepandemic levels. Fourth, we fueled fashion innovation and product excellence informed by data, analytics and consumer research. To this end, we drove handbag AUR growth globally and in North America, which supported our gross margin increases in the quarter. We also delivered outsized gains in our small leather goods and lifestyle offerings key to enhancing brand relevance and fueling customer value over time. Taken together, we generated third quarter earnings well above our expectations, rising over 50% compared to the prior year which we accomplished despite a volatile demand backdrop and currency headwinds. Based on this performance, we are raising our outlook for the fiscal year, underscoring our ability to drive sustainable, profitable growth. Now turning to the highlights across each of our brands, starting with Coach. We outperformed expectations in the third quarter as we continue to build strength on strength. We drove an 11% revenue increase at constant currency, while delivering over 300 basis points of operating margin expansion fueled by gross margin gains. Throughout the quarter, we advanced our strategic initiatives, bringing expressive luxury to life. First, we built on the momentum of our leather goods offering, extending our iconic families to drive consumer engagement. Tabby was again a top performer, resonating with both new and existing customers with notable success in the core shoulder bag. During the quarter, we launched new styles, including the Tabby Box bag, which provided silhouette diversification as well as the fun and nostalgic Jelly tab, which drove strong sell-through specifically with younger consumers. In the Road family, our top handle silhouette gained momentum, becoming the number one style within the collection. At the same time, Willow drove significant volume while Bandit outperformed expectations at elevated price points. In addition, we're creating compelling and emotional small leather goods assortment. As a result, we drove outsized growth in the category aided by success across wallets and micro bags in keeping with current trends. Overall, our product innovation supported by the use of data and consumer insights throughout the product creation process fueled a high single-digit global handbag AUR growth at constant currency including gains in North America. Second, we focused our marketing investments on brand-building activities, connecting emotionally with customers through the unique purpose of the brand. Building on Coach's courage to be real mission, we debuted our latest marketing that connects product and purpose. Our In My Tabby campaign featuring Will mass X, alongside a cast of global brand ambassadors redefines what we carry, not just in terms of physical objects but the experiences, journeys and aspirations that shape who we are. Importantly, our 360-degree activation efforts supported the acquisition of approximately 800,000 new customers in North America alone, with over half being millennial or Gen Z. We also drove strong engagement with existing clientele and reactivated lapsed customers, reaffirming our ability to attract new customers while retaining our existing customer base. And in China, we drove strong growth and brand momentum, capitalizing on Coach's leadership positioning and track record of success since entering the market 2 decades ago. During the quarter, we were pleased with the performance of our collaboration with the Nostalgic White Rabbit Candy brand, which debuted a celebration of Lunar New Year. This collection successfully drove the acquisition of new customers with over half of its purchasers being new to the brand. Third, we drove a strong top line increase in our lifestyle offering, an area of long-term opportunity for the brand. In ready-to-wear, we delivered outsized growth with success across genders as we leaned into the key branding elements. This performance was led by our compelling outerwear selection anchored by the brand's iconic trench. In men's, double-digit constant currency gains were fueled by our leather goods offering, aided by the continued strength of our Gotham family as well as the successful launch of the relay tote offered in a range of colors and featuring Coach New York graphics. Fourth, we created omnichannel experiences that resonate with consumers by communicating our brand purpose of self-expression. We tested new experiential and immersive retail concepts across the globe, creating opportunities for customers to engage their senses throughout their brand and product discovery journeys. In Chicago, we launched Coach Play, the first in a series of concept stores, encouraging customers to play in coach spaces. These highly interactive locations, which we have since opened in Japan and Singapore, are bespoke, balancing design elements of the brand's heritage with local elements to connect with each store's community. Further, we leaned into the success of our Taavi family to create Taavi shops in select stores around the world. These compelling environments utilize existing store architecture and were inspired by traditional ice cream shops to celebrate the different flavors of this iconic handbag collection. We also showcased these pop-ups across our digital channels, allowing the brand to scale the experience to a broader audience. And just last month, we were excited to officially launch Coachtopia, a sub-brand created with the goal of reimagining and disrupting the fashion industry. By working with a community of partners, including Gen Zs, we kept circularity as our North Star, delivering a line of products crafted from reused leather bags and recycled materials. While a small assortment today, we are extremely pleased with the response to the product and purpose and see further opportunity ahead. In closing, Coach continues to differentiate both in its brand positioning and its financial performance. This success is rooted in the brand's magic. Its unique DNA and iconic product offerings, blended with the logic of deep customer understanding. Importantly, through expressive luxury, we're writing Coach's next chapter by connecting our history and purpose with innovative product and experiences, enabling self-expression for modern consumers around the world. We are confident in our strategy and the opportunity to deliver continued healthy growth for years to come. Now moving to Kate Spade. Our third quarter results outpaced expectations, supported by revenue gains on a constant currency basis and gross margin expansion. At the same time, we made further foundational investments that are supporting our long-term strategic growth agenda. Positioning the brand to be more emotional, more lifestyle and more global in order to drive customer connectivity and deliver profitable growth. Touching on the details of the quarter. First, we remain focused on delivering an innovative and distinctive core handbag offering. The not remained the top global handbag group, while the recently introduced Hudson, which features wear-to-work styles was a recruitment driver for younger consumers. In addition, the iconic sandbag offered in recycled nylon drove strong growth. The success of this family highlights the opportunity to engage consumers by leaning into the brand heritage and innovation. We also amplified our novelty offering, bringing heightened emotion and newness to the brand. The sheep dog collection resonated with both new and existing customers. In fact, this was the number one full-price novelty style in the quarter, priced at nearly $500. Overall, our product initiatives, coupled with our use of data to deepen our understanding of consumer preferences, supported low single-digit handbag AUR growth at constant currency, both globally and in North America. Next, we advanced our strategy to become more lifestyle, delivering strong revenue growth in the assortment, led by momentum in ready-to-wear, footwear and jewelry. Importantly, we continue to see that customers who shop across categories are our highest value customers, demonstrating the importance of the brand's lifestyle offering as a long-term growth driver. Now touching on marketing. We expressed the world of Kate Spade through unique storytelling. In celebration of the brand's 30th anniversary, we leaned into its DNA as a beloved lifestyle brand that sparks Joy. To do this, we increased our top of funnel marketing spend, targeting millennial and Gen Z consumers to support the reimagination of our heritage codes. Stripes, Dots and Kate Spade Green, which we launched in partnership with Pantone. This signature shade, which was featured an exclusive capsule across categories as well as updated recyclable and reusable packaging has been particularly successful with the brand's loyal fan base. We're also continuing to engage with consumers through our social impact effort, which connects our customers to our brand beyond products. Taken together, our impactful marketing helped fuel the recruitment of approximately 400,000 new customers in North America. Additionally, we saw strong lapsed customer reactivation and an overall increase in spend per customer. And finally, in keeping with our priority is becoming more global, we remain focused on meeting our target consumer where they shop around the world. To this end, we continue to roll out our new store concept, which began with Marina Bay Sands in Singapore in October. Since then, we have expanded the concept further to more than 15 doors across the globe, creating a compelling brand experience. And in Greater China, an area of opportunity for the brand, we launched Lunar New Year capsule collections, pop-ups and WeChat activations featuring our rabbit novelty offering, which drove strong engagement. In addition, we collaborated with Starbucks China on a series of limited time-only merchandise to help build Kate Spade's brand awareness and excitement. The capsule had strong sell-throughs with more than half of the assortment selling out in just 2 days, signaling the brand's appeal to a broad base of Chinese consumers. In summary, we continue to make progress in advancing the brand's strategic growth agenda and see further opportunity ahead. Kate Spade is a unique lifestyle brand with global relevance, and we're making key investments to deepen consumer engagement through compelling products, marketing and experiences to drive sustainable growth and margin improvement over the long term. Turning to Stuart Weitzman. In the third quarter, we delivered 10% revenue growth in constant currency, supported by double-digit growth in North America and a mid-single-digit increase in Greater China. Importantly, we achieved this top line performance while significantly expanding margins with higher full price selling driving gross margin gains. Turning to the details of the quarter. We made further progress on our strategy to win with heat and improve brand awareness. First, we curated a highly relevant assortment of emotional product to spark desire. Our newer iconic families led our results with notable outperformance in pumps, booties and loafers. Soho was again a top collection, anchored by the on-trend luxol which saw a strong performance with millennial and Gen Z customers, while the Stewart family continued to grow and resonated across age groups. And our handbag collection, while still a small portion of the assortment, drove engagement with both new and existing clients at high AUR and accretive margins. Second, we focused on creating compelling shopping experiences across the globe. As a result, we drove revenue growth in our global direct business, led by increases in North America, which included significant growth in digital. We also continue to strengthen our wholesale partnerships. Specifically, in North America, we saw an increase in sales at full price accounts while continuing to reduce off-price exposure as we focus on brand elevation. And internationally, we delivered continued growth as we increased our presence across key accounts. Third, we fueled brand heat by leveraging new marketing tactics to increase buzz and organic awareness. This included an influencer back campaign with a compelling styling series to highlight our spring collection. In addition, we were pleased with the performance of our limited edition collection with Kids Super, a New York City-based streetwear brand and creative studio, which featured artistic plays on our icons that reach new customers across the globe at higher-than-average AUR. As a result of our focus on connecting with consumers in new ways, we drove an increase in the number of active customers in the quarter, fueled by engagement with our existing client base, including growth in reactivated customers. Overall, we continue to advance our strategic initiatives to drive brand heat and awareness while maintaining financial and operational rigor to further support profitable growth. In closing, our third quarter results reinforce our progress in differentiating our brands and business. Although the environment remains uncertain, we operate in attractive durable categories from a position of strength with iconic brands amplified by a digitally enabled platform that powers them to move at the speed of the consumer. We remain steadfast in our commitment to building enduring brands and relationships with consumers, and we're investing behind these priorities. At the same time, we're being agile and disciplined financial operators. Controlling what we can control to successfully navigate the near term while advancing our long-term strategic growth agenda. Our runway is significant, and we have a relentless drive to deliver sustainable growth and value for all stakeholders. With that, I'll turn it over to Scott, who will discuss our financial results, capital priorities and fiscal '23 outlook. Scott?

Operator:

[Operator Instructions] We’ll take our first question from Bob Drbul of Guggenheim.

Joanne Crevoiserat:

Well, we did deliver a solid quarter, which reinforces our confidence in our strategy and showcases the benefits of our globally diversified business and our direct-to-consumer business model. And I want to take a minute before I start to recognize our teams around the world who continue to drive our results. We are pleased not only in our top line growth, but the significant gross margin expansion we delivered and we're deliberately managing our brands and our business for the long term. In North America, results in the third quarter were better than expected, although the trends did soften as the quarter progressed and that continued into April. The backdrop is increasingly challenging, and we are seeing a more cautious consumer. We've incorporated this trend into our guidance for Q4. What you've seen in the third quarter is we're committed to being disciplined financial operators with a focus on driving healthy growth, both with a focus on margins and brand health. Conversely, our business in China is accelerating. As Scott mentioned, we drove double-digit growth in stores, online and in wholesale in the quarter. And importantly, at a constant currency basis, we're growing above our previous peak from FY '21. And I think another important fact is that we're building momentum with strong growth across the balance of Asia. And that business is now also about 15% of our total business. And I just got back from being in China and Southeast Asia, and I am so impressed with our teams and how they've navigated the challenges in the environment. We've been in China with Coach, as you know, for 2 decades, and our teams are a differentiator. I saw this clearly during our travels. And it's a real competitive advantage for us. It's setting our brands apart, they're delivering innovation and connecting with our customers. And the confidence we have in our performance gives us long-term confidence. Over the last 3 years, we've proven our ability to drive earnings growth in the face of a dynamic environment and headwinds in the market. The third quarter was no different. Our performance, I think, highlights our strength -- the strength of our globally diversified business, again, in our direct-to-consumer business model, and it showcases the strength of our brands around the world. We'll continue to build on this strength, and we see tremendous runway ahead across our portfolio.

Ike Boruchow:

I guess maybe for Joanne and Scott, I wanted to ask, you've had several quarters under your belt now since your Analyst Day, you had the $8 billion target with $5-plus of earnings by '25. Can you maybe just comment on your thoughts on those targets at this point. Clearly, the revenue run rate has been below well you guys had hoped for, even though it is accelerating, which is great, but the margins seem like they have been better. So just trying to see confidence on both those top and bottom line expectations that you guys laid out multiyear.

Scott Roe:

Yes, sure. Thanks, Joe. Yes, we recently made comments around our confidence in the $5-plus EPS target that we laid out in our Investor Day, and we tell you a little bit why we had that confident in right? It's been a volatile and certain demand environment, and we're really focused on the things we can control, and there are certain things we can't. But we're -- we said it repeatedly, we're not chasing the last dollar. We're being disciplined. And I think this year is a great testament to that. It certainly developed differently than we thought. But when we look at the way in which we're operating, the strong gross margin performance, coupled with our inventories being in great shape. It's evidence of strong discipline, the pricing power of the brand. And we continue to invest in growth longer term. And at the same time, using the great insight we have the 90% direct-to-consumer and that data. We're really rigorous on the returns on those investments and making sure that they're paying off and that they're driving future quality growth. So you put these things together, and you're right, it's hard to see what the demand is going to look like, but we're gaining more and more confidence in our ability to deliver earnings just as we did this year, and we see that discipline being an even more important differentiator going forward. Now a little bit about maybe the shape of that, just to help you, you're probably doing some modeling here, and many of you are, we would expect our path to $5 to be a little more weighted to '25 versus '24. And the reason for that is we've seen moderated North American performance, but we're a global diversified model, and we're seeing an acceleration in China. So you put those together, we see a little more back-weighted in '25.

Lorraine Hutchinson:

Has the promotional stance changed at all as trends fueled in North America? And what is your outlook for AUR and price increases over the next several quarters?

Todd Kahn:

Thank you, Joanne. And in the last 3 years, I've been waiting for that nonpromotional environment to about I haven't yet seen it. What we have seen is in the last 3 years, we've increased our AUR by 30%. And I'm optimistic about the continued growth of our AUR at Coach for 4 main reasons. First, our innovation and storytelling, particularly when we talk about handbags and SLGs. I think what you saw this last year since we've created expressive luxury is taking our purpose campaign and tying it to an actual product. And that is a differentiator from us and maybe our close-in competitors. Second, something we've talked about quite a bit, emotion always trumps price. And when you look at the small back phenomenon that we've experienced some of our highest fares, particularly in our value channel, command some of the smallest bags commanding the highest AUR. So we feel very good about that. Third, the white space that exists today between traditional European luxury where Coach play is the largest we've ever experienced. So that gives us a lot of room to continue to show the consumer the value of our products. And finally, something that both Joanne and Scott talk about quite a bit is our tight inventory control. Since we started our innovation and our transformation 3 years ago, we cut out about 50% -- almost 50% of our SKU count. That allows us to focus meaningfully on key family which reduces the liability that we had historically had to carry. So I think those 4 things combined gives me a lot of confidence that we still have a way to go on AUR growth. And as Scott said, we're not chasing top line. We are securing our margins, building a new customer base who are transacting at higher AURs.

Matthew Boss:

So Joanne, how would you assess if we take a step back, overall health of the handbags and accessories category globally today? And can you help walk through the functional drivers of the sustainable category growth that we've seen if you look back historically? And then, Scott, maybe could you just speak to the profitability balance with investments that you're clearly striking, or any constraints that you see to executing against the multiyear double-digit earnings growth target that you've laid out?

Scott Roe:

Yes, building on the second part. I think just going back to what Todd said earlier, it's -- our model right now and how we think about the trade-offs of profit and investment, we're not getting profit through SG&A cuts, right? We're getting it through quality growth. And Todd comment about leaning into engagement versus price, the discipline that goes around that, getting price increases driving those gross margins. That's why we're so focused on gross margins. that allows us to both continue to invest in the business and drive that emotional connection and at the same time, deliver profitability. And just finally, linking back to what I said before, we're being really rigorous about making sure we're getting these investments. And some things work and we lean in, some things don't work, and we're quick to cut them off. And I think that's just the evidence of when we say disciplined operators. We're really looking at this with a lot of rigor right now.

Brooke Roach:

Joanne, I was wondering if you could elaborate a bit more on the changes that you saw in the North American consumer and their engagement with the brands in the back half of the quarter. What did you see in terms of traffic and conversion among various demographic cohorts? And then perhaps as a follow-up, how is customer acquisition and retention trending for Coach brand among the consumers that have been acquired since the acceleration strategy began?

Todd Kahn:

Yes. Thank you, Joanne. What we said this last quarter, we acquired over 800,000 new customers in North America alone. And if you look back at the last almost a year. Our customer acquisition is really doing quite well. And what we're seeing is our strategy of focusing in a younger millennial and Gen Z consumer is working. About half of the new customers are that younger cohort. Interestingly, they are transacting at higher AURs. So it is a self-fulfilling benefit to us. Additionally, what is important is we're retaining our existing customers. we're not firing our current customers. So we welcome everyone in the Coach family. But what I'd love to hear is -- not only is it my brand for my mom, it's a brand for me now. And that's what we're hearing more and more and that's what's exciting. And that's what gives us confidence that our strategy is working.

Oliver Chen:

Coachtopia have a lot of great underpinning there. I would love your thoughts on materials innovation and sustainability and how that may scale to Coach at large? And any details on cost of goods sold or longer and near-term implications for margin profile there? And then as you speak to North America, you could speak to outlet relative to full price, any trends we should know about? And also your outlet channel continues to seem very vibrant times as well as utilizing personalization and the customer data platform to drive differentiation and innovation. Just look the head with thinking about outlet and maintaining that and how yield balance the execution there relative to full price.

Scott Roe:

Todd, just to build on to, yes, just to build on that, Oliver, too, just you asked a little bit about differentiation in channels, if I understood it right. We don't really see any material trend differences between retail or outlet across Tapestry, just for your information.

Joanne Crevoiserat:

Let me kick it off here, but we're winning in China, and we are seeing and able to capture momentum in the domestic market in China. And again, we talked about double-digit increase across all channels. We have a very strong brick-and-mortar presence in the market and 2 decades of experience in the market with understanding consumers. We've built a digital business and are on multiple platforms as we follow the consumer in the market. So we feel very well positioned to meet and deliver meet that demand. and deliver for customers in the market. To your point, we're seeing some shifts as they come out of the COVID restrictions. We're seeing more domestic travel. So we're capturing more business in Hong Kong, Macau, and in Hainan, which is a strong businesses for us. We have yet to see a resumption of international travel at the levels that it was pre-pandemic. But again, we're driving significant growth in Southeast Asia, which is a market that the Chinese consumer used to travel to quite a bit. We're seeing and delivering significant growth today with a more domestic consumer. And we're well positioned in that market to capture the international inbound Chinese consumer as that unfolds as well as in Europe and in North America. So those trends have changed. We're not back to prepandemic levels of travel. We're capturing the demand we see in the mainland based on our deep experience there. And we are well positioned in the rest of the world as those international travel trends improve.

Mark Altschwager:

A couple of quick ones for me. Just first, with respect to real estate, I was hoping you could touch on the outlook for the portfolio there. I think you had some net closures in the quarter, probably some seasonality. But just in the context of the ongoing strength you're seeing in digital channels, how should we be thinking about the runway there? And then separately, with respect to gross margin, Scott, it looks like you're going to be approaching fiscal '21's high watermark this year. Maybe touch on some of the gross margin puts and takes beyond fiscal '23. It seems like freight is still an opportunity. You might be seeing some geographic mix benefits. Just wonder if there's any headwinds to be mindful of as we update our models?

Scott Roe:

Yes, you had it, Joanne, around 180, I think Christine is telling me 70. So -- but the important thing is we're managing our lease terms effectively. We can turn the entire fleet. We have about a 4-year average term. And underneath that, we're always finding certain areas that are trending down, and we're moving out of those and we're finding new areas that make sense given our insight into the consumer and where they're at and where they want to shop. So there's what I call the normal hygiene that's going on underneath that. But no huge changes in the fleet size is just the growth, which is mostly outside of the U.S. As it relates to gross margin, just a quick comment. We're obviously not going to give any guidance or specifics. But if you think about it, there's there's puts and takes that are always happening. We see leather prices moderating. We continue to see hardware and some of the other componentry having upward pressure, labor is a continued upward pressure. But to me, the most important thing is what Todd said earlier, it's the focus on engagement with the customer, the insights that we have and increases our batting average to make good decisions. We're investing behind the brands. And ultimately, that means pricing power. So why do I have confidence in our gross margin, it's pricing power, the insights that we have. The shape of the business will help us a little bit as we go forward to the recovery of of China and our Asia business is generally higher margin too. So from a mix standpoint, that will benefit us over time.

Joanne Crevoiserat:

Thank you for joining us today and for your interest in our story. Today, we reported a strong third quarter and raised our outlook for the full year. This is a testament to our incredible global teams who continue to drive our results. Our performance also reinforces the power of our brands and our globally diversified direct-to-consumer business model. These competitive advantages are clearly differentiated results. We're confident in our strategy and our runway is significant. We remain focused on driving sustainable growth and shareholder returns into the future. Thanks again, and have a great day.

Operator:

Good day and welcome to this Tapestry Conference Call. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations, Christina Colone.

Joanne Crevoiserat:

Good morning. Thank you, Christina and welcome everyone. As noted in our press release, we delivered record second quarter earnings despite the challenging backdrop. During the key holiday season, where brand magic, compelling product and operational excellence are required to win with consumers, we outperformed expectations. This is a direct reflection of our talented teams and the benefits of our globally diversified business model, which continue to fuel innovation and customer engagement across our portfolio. Importantly, we remained disciplined stewards of our brands, which is underscored by gross margin expansion, as well as the ongoing investments we are making to support our long-term growth agenda. Now touching on the strategic and financial highlights of the quarter. First, we powered global growth, delivering low single-digit constant currency revenue gains excluding greater China, which experienced incremental pressure associated with COVID. These results were led by double-digit sales increases in Europe, Japan and other Asia, which together outpaced our expectations. In North America, as expected, we realized the slight decline in revenue, amid a difficult consumer backdrop. We did this while driving higher gross margin, operating margin and profit dollars compared to both prior year and pre-pandemic levels, underscoring our commitment to brand building and operating discipline. In Greater China, sales declined 20% on a constant currency basis. This was below our expectations as we like many others experienced greater than anticipated COVID-related disruption. That said, following the change in the COVID containment policy in China, we experienced a meaningful improvement in traffic trends, driving a positive Lunar New Year performance and a solid start to the third quarter. Second, we continued to build lasting customer relationships. During the quarter, we acquired nearly 2.6 million new customers in North America alone. Importantly, these customers transacted at higher AUR than the balance of our customer base. At the same time, nearly half of these customers were millennial and Gen Z consistent with our strategy to attract younger consumers. We also drove higher average spend across our customer base, which included an increase in units per transaction, reflecting the rising traction of our lifestyle offering and focus on solidifying our brands as gifting destinations during the holiday season. Third, we delivered seamless omni-channel experiences harnessing the power of our direct-to-consumer business model and highlighting our ability to meet consumers where they are shopping. Excluding Greater China, we drove a low single-digit increase in direct-to-consumer sales at constant currency. This was fueled by a mid single-digit growth in brick-and-mortar sales as consumers embraced a return to in-person experiences. We lean into this shift welcoming more customers to our stores around the globe, where we leveraged our expertise and world class field teams to deliver exceptional customer experiences. Given this dynamic, our digital business declined low single digits as anticipated. With that said, digital sales were 3x ahead of fiscal '19 levels, and represented one-third of total revenue, underscoring the continued importance of this channel. Next, we've continued to invest in our platform capabilities. In fact, this marks the first holiday season that all our brands were on our digital enterprise platform, which was designed to enhance engagement and simplify the customer journey. In addition, we leverage new data analytics capabilities to optimize our product allocation processes, such as utilizing artificial intelligence to forecast customer demand, and better position inventory and stores. This led to an increase of inventory availability and help to ensure our product was in the right place at the right time, as we match supply with demand to help deliver superior customer experiences. Before moving on, I want to recognize the incredible work of our teams across the organization. Their ingenuity and partnership drove our results and importantly fueled omni-channel engagement across our brands. Fourth, on a constant currency basis, we drove handbag AUR gains globally and in North America. This reflects a blend of magic and logic, our commitment to driving fashion, innovation and product excellence informed by analytics and consumer research. Together this supported our ability to drive gross margin expansion in the quarter, allowing us to capitalize on lower freight costs and drive the savings to the bottom line. Overall, we generated second quarter earnings well above expectations supported by stronger-than-anticipated margins. On a currency neutral basis, EPS rose 10%, which we accomplished despite headwinds in China, and continued investment in our platform capabilities and our brands. Building on this performance, we are raising our earnings outlook for the fiscal year, demonstrating the power of brand building and customer centricity augmented by an agile operating model and financial discipline. In addition to our financial progress, I'm proud of the work we've done to continue to advance our corporate responsibility strategy, which we're calling the fabric of change. Last month, we published our 10th annual corporate responsibility report, highlighting our progress and launching new and bolder ambitions to support an increasingly equitable and sustainable future for our business and our planet. Now turning to the highlights across each of our brands, starting with Coach. In the second quarter, our revenue outperformed expectations while driving an increase in operating margin to over 31%, despite facing incremental headwinds from Greater China. We advanced our strategic initiatives which fueled our results. First, we remain focused on our core leather goods as we continue to build equity in our most important families, while simultaneously introducing emotional newness into the offering. Our iconic platforms Willow, Tabby and Rogue drove our handbag performance in the quarter. Willow remain the number one handbag family with a timeless aesthetic and compelling functional silhouettes. Rogue was again a top seller with notable strength in North America at premium AUR. The Tabby collection continued to resonate with consumers led by outperformance in the core shoulder bag. We continue to animate this family introducing new colorways and fabrics including Shearling to add depth and excitement. And following its strong launch in the first quarter, Bandit, outperformed expectations and was the key recruitment vehicle with approximately 40% of shoulder bag sales coming from new customers at strong AURs. Based on the consumer demand we've seen, we are further investing behind this collection which is emerging as an iconic family. At the same time, we fueled innovation through trend right launches with a focus on appealing to younger consumers. We relaunched the Demi bag, an icon from our archives, and a blend of organic cotton and recycled polyester. We also continue to lean into the micro and mini handbag trend including our studio baguette and mini Tabby, which resonated with Gen Z consumers. These examples showcase the innovation we're delivering to translate fashion trends into our brand language. Overall, our product assortment fueled a mid-single-digit constant currency gain in handbag AUR, both globally and in North America. Importantly, our brand strength and pricing discipline helped to drive gross margin expansion in the quarter. Second, we focused our marketing investments on brand building activities to create emotional connections with consumers harnessing the brand's unique purpose. Our first Courage to be Real campaign featuring Global Ambassador, Lil Nas X, cut through with consumers with its message of confidence and authenticity. Following the launch last September, the campaign video has approximately 350 million views, and we’ve seen improvements in purchase consideration for Gen Z consumers per YouGov. In addition, we continue to test and learn new ways to engage consumers on digital channels in keeping with our multifaceted marketing strategy designed to increase customer lifetime value. For example, we utilized an array of YouTube shorts to deliver high-impact brand and product stories. As a result of these efforts and our innovative product offering, we acquired nearly 1.5 million new Coach customers in North America alone. Importantly, these customers entered the brand at a higher AUR than the balance. Third, we drove double-digit top line gains in our lifestyle offering at constant currency, an area of long-term opportunity for the brand. In footwear, outsized growth was led by trend-right styles, including the Leah Loafer and the Men's Low Line sneaker as well as boots and booties across genders. In men's, revenue growth was fueled by our core leather goods families, notably the Gotham, League, Charter and Hitch. And in ready-to-wear, we continue to see success in both men's and women's styles featuring iconic branding across outerwear, including puffers with Signature C as well as our cut and so gifting items adorned with Rexy, our brand's favorite mascot. Fourth, we focused on creating omni-channel experiences that resonate with consumers by communicating our brand's purpose of self-expression. We launched an array of in-person experiences, including a one-of-a-kind Coach Mart in Japan inspired by the region's iconic local convenience stores. At the end of December, our collaboration was a beloved White Rabbit candy brand debut in China in anticipation of the Lunar New Year holiday, celebrating the year of the rabbit. We amplified this multi-category collaboration through exciting activations and including an experiential event at the Bund in Shanghai. We are also connecting with new customer segments through immersive online environments and high-impact content to allow Coach's physical world to have greater reach. This included partnerships with digital artists, 3D installations and high-profile physical retail locations and hyper-local mobile games. In closing, we delivered a solid holiday quarter, highlighted by margin expansion despite the challenging backdrop. Our success is rooted in our strategy of bringing expressive luxury to life through a clear understanding of our target consumer and an unwavering commitment to our brand purpose. Coach is truly unique. It's a brand that enables confidence, self-expression and authenticity with products crafted to last. Building on the strong foundation, we are confident in our ability to write the next great chapter of profitable growth for this iconic brand. Now moving to Kate Spade. We delivered second quarter revenue ahead of our expectations. These results were driven by outperformance during peak selling periods, including a record Thanksgiving week and CyberMonday event in North America. Importantly, we continue to invest in and advance the brand strategic priorities, becoming more emotional, more lifestyle and more global to drive lasting customer relationships and deliver balanced and sustainable growth. Touching on the details of the quarter. First, we created emotional connections with consumers through a focus on delivering an innovative and distinct offering. To this point, we reinforce the pillars of our handbag collection, highlighted by the Knott and Katy families, which continue to fuel our performance. And in December, we introduced the Gramercy, which has delivered strong performance and has over-indexed with new customers, underscoring the opportunity to expand the silhouette going forward. In addition, we launched new branding through a chenille monogramming platform on our Manhattan [indiscernible]. Given the success of this style, we're expanding our logo offering with further iterations of the Spade flower across the assortment, which we believe represents an important platform for future growth and innovation. We also amplified our novelty offering, a differentiating element of our assortment and an important vehicle for brand storytelling. Our Zebra collection was particularly successful, while the candy-themed offering was a hit with consumers. At the same time, the [indiscernible] slingback pump, which featured a champagne corkill [ph] was a top-performing style within footwear. Overall, our product initiatives, coupled with our use of data to deepen our understanding of consumer preferences, supported mid-single-digit handbag AUR growth at constant currency both globally and in North America despite more normalized promotional levels. This season, the North America consumer was more value-driven, over-indexing during holiday sale periods, which resulted in promotions that were above the prior year, though below 2 years ago. Importantly, we delivered overall gross margin improvement as we continue to manage the business for the long-term, balancing brand health and inventory management. Second, we remain focused on our strategy of becoming more lifestyle, delivering mid-teens revenue growth in the assortment. Importantly, we continue to see the customers who enter the brand through these categories are our highest value customers demonstrating the importance of lifestyle as a long-term driver of sustainable growth. In ready-to-wear, our collection of festive sweaters and skirts for the holiday season as well as trend-right outerwear pieces helped fuel mid-single-digit sales growth. And in footwear, our evergreen styles, notably boots and booties, led our performance, while jewelry delivered growth with strength across core and fashion pieces. Third, touching on marketing. We expressed the unique world of Kate Spade leaning into the power of brand storytelling and community. Our Have A Ball campaign reinforced Kate Spade's Joy Colors life purpose in a celebratory spirit, highlighting the brand as a gifting destination for the holiday. We synchronized activations to amplify our message across touch points, including global pop-up center around our candy collection, which were successful in attracting new customers. From a digital perspective, we continue to diversify across social platforms, notably TikTok and YouTube where we focused on engaging with a younger consumer. Taken together, our impactful marketing helped to fuel the recruitment of approximately 1 million new customers in North America with these customers continuing to enter the brand at a higher AUR than the balance. Additionally, we saw an overall increase in spend per customer. Importantly, we are engaging with consumers through our social impact effort, which connects our customers to our brand beyond product. Our purpose focuses on women's empowerment and mental health. As such, we have broadened our brand work to reach younger and more diverse audiences, notably through our social impact council. Finally, in keeping with our priority of becoming more global, we remain focused on meeting our target consumer where they shop around the world. To this end, we continue to roll out our new store concept, which began with our Marina Bay Sands Store in Singapore in October. Since then, we have expanded the concept further to Taipei and Chicago where we have seen strong initial reads. In closing, we continue to make important progress in advancing Kate Spade's strategic growth agenda. It is a global lifestyle brand synonymous with optimism and joy, a differentiated positioning with global relevance. As we enter the brand's 30th anniversary year, we have an appreciation for its past and confidence in the future. With an unwavering eye on our consumers and our unique DNA, we will continue to drive innovation while investing in capabilities to support sustainable, profitable growth. Turning to Stuart Weitzman. Revenue declined in the quarter, impacted by the brand's significant exposure to China as well as a decrease in wholesale, reflecting in part a reduction in off-price shipments as we remain focused on tight inventory management and brand elevation. Importantly, in our North America direct business, sales rose mid-single digits. Turning to the details. We made further progress on our strategy to win with heat and improve brand awareness. First, we curated an assortment of high motion product across occasion wear and casual styles. We continue to lead with our iconic styles as we build out the offering to engage with a wider set of consumers. Soho remained atop collection with notable success among younger customers given the family's on-trend lug sole. The Stuart, a new staple in our offering, resonated across age groups, while the iconic land styles acted as a strong recruitment tool. Additionally, we were pleased with the consumer response to our handbag launch. While a small assortment, the top handle style sold at an AUR of over $700 with engagement from both new and existing clients. Second, we focused on brand building in the wholesale channel, notably in international markets. We created high-impact activations across key accounts globally from London to Dubai. And after a successful pop-up at La Rinascente [ph] in Milan, we are now moving into a permanent space on the designer floor there in mid-February. Third, we fueled bread heat by delivering impactful marketing campaigns, amplifying our brand purpose to celebrate women who stand strong. The debut of Kim Kardashian as our global ambassador helped to drive an improvement in customer trends driving growth in new customers, including outsized gains with millennials. Looking to the balance of the year, we are innovating on our approach to connect with consumers and increase awareness. In February, we're set to launch our Kids Super collaboration, followed by a styling series utilizing influencer marketing to highlight our spring collection. Overall, we are progressing against our strategies to build brand awareness and offer products that spark desire. We are continuing to navigate the significant profit headwinds the brand is facing from pressures in the highly penetrated Greater China region, though remain focused on delivering a profitable fiscal year. In closing, our foundation is strong and our runway is significant. We are staying agile and disciplined in a volatile environment to successfully navigate current headwinds and at the same time, drive forward our long-term growth agenda. Importantly, we are well-positioned in attractive, durable categories, amplified by our digitally enabled direct-to-consumer platform, which powers our iconic brands to move at the speed of the consumer. We are confident that our competitive advantages and strategy will continue to drive sustainable growth and value for all our stakeholders. With that, I will turn it over to Scott, who will discuss our financial results, capital priorities and fiscal '23 outlook. Scott?

Operator:

[Operator Instructions] Our first question comes from Bob Drbul of Guggenheim Securities.

Joanne Crevoiserat:

Well, thank you, and good morning, Bob. We certainly have seen a meaningful trend change in Greater China from the second quarter to the third quarter. We had an encouraging start with a solid Lunar New Year driven by sequential improvement in traffic trends in the market. And quarter-to-date, our business is trending roughly in line with last year, and our guidance, which Scott will cover in more detail in a minute at a high-level, assumes light growth in the market for the quarter and a recovery in China through the balance of the year. And we are seeing some green shoots with respect to domestic travel, including in Macau and in Hainan, which are important destinations. However, international travel is still down, and we see that as further opportunity going forward. Overall, seeing very encouraging signs of recovery in the short-term. And we are confident in the long-term opportunities for China as a growth vehicle for our brands and the category at large as we move forward. But Scott, turn it to you for unpacking our guidance assumptions.

Bob Drbul:

Great. Thank you.

Ike Boruchow:

Hey, good morning. Scott or Joanne, not sure who this is for, but two things quickly. First, on pricing, so AUR is up mid-single-digits again this quarter. Just -- anything you're seeing on pricing, any resistance that you've seen at all in the back half, are you assuming AUR continues to increase? And then just real quick, I know it's a smaller part of your business, about 10% on the wholesale channel. Can you just kind of comment POS trends you saw heading into holiday, what you're seeing quarter date. Any big changes there? I know there's been some stuff going on with some of your competitors. Just curious, again, knowing it's smaller. Just curious what you guys have been seeing with your brands. Thanks.

Todd Kahn:

Sure.

Todd Kahn:

Great. Thank you, Joanne. Just let me do the wholesale first. Just to reground us for Coach, obviously, our largest brand, North America wholesale represents less than 4% of our business. So it's an important business. We value our relationships with our wholesale partners, but it doesn't drive our business. And as Joanne said, we've migrated to really of being a direct-to-consumer business, understanding our customers in a much more profound and deeper way and love that relationship and the long-term value we can create. Regarding handbags, we were very happy with the mid-single-digit constant currency handbag growth we saw globally and in North America, which is an important point. And one of the things we always focus on is emotion trumps price. And we have offered incredibly emotional product for our consumers. One of the great examples I can give you is, right now, we’ve a heart-shaped leather bag in outlet. It can I think hold a big iPhone, but I'm not 100% certain of that. We sell that for around $199 and I think I'm on fumes right now in terms of inventory. Compare that to our City Tote, which is a phenomenal high-functioning tote, which average AUR of 150. So this idea that we can, as long as we create emotional product that resonates with the consumer, the example I gave you in particularly over indexes with the younger consumer. So we are really excited by that. We will continue to allow us to grow our AURs and not just in handbag and not just in small leather goods, but we see lots of opportunity in men, lifestyle and footwear.

Operator:

Our next question is from Lorraine Hutchinson of Bank of America.

Joanne Crevoiserat:

Well, maybe I will kick it off and then again, have Todd weigh in on the Coach brand. What I will say is, as we think about the environment that we saw in Q2, particularly this is really a North America focused comment, definitely seeing a more cautious consumer through Q2. We delivered a slight revenue decline which was a continuation of our first quarter trends and the macro environment is challenging. And this holiday, we saw what I would call a more normalized promotional environment versus a year ago when we were -- and many were supply constrained. This holiday, we delivered record Thanksgiving week and Cyber Monday sales results, which I think shows that consumers were value-driven and they were more selective in their spending outside of those peak periods. So it was a reversion to what I would call more normalized traffic patterns in the environment in North America. But even in that context, we just talked about it, we drove higher handbag AUR in North America, which is a testament to the product innovation and the data driven business model that we are applying and we've been disciplined in our approach to managing our brands and our business for the long-term that allowed us to deliver higher gross margin, operating margin and profit dollars versus last year in North America despite the softer demand environment and the external pressures we are seeing. So we are continuing to take a prudent approach to running and forecasting the business with an eye on continuing to build our brands for the long-term. And I will pass it to Todd on Coach.

Operator:

Our next question is from Matthew Boss of JPMorgan.

Joanne Crevoiserat:

Yes. Well, I will take the first part of the question, and it's an interesting question. The cadence of the quarter, I would say, if we're talking about North America specifically, and we could talk about globally, but North America specifically, the cadence of the quarter was more normalized. I think a year ago, we all saw a pull forward in demand as many, and we were supply constrained. And as I just mentioned, this year, this holiday, we saw a more normalized cadence where customers were shopping during the peak periods. Importantly, we were welcoming so many more customers back into our stores, which was fabulous. And obviously, we are well-positioned with a great team to take advantage of those changes and trends. Obviously, the conditions in China played out much differently than we expected and impacted the cadence of the business on a more global scale with softness in December when they were reopening and the changes in the COVID containment policy and COVID infections impacted that market. So a lot of different changes, some we anticipated, some we didn't. But our teams really moved with agility to deliver for our customers and manage the business in a really healthy way. Even in the face of the shifts, we were delivering higher AUR in our handbag category, we saw the resilience continue to see the durability of that category with our consumers and we delivered higher gross margin and exceeded our expectations for profitability as well. Scott?

Operator:

[Operator Instructions]. We will move next to Michael Binetti of Credit Suisse.

Joanne Crevoiserat:

Yes. Let me kick us off with how we're thinking about driving growth into the future, particularly in North America, but also globally. I think as we leverage our direct-to-consumer model and our platform, one of the things that we're really focused on is making sure that we drive growth with our customer file, both an acquisition as well as average spend per customer, which you saw in the second quarter, a continuation of that trend. So leveraging that direct relationship that we have with our customer and staying close to that customer and driving more. So that means that we have to show up where they are. We have to be investing in marketing, taking advantage. So that's first, deepening our relationships with our customers. Second is delivering compelling product and innovation. And we're focused on that and doing that every day. And maybe Todd can talk about some of the great innovation that's happening at Coach, and delivering compelling omni-channel experiences. So this was a quarter where we saw customers come back into our stores. And we have the advantage of having two very profitable channels to meet our customers where they are. And that customer is increasingly omni-channel, shopping across both channels. So those are the real keys to -- and I should say that omni-channel customer is spending more with us. They're our highest lifetime value customers. So leaning into our customer relationships, our product and product innovation, including our lifestyle categories for growth and meeting them where they are in an omni-channel basis. And all of those things you can see came to bear in the second quarter. And as we continue to further our strategic agenda going forward, we think that will drive our growth. But maybe toss it to Todd to talk about Coach.

Scott Rowe:

Yes. And, Michael, I guess, adding on to what may be our longest question of the morning, you asked me what inflection points you catalyst could be for upside in the second half. And I'd just point you back to -- or remind you how we've approached from initial guidance all the way through now halfway through the year, is we are taking the trends that we see, and we are projecting them forward, right? So whether it's North America down low-single-digits, it's -- I think, now have spend a lot of time on what our assumptions are in China. From a top line standpoint, obviously, that could be better. Could China get open up and come back faster, it could. Could it be slower? It could. I think we've got reasonable estimates, same with North America, right? Our business has been very consistent. We haven't predicted a big up or down. And so as that dynamic continues to evolve, we know our brands are strong. We are running for the long-term, and we are going to adapt to whatever demand environment we see. We are not trying to force it or push it, and we are maintaining those strong gross margins. So any upside we do see, will come through on the bottom line. On the other side, investments are largely in our control. And I hope you've seen that we've been disciplined at trying to both be prudent in light of a very dynamic environment, while at the same time, maintaining investments on what we think are going to drive us in the long-term, whether it's a little more than 8% from a marketing standpoint, even a little higher than that in the second quarter. And continuing to invest in our capabilities around digital, data analytics, et cetera. Those are obviously within our control, but we think this quarter is a great testament to the fact that those are paying off. So we will continue to be prudent, managing our expenses as carefully as we can while not sacrificing the long-term. And as Todd and Joanne said, one of the biggest things that gives me confidence in the future is that gross margin as we continue to manage the price increases and being diligent on the discounting. We see those gross margins coming in and we see that for the quarter, and we see that for the full year.

Scott Rowe:

Yes.

Brooke Roach:

Good morning and thank you so much for taking our question. A lot of ground covered, but my question today is for Scott. Can you comment on your inventory position by brand and geography given the slower rate of recovery in China? As you think about the cadencing of inventory rebalancing, where do you expect that to trend for the remainder of the calendar year? Thank you.

Brooke Roach:

Thank you.

Oliver Chen:

Hi, thank you. Great quarter. With CDP, the customer data platform has been pretty impressive. How does that intersect with pricing? And also it's been very positive that the new customer that you're seeing are coming in higher AURs? What are some of the factors underpinning that? And then on the future of the platform, less is more and thinking about Bandit versus Willow, Tabby and Rogue. What's the head for platform development and SKUs as you continue to rationalize and do more with less than decomplicate the product matrix. Thanks.

Todd Kahn:

Yes. Overall, again, it's so amazing what we are able to see and do with the platform we have with Tapestry and how rich the data is. And we are really understanding how best to animate the individual icon. So we are testing ideas earlier. Our merchants, our creative teams, we're bringing in our timeless Gen Z customer to influence some of that very early. So a great example is Tabby and Shearling in the quarter did exceptionally well. And when I walked through the showroom looking at fall next year, we took some of that learning and how to amplify it. We also recognize that this idea of time placed and occasion matters. So how we focus on each time place and occasion, one of the opportunities we identified in outlet was to have a compelling backpack. And again, that you'll see the icon being launched in the fall, which will be incredible. I'm actually been wear-testing it. I love it. So, we see these opportunities. I know Joanne is going to say I'm not the timeless Gen Z customer, but internally, I am. But we really look at that, and the data is informing and it doesn't just inform on the hind-sighting, it informs upfront. So as we get better, as we understand it, it informs our pricing. It informs our promotions. It informs our placement. It really informs everything we do. So I'm very excited by the platform. I'm very excited by the opportunity to continue to animate existing icons without constantly trying to create new icons every year, which would have been the historic norm.

Todd Kahn:

Thank you.

Mark Altschwager:

Good morning. Thanks for squeezing me in. So I guess along the same line as is what you were just discussing there, Coach North America, in line with your expectations, driving new customers, higher AUR. Kate, you did mention that, that customer appeared to be a bit more price sensitive. Why do you think Kate is showing more -- the Kate customer is showing more price sensitivity versus Coach? Is this a function of a younger consumer on average? Are there data and analytics capabilities that you're leveraging at Coach today that you're not at Kate, so you can potentially close that gap over time? Just curious of any insights there and how it might impact durability of growth in Coach versus Kate? Should the macro backdrop moderate as the year unfolds? And then just a real quick one for Scott, inventory tracking in line with your plans. With the bigger picture, can the business achieve inventory turns at levels that you saw pre-COVID? And how would we think about the time line and opportunity there? Thank you.

Scott Rowe:

Yes, Mark, just to address your question on churn. The short answer is, yes, we think as we work through the very unusual dynamics that we've seen at play this year with elongated lead times by an early disruptions in supply demand stuff, all the things that we've been talking about now over the last number of quarters, We are targeting, and we would expect a return to pre-COVID churn levels as we move into the next year. I don't know exactly when we hit those levels, but that's certainly in our line of sight, and that's certainly our intent. And I can tell you internally, we are focusing on that just about every time we get together from Todd from Joanne from myself. So that's our expectation, and that's what we're driving to.

Operator:

Thank you. This does conclude our question-and-answer session. I'd be happy to return it -- the call over to Joanne for some concluding remarks.

Operator:

This concludes Tapestry's earnings conference call. We thank you for your participation.

Operator:

Good day and welcome to this Tapestry conference call. Today’s call is being recorded today, Thursday, November 10, 2022. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations, Christina Colone.

Joanne Crevoiserat:

Good morning. Thank you, Christina and welcome everyone. Our first quarter earnings were ahead of expectations despite the more challenging backdrop, demonstrating the strength of our brands, the agility of our operating model and the consistent execution of our passionate global team. Importantly, this performance also underscores our competitive advantages and Tapestry’s successful transformation into a consumer-centric and data-driven organization, which has enabled us to successfully navigate the uncertain environment. To this point, as we outlined at our Investor Day in September, our strategic agenda future speed is designed to drive strong, sustainable growth by powering our iconic brands to move at the speed of the consumer in an ever-changing world. It requires resiliency, continuous innovation and adaptability to pivot and evolve to effectively build our brands and foster enduring customer relationships. During the quarter, we did just that. Although the landscape continued to shift at a rapid pace, we were nimble and responsive to change, remaining on track to deliver our fiscal year earnings target, excluding the impact of currency, while intentionally advancing our long-term initiatives. Now turning to the financial and strategic highlights of the quarter, first, we powered global growth, delivering record first quarter revenue. These results were led by double-digit constant currency growth in international markets, which we achieved despite COVID-related headwinds in China with pressure fully offset by outsized gains in the rest of Asia and Europe. In North America, sales grew slightly amid an increasingly difficult consumer backdrop. Overall, we achieved our top line expectations, highlighting the benefits of our globally diversified brands and business. Second, we delivered compelling omnichannel experiences to drive another quarter of growth in our direct-to-consumer businesses. Our global stores led the growth driven by significant traffic increases as consumers continue to embrace the return of in-person experiences. We leaned into this trend, supported by our world class field organization and a fleet that is proven and highly profitable. Against this backdrop, our digital business declined versus the strong gains from a year ago though remained over 3x ahead of fiscal year ‘19 pre-pandemic levels. We continue to believe e-commerce represents a significant growth driver for our company long-term as we leverage our established capabilities to connect with consumers across their purchase journey. Moving forward, our goal is to continue to offer our customers seamless, consistent and unparalleled brand experiences wherever they choose to engage with us. Third, on a constant currency basis, we drove AUR increases in each brand’s core category globally and in North America, supported by fashion innovation and product excellence. In addition, we continue to use data and analytics to enhance our go-to-market strategies, including assortment planning and pricing optimization, enabled by a deeper understanding of the preferences and drivers of customer purchases. Fourth, we continue to build lasting customer relationships with more active customers shopping our brands in the quarter in North America. At the same time, we drove higher average spend among our customer base fueled by increases across units per customer, transactions per customer and purchase frequency. This was a direct result of our marketing efforts focused on improving productivity of our existing customer base. Importantly, our customers in North America were increasingly omni, purchasing in both stores and online. This increased engagement is key as our omnichannel customers spend over 2.5x more than customers who shop with us in a single channel. In addition, we continue to acquire new customers across the portfolio with approximately 1.4 million new customers transacting with us in North America this quarter. Taken together, we generated first quarter earnings above our expectations. On a currency-neutral basis, EPS rose 8%, which we accomplished even as we invested in platform capabilities and in our brands, notably with higher marketing. Overall, we continue to see significant runway ahead and are on track to deliver our 2025 strategic and financial goals as we remain focused on moving at the speed of the consumer to drive sustainable growth across our brands for years to come. Now, turning to highlights across each of our brands, starting with Coach. In the first quarter, we advanced our strategic initiatives, which fueled top line gains of 4% on a constant currency basis. First, we drove growth in our core leather goods offering with a focus on continuing to build equity in key families. Our icons again outperformed as we reinforced these pillars of the assortment through new and exciting platforms to create emotional connections with consumers. Our Willow family continued to resonate with customers and was the number one family in the quarter. In Tabby, we debuted a seasonal refresh consisting of jewel tone leathers as well as a new version of our Signature C. Importantly we continue to see new introductions reinforce customer demand for the core Tabby style, which remained a top seller globally. And we expanded our Rogue family, which originally debuted in 2016 through a broader, well-balanced timeless offering. In addition, as a unique take on the style, we launched a limited edition Coachies collection, which features the brand’s heritage details to create playful characters out of the handbags. The novelty collection was extremely successful, underpinned by an AUR of nearly $800 well above our average. During the quarter, we also introduced the new and elevated Bandit family, which outperformed expectations globally at higher-than-average AUR. Importantly, the Bandit crossbody has proven to be a successful recruitment vehicle, specifically with Gen Z customers. The brand’s compelling and innovative product assortment fueled a mid single-digit constant currency increase in global handbag AUR, including an increase in North America as anticipated. Second, we focused our marketing investments on brand building activities to drive connections with consumers, leveraging the brand’s purpose. At New York Fashion Week, we are excited to announce Lil Nas X as one of our new global brand ambassadors. Our Courage To Be Real campaign, which launched in early October, has resonated with our core customer base and attracted new younger cohorts. The campaign has generated high engagement rates, highlighted by user-generated video content with consumers sharing their own courage to be real stories, igniting a conversation around self-expression across social platforms. Third, we drove another quarter of outsized growth in our lifestyle offering, an area of significant opportunity as we know customers that transact across multiple categories have higher lifetime value. In footwear, strong revenue gains were fueled by our new styles, including the Leah loafer and the Lucy sandal, as well as continued momentum in the men’s low line sneaker. These options have been successful with both our core customer and younger consumers. In ready-to-wear, our cut and sew assortment featuring our signature C, Rexy and Horse & Carriage continued to resonate with consumers, highlighting the importance and resonance of Coach’s iconic brand codes. In men’s, our core leather goods families, including Gotham, League, Charter and Hitch continued to drive our results with success in backpack and messenger silhouettes, while the traction in our field tote offering showcases the potential of our all gender assortment. Fourth, we focused on enhancing omnichannel experiences to drive engagement and brand heat, showcasing expressive luxury. We delivered gains in our store business and leaned into experiential brand building through immersive pop-ups across the globe. We debuted our Mint & Surf collaboration through a 360-degree campaign, anchored by a disruptive space in Lower Manhattan aimed at attracting a new and younger audience through partnerships with influencers and interactive programs. And in Korea, we created a localized pop-up to celebrate Coach’s legacy through the lens of a quintessential American neighborhood, featuring an interactive post office, coffee shop and bakery. Additionally, we were excited to launch our first-ever virtual store just last week to kickoff the holiday season, a nod to our focus on the omnichannel experience and our test-and-learn agenda. The store was inspired by a nostalgic gift shop and allows guests to move through themed rooms to shop the holiday collection. Looking ahead, we are continuing to prioritize long-term brand health and remain disciplined in our approach to discounting amid an increasingly promotional environment. To this end, this holiday, we are focused on winning with consumers through emotional product and storytelling, including impactful visual installations in stores. Specifically, we will offer innovation across the assortment, including the relaunch of Demi, a classic icon from the brand’s archive as well as differentiated capsule collections and collaboration. And we are building on the momentum of the recent launch of the Courage To Be Real campaign. Coach’s holiday marketing is inspired by its unique heritage and purpose and highlights the timelessness of the brand in a fun and joyful way. Our campaigns will feature our global ambassadors and will be amplified with high impact placements, notably on social channels such as YouTube and TikTok. In closing, Coach is an iconic brand and we are committed to continuing to grow in a healthy, sustainable way. In its next chapter, we are bringing expressive luxury to life to engage with the modern consumer through emotional brand storytelling and product innovation that allows for self-expression. We believe this builds on our recent momentum and the best of Coach’s past while taking the brand to new heights in the future. Now, moving to Kate Spade, in the first quarter, revenue rose 10% in constant currency, led by a 7% gain in North America and 23% growth in international markets. Overall, we are harnessing the power of the brand to fuel multifaceted growth by focusing on three priorities

Operator:

[Operator Instructions] We will take our first question from Bob Drbul of Guggenheim Securities.

Joanne Crevoiserat:

Sure. Good morning, Bob, and thanks. We delivered a strong quarter, one that illustrates our agility in a difficult environment. In the first quarter, we delivered record revenue, and we drove AUR increases across all of our brands, which indicates we’re driving healthy growth across the portfolio. And we’re deepening our consumer engagement. We’re seeing more active customers shopping our brands and they are spending more with our brands. And for holiday, we’re well positioned as we head into holiday. I’m excited about the product. We’re delivering more newness and innovation across all of our brands. We’ve integrated marketing that will generate excitement with our emotional storytelling capabilities. We’re much better positioned with inventory. As you might recall, last year, we were significantly supply constrained given the disruptions we saw in the business last year. And as I think about our outlook, we are disciplined operators. Our outlook reflects realistic expectations given the macro uncertainty. Our eyes are wide open, and we have a prudent plan, and we will manage our business prioritizing long-term brand health. As always, our North Star, we’re staying close to our customer. We have the proven agility to meet what we see as increasing demand across our brands.

Joanne Crevoiserat:

Thanks.

Ike Boruchow:

Hey, good morning, guys. Scott, I just wanted to follow up to Bob’s question. Can you unpack the guidance a little more? I think you broke out a little bit on North America and China being weaker in constant currency versus your original plan. Kind of just curious of what exactly was the plan before versus today. And then as you kind of approach the guide, like do you think this is appropriately derisked based on what you’re seeing in the market, level of conservatism built in? Anything there would be great?

Ike Boruchow:

Thank you.

Ike Boruchow:

Great. Good luck.

Lorraine Hutchinson:

Thank you. Good morning. You made mention of the increasingly promotional environment. Can you just provide an update on your promotional strategy and pricing strategy? And with that, can you speak to the customer reaction to the most recent price increase in August?

Todd Kahn:

Thank you, Joanne. I think what we saw in the first quarter and what we had anticipated was a return to increasing AUR in handbags. And we did that both in North America and globally. We achieved that, one, through price increases ticket, and also, we were very disciplined in our promotional cadence. We have not seen any pushback from our customers on our pricing increases. And I think it comes down to three reasons

Operator:

Our next question is from Matt Boss of JPMorgan.

Joanne Crevoiserat:

Yes. Let me start with the consumer and what we are seeing, Matt. We are continuing to see and welcome new consumers to our brands, 1.4 million new customers in North America. And we are also focusing on accelerating against our large file of existing customers. And what we saw in the quarter was really successful execution behind those objectives. And the result of our execution, leveraging all the data and understanding of the customer, along with our strong go-to-market strategies was more active customers engaging with our brands. We saw higher spend per customer through more units per transaction. We are seeing higher overall spend and higher frequency driving that. So, really successful quarter in terms of how we are engaging customers, both new and existing. And the other thing that we are seeing in the trends, we are seeing a softening in North America and just related to the consumer backdrop. But we are also seeing customers becoming more omnichannel. We are welcoming a lot more customers back in our stores. We are seeing traffic. We are seeing traffic increase to our store channel, and we are thrilled to be welcoming more customers back to our stores, because as we grow this omnichannel customer, a customer who shops across both channels, we see that customer being much more productive, spending 2. 5x more. So, in terms of the consumer, while the backdrop we see is softening, and we have seen that in the macro environment, we are seeing strength in terms of how we engage consumers and how they are spending and it’s a good sign for us in the future in terms of our ability to drive lifetime value as we increase our omnichannel customers.

Scott Rowe:

Yes. And Matt, just to address your question directly as well, it’s about $200 million is the impact of the moderation in North America, and that takes us from prior guide of low to mid-single to down slightly, which is in line with the trend that we see today. Wholesale timing can change that. We were up slightly in the first quarter. So, there is a little noise quarter-to-quarter. But I think the important thing being 90% direct-to-consumer is the trend that we are seeing in Q1 is what we projected. And to the earlier comment, we are not trying to be heroic. We are not trying to outguess the market. We are trying to reflect what we see on the ground today on a go-forward basis, and we are making prudent and appropriate adjustments accordingly in order to maintain the currency neutral guidance, as we said earlier.

Michael Binetti:

Hey guys. Thanks for the outlook. So, I know you already mentioned you raised price by 6% in August. You got the AUR back to positive, nice to see, especially in North America. What are you contemplating for North America as I guess, through the year, but as we look to calendar ‘23, you have a competitor saying they are going to raise prices in spring the pause after that. And I guess more near-term resale platforms are saying they are seeing signs of trade down. I think some of the luxury department stores are saying that they are seeing aspirational customers that entered the luxury categories over the last few years start to slow. I am curious about how the push and pull of that affects you as an aspiration brand?

Todd Kahn:

Thank you, Joanne. As we said in our Investor Day, looking through this lens of and really manifesting expressive luxury, I think looks at as a part. And we – to remember – to remind everyone, we are the Coach brand is almost 90% direct-to-consumer. So, our interaction and the data we get from our consumer is so powerful for us. And we have been on this journey, not just in one quarter, but we have really focused on our growth on AUR and driving promotional cadence down materially. And so when you take that lens, when you take what we did with the acceleration program, and reduce our SKUs and focused on our families and elongate those family and then bring innovation, one example that we mentioned, that Joanne mentioned in our prepared remarks was Coachie [ph] the word Coachie which had an AUR of over $800. And that goes to the fact that at the end of the day, emotion will always trump price. It will always connect people with emotional product. And that compares to – when you talk about traditional luxury, the average price points are so materially different that both in good times and in maybe more challenging times, I think the Coach value stands out and is very compelling to our customers.

Michael Binetti:

Thanks.

Oliver Chen:

Hi, Joanne, Scott and Todd. Regarding full price relative to outlet, what are you seeing with traffic trends, anything noteworthy, particularly as inflation continues to be an issue for the consumer? And then as we think about pricing analytics and SKU management, what inning are you in there? How is it interplaying with the prospects for continued AUR progress? Thank you.

Joanne Crevoiserat:

And Oliver, I think you talked about our – you touched on our analytics platform and how that’s helping us drive. These are programmatic changes that we have made to really leverage the vast amount of information we have about our customers. We are learning about our customers, and we will continue to leverage that in our – and managing our assortment. Our SKU productivity is at some of the highest levels we have seen, because of these new capabilities. Importantly, as we optimize our assortments, we are understanding at a customer level where the assortment is resonating, what items are used are great recruiting tools for new customers and some of our target customer groups. We talked about the Bandit as a great recruiting tool for the Gen Z consumer. So, it’s informing so much of our execution as well as analytics around pricing. I would say we are still in early innings. I like Todd’s reference of cricket versus baseball. We think about it as an infinite game. And the more we learn about consumers, the more we are able to deliver against what they value and the better we are at executing and delivering AUR increases and growth overall for our brands.

Joanne Crevoiserat:

Yes. Thank you. Speed and agility is really the name of the game, and it has been for the last couple of years. I think we have been exercising those muscles for a few years and continue to perform. We are seeing demand trends shift around the globe with real outperformance in rest of Asia. The fact that our international business was up double digits including China, overcoming the drag that we are seeing because of the COVID disruptions there, I think is a testament to our ability to react and respond to the changes we are seeing around the world. And as we think about the drivers of future speed, it starts with deepening engagement with our consumers. We saw that in the first quarter. We are delivering – we are also delivering product innovation and excellence. We are building a more omnichannel business. We are seeing that with our customers coming back to our stores. Seeing increasing omnichannel, and we are driving global growth. So, all of the pillars of our future strategy are intact, and we believe that is the unlock for future growth and value creation.

Mark Altschwager:

Thank you. Good morning. I will focus in on Kate here for my question. Nice acceleration in sales growth there, including North America. So, just curious, any other callouts on what drove that positive divergence and whether you are also baking in softer North American trends for that brand over the balance of the year. And then switching to margin, SG&A did track a little bit higher than in sales there. Just any other color you can share on the operating margin range that’s embedded in your guidance for the year at Kate? Thank you.

Scott Rowe:

Yes. Thanks Joanne. And Mark, just taking it up where Joanne just left off. First of all, gross margin, just remember the factors that we have talked about at the Tapestry level certainly are relevant here. You talked about FX pressures, the dynamics around freight that we have been talking about now for multiple quarters are pressuring us in the short-term, but we would argue transitory and importantly, AUR growth and pricing power are alive and well at Kate Spade and our ability to maintain those margins over time. We remain confident in the gross margin side. And I think we even talked about this a little bit last quarter. This is an investment year for Kate. As they are coming on to the capabilities of our platforms, we believe these are differentiators for all of our brands on a go-forward basis. And some of those implementations in key bringing them on to those digital and analytical platforms this year is showing on the P&L and SG&A load, I would say, on an incremental basis or on a marginal basis, we continue to see the progress in profitability. And we still have confidence that they are on a path to that high-teens operating margin that Joanne just reaffirmed a minute ago.

Operator:

We will take our next question from Brooke Roach of Goldman Sachs.

Joanne Crevoiserat:

Yes. Let me start and then maybe Scott can reiterate what we have reflected in our outlook. But as expected, revenue in Greater China was pressured in the first quarter due to the headwinds associated with the zero COVID policy and COVID outbreaks. We do now expect a delayed recovery. We had been calling for a recovery in the market. We are shifting that out a quarter, but we continue to expect growth for the full year. And remember, as we get into the back half of our year, we will start to lap some of the lockdowns from a year ago. But our view on the long-term opportunity in China hasn’t changed. We continue to see significant long-term opportunity across each of our brands. And I think an important data point is in this lead up to the 11/11 holiday, we continue to see strong engagement with our brands in their channels. And our brand health signals in the market, we continue to do a lot of research in the market. Our brand health signals are still good. So, our long-term thesis is intact. We are managing through some headwinds, and that’s been reflected in our outlook.

Operator:

Thank you. That concludes our question-and-answer. I will turn it over to Joanne for some concluding remarks.

Joanne Crevoiserat:

Thank you and thanks all of you for joining us and your interest in our story. We delivered a better-than-expected quarter and maintained our earnings outlook for the year on a currency-neutral basis. A real big thank you to our teams around the world who continue to drive our results. Our performance highlights the strength of our brands and our ability to effectively navigate near-term challenges by staying agile. And we remain focused on delivering for our customers through the holiday season and beyond. Most importantly, we have a clear strategy to drive significant long-term sustainable growth across our portfolio, and we are confident in the runway ahead. So, thanks everyone. Have a great day.

Operator:

Good day and welcome to this Tapestry Conference Call. Today’s call is being recorded. [Operator Instructions] Please note this call maybe recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations, Christina Colone.

Joanne Crevoiserat:

Good morning. Thank you, Christina and welcome everyone. We drove standout results this fiscal year, delivering accelerated revenue and profit growth across our portfolio, a direct reflection of the vibrancy of our brands and the agility and ingenuity of our talented teams around the world. Our performance also demonstrates both our competitive advantages as well as the success of our strategic growth agenda, which we developed nearly 3 years ago to radically transform our organization to compete and win in a new world of retail. This meant changing the way we work, adopting a more consumer-centric mindset and utilizing our data-rich platform to acquire new consumers and better connect with our existing customers. At the same time, our ambition required a commitment to leading in digital to complement our world class store operations, recognizing the increasing importance of the omni-channel journey. We also embraced the need to fundamentally pivot, driving efficiencies in many areas of the business to support brand building and high return investments. Overall, we had to be more agile while doubling down on the innovation we bring to consumers at every touch point of our brands. As we crystallized our vision, which we actually named the Acceleration Program, we could have never predicted the way the external environment would change with the onset of the COVID-19 pandemic. Although this profoundly altered the world around us, it reaffirmed our strategic direction. And with consistent execution, we emerged a stronger company. Through an unwavering focus on the consumer, we acquired 15 million new customers in North America alone over the last 24 months, including approximately 7.7 million new customers in fiscal ‘22. Importantly, we have seen these new customers transact at higher AURs and they have returned to the brands with higher frequency. At the same time, we have increased retention rates and continued to reactivate lapsed customers across brands, all of which has led to more active customers engaging with our brands at higher average spend. Next, we fueled significant growth in digital, which reached $2 billion in sales at accretive margins in fiscal ‘22, more than triple fiscal ‘19 levels. We see runway ahead to further increase our e-commerce sales, leveraging our established capabilities online. In addition, we grew AUR highlighting the strength of our brands and the increasing traction of our product offerings through innovation and craftsmanship. This growth was also supported by a 40% to 50% reduction in SKU counts and a significant pullback in promotions as we utilize data and analytics to enhance our go-to-market strategies. Overall, these accomplishments contributed to Tapestry reaching record annual revenue of $6.7 billion in the fiscal year. This performance underscores the power of our globally diversified business model in the face of a challenging backdrop. In the back half of our fiscal year, while our operations in China were materially impacted by COVID-related disruptions, outperformance throughout the rest of the world led by North America drove strong top line growth. Our results for the year were also fueled by gains across our portfolio with each brand delivering double-digit sales increases in the fiscal year and we achieved accelerated growth versus fiscal ‘19 despite facing meaningful supply chain headwinds that required us to adapt to meet growing demand for our brands. At the same time, we have transformed our business model, realizing $300 million in run-rate expense savings, which helped to fund our growth initiatives, including a significant step up in brand marketing, which reached 8% of sales, doubling from fiscal ‘19. Overall, we drove earnings growth 35% ahead of pre-pandemic levels and we utilized our robust free cash flow generation to return $1.9 billion to shareholders in fiscal ‘22 alone. Importantly, we also made significant progress on many of our corporate responsibility commitments in fiscal year ‘22. We took bold actions through our newly created Tapestry Foundation, becoming a founding partner of FIT’s Social Justice Center and establishing a partnership with the Worldwide Life Fund to launch a pioneering leather traceability program in Brazil. In addition, we hired our first Chief Inclusion and Social Impact Officer and we were a signatory of the open to all mitigating racial bias and retail charter, underscoring our commitment to build a company that’s equitable, inclusive and diverse. Overall, we have made tremendous strides forward under our Acceleration Program. I am confident in the foundation we have built, which positions us to continue to be agile in an ever-changing environment as we remain focused on moving at the speed of the consumer to drive sustainable growth across our brands for years to come. Now, turning to the highlights across each of our brands, starting with Coach. In fiscal year ‘22, we delivered 18% top line growth or an increase of 15% over fiscal ‘19 pre-pandemic levels as we recruited over 4 million new customers in North America while driving momentum with our existing customers. Importantly, we achieved this while delivering strong operating margin of 30%. This speaks to the heightened level of innovation we are bringing to consumers, underpinned by consistent execution and reinforcing Coach’s significant potential ahead. For the fourth quarter, we achieved a sales increase of 8% compared to prior year, including 14% growth in North America by advancing our strategic initiatives. First, we delivered a focused and compelling product assortment across categories. Our core families of Tabby, Willow, Rogue and Field, which have become pillars of our assortment, continued to resonate with consumers as we fuel innovation to maintain the relevance and emotional appeal. In Rogue, we added new shapes, including a classic top handle handbag, as well as options in our seasonal platforms. For Tabby, the collection continues to outperform expectations, including our core women’s offering and the family’s recent expansion into men’s with the soft messenger gaining momentum. In addition to the Tabby expansion in men’s, we delivered outsized gains overall in the men’s category as well as across our lifestyle assortment, specifically footwear. Going forward, these will be important growth vehicles for Coach by increasing brand heat and top line momentum to drive customer recruitment, purchase frequency, and overall basket size. Touching on AUR, while we delivered an increase for the year, we saw pressure in the fourth quarter, primarily due to geographic mix headwinds. In North America, handbag AUR remained approximately 40% ahead of fiscal ‘19 pre-pandemic levels, consistent with the third quarter, though declined slightly versus prior year. Importantly, we remain confident in Coach’s pricing power going forward and see further AUR opportunity in fiscal ‘23 helped in part by broad ticket increases, which began in August. Second, we continued to infuse data into our decision-making to ensure we are meeting the needs of the consumer while driving efficiencies in our go-to-market strategies. To this point, through product and concept testing as well as predictive analytics, we delivered a more focused and compelling assortment to consumers, resulting in higher sell-throughs and increased SKU productivity. Third, we strengthened our consumer outreach to emotionally appeal to customers and drive engagement. Throughout the quarter, we utilized multilayer influencer strategies to amplify our offering and enhance our marketing campaigns, including on social platforms such as TikTok. Overall, we have driven stronger customer metrics, including the acquisition of approximately 1 million new customers transacting in our North America channels. In fact, over the course of the Acceleration Program, Coach recruited over 8 million new customers, which included a higher penetration of millennial and Gen Z customers. Importantly, during this timeframe, we have continued to engage with our existing customers while increasing both overall spend per customer and purchase frequency. Fourth, we invested in our digital business, which led to a low double-digit revenue increase in the quarter. As of fiscal year end, e-commerce represented nearly 30% of sales for the brand, a material increase compared to the high single-digit penetration pre-pandemic. Looking ahead to fiscal year ‘23, we are capitalizing on the foundational changes we have made and are advancing our agenda to drive continued growth at the brand. Specifically, we will focus on expanding our customer reach and increasing lifetime value by recruiting new customers with a particular focus on younger audiences while increasing overall purchase frequency and retention rates. We will drive growth in our core leather goods [Technical Difficulty] continuing to build equity in iconic families, accelerate gains in men’s and lifestyle categories, notably footwear and ready-to-wear, where we have been delivering outsized growth, invest in digital and China long-term, high growth opportunities for the brand, and translate and infuse Coach’s narrative into messaging across consumer touch points to reinforce our brand purpose. In closing, Coach is an iconic brand with significant runway ahead as we continue to create deeper connectivity with consumers through innovative product, emotional storytelling and a purpose-led agenda that together creates a virtuous flywheel for customer engagement. Our success over this past fiscal year highlighted by a significant acceleration in sales at strong margins underscores our confidence in the brand and its meaningful opportunity for long-term sustainable growth. Now moving to Kate Spade. The brand delivered record revenue of over $1.4 billion in the fiscal year, representing growth of 22%, while expanding operating margin. Throughout the year, our team has been laser-focused on rebuilding the brand’s foundation and clarifying our purpose. We have delivered consistent results, a testament to our strong team the solid execution of our strategic actions and the increasing traction and unique positioning of our brand. In fact, over the past year, in North America, we acquired over 3 million new customers, reactivated nearly 1.5 million lapsed customers and drove low double-digit growth in average customer spend. Briefly touching on highlights from the fourth quarter, Kate Spade outperformed expectations on both the top and bottom line, reflecting progress against our growth strategies. First, we amplified key handbag platforms as we continue to build and innovate our product, infusing newness across the assortment, not our core family and number one collection again fueled the quarter’s performance, delivering strength across the offering, most notably the cross-body option, which was launched last quarter. In addition, fashion shapes, such as the Manhattan tote and the recently introduced top handle Merang outpaced our expectations. Novelty remains an important asset, a unique and differentiating factor for the brand that plays a key role in our storytelling culture. In fact, the newest novelty collections once again delivered strong sell-throughs at well above overall AUR. Importantly, the traction of our core new introductions and novelty offering, coupled with a pullback in promotional activity, drove a low double-digit increase in global handbag AUR. Second, we drove brand heat by engaging the consumer through emotional storytelling and a community-driven approach. Our Cabana capsule acted as an engagement engine as well as an opportunity to test product drops and build best practices. To amplify the campaign, we launched a series of pop-ups in key cities, including New York, London and Kuala Lumpur. These locations evoke the color and joy that the Kate Spade is known for, leading to new customer acquisitions, with over 50% of purchases made at the pop-ups from new customers. At the same time, our Kate Spade New York Cabana hashtag challenge on TikTok, which boosted a wide cast of influencers, well outpaced expectations, garnering 8 billion views since launch. Third, we are utilizing data to maintain a consumer-centric approach and gain a deeper understanding of the preferences and drivers of customer purchases. For example, we have seen our mini and micro shapes drive recruitment of new customers, while fashion shapes and novelty resonate with our existing customer base. This knowledge comes into play as we develop our assortment architecture and targeted marketing campaigns. Our focus on consumer centricity is highlighted by strong customer metrics. In North America, we drove an increase in the number of active customers, driven by reactivating lapsed customers and reengaging our existing customer base. At the same time, we recruited over 700,000 new customers to the brand in the quarter. Fourth, we built on the strong foundation of our lifestyle positioning and delivered double-digit growth across ready-to-wear, footwear and jewelry. We are offering innovative and distinctive product in these categories, which emotionally connects consumers to our Kate Spade stories and the brand’s DNA. Ultimately, these categories foster deeper connections with consumers, supporting higher lifetime value and global expansion. And fifth, we have continued to invest in our digital business as we test innovative ways to engage with consumers online, including an expanded use of influencers. Overall, we have made significant progress building out this channel. In fact, Kate Spade’s digital revenue represented one-third of total sales, well ahead of the brand’s 20% penetration just 3 years ago. Overall, Kate Spade is entering fiscal ‘23 with momentum. Our intent for this fiscal year is to connect more deeply with our community, leaning into the power of our brand to drive global growth. To accomplish this, we will deliver a distinctive leather goods offering, capitalizing on the brand’s unique positioning within the market and continue to drive higher AUR, accelerate lifestyle focusing on jewelry, footwear and ready-to-wear, drive customer lifetime value by continuing to reactivate, engage existing customers while recruiting younger, more diverse customers and fuel the emotional power of the Kate Spade brand and community through marketing that amplifies its unique positioning and universally relevant purpose. Our success at Kate Spade is a direct reflection of the power of customer centricity and commitment to brand building. Through a focus on what differentiates the brand in the eyes of the consumer, including its lifestyle offering and community engagement through storytelling, we are resonating with new and existing customers, driving higher AUR and increasing our traction internationally. We are increasingly confident in the brand’s opportunity to achieve $2 billion in revenue and a high-teens operating margin over our planning horizon. Turning to Stuart Weitzman, throughout fiscal ‘22, the brand maintained a focused strategy to drive growth, improving execution while remaining nimble to foster increasing consumer demand. The success of these actions resulted in double-digit sales gains for the fiscal year and a return to profitability despite managing through challenging external dynamics, notably COVID-related pressures in China. In the fourth quarter, Stuart Weitzman continued to advance its growth strategies. First, we improved profitability as we leaned into strength in North America, which helped to offset the pressures in China. Despite headwinds in the margin-accretive China region, we delivered operating margin improvement compared to the prior year and above our forecast in the quarter. Second, we maintained a consumer-centric strategy as we delivered a compelling and trend-right offering for our customers, leveraging data and analytics. Sandals were a key category as we capitalized on the increased consumer need for occasion wear. This included a standout performance from our iconic Nudist collection, which accounted for 5 of our top 10 styles. At the same time, we increased product relevancy through newer introductions, which continued to see traction. In fact, our versatile Stuart pump, which is resonated for return to work, will be featured as a new family in fiscal ‘23, given the style’s outperformance. Our streamlined and relevant offering, coupled with lower promotional activity and the benefit of price increases, drove AUR growth of over 20% in North America. Going forward, we see continued opportunity to increase prices and drive full price selling, while maintaining our positioning within the overall market. Third, our engaging messaging helped to recruit new customers while continuing to reengage and reactivate clients. Fourth, we accelerated our wholesale partnerships and expanded the brand’s footprint in key accounts across the globe. Fifth and finally, we continued to invest in digital, resulting in nearly 20% sales growth. For the fiscal year, digital represented over 20% of revenue, which while a significant increase from a low double-digit penetration pre-pandemic, highlights the significant opportunity to continue to grow our e-commerce business. Looking ahead to fiscal ‘23, Stuart Weitzman’s focus is to fuel continued momentum through innovation across all customer touch points with the brand. Specifically, we will spark desire with high emotion product, leaning into our authority on occasion wear and building on our casual foundation, drive brand awareness through impactful marketing campaigns, accelerate China while continuing to grow North America, increased digital revenue by continuing to improve the online experience and further improve profitability through a focus on high-margin growth opportunities as well as increased store productivity. Overall, we believe these are the right strategic priorities to build brand awareness, grow market share and position the brand for continued profitable growth. In closing, our results underscore the power of our brand, the strength of our teams and the success of our strategic actions. In addition, this performance highlights the attractive and durable nature of our categories, which have proven resilient over time, given both the emotional and functional needs they fulfill for consumers. As we embark on a new fiscal year, the environment remains challenging and continues to rapidly evolve. However, the foundation we’ve built positions us to be nimble and responsive to change, balancing near-term headwinds with our long-term ambition. Importantly, we see significant runway ahead as we harness our unique combination of authentic brands amplified by an agile and data-rich operating model. This has supported our significant acceleration over the last 3 years and is key to our ongoing success as we focus on powering our iconic brands to move with the speed of the consumer. Overall, we are confident in our ability to drive long-term, sustainable growth and look forward to sharing the details of our financial and strategic road map at our Investor Day in September. With that, I’ll turn it over to Scott, who will discuss our financial results, capital priorities and fiscal ‘23 outlook. Scott?

Operator:

[Operator Instructions] We will take our first question from Bob Drbul of Guggenheim Securities.

Joanne Crevoiserat:

Good morning, Bob. I would say that we’re confident in our ability to connect with the consumer. Over the last 2 years, we’ve gained 15 million new customers in North America alone. And we just – as you pointed out, we just delivered a great year. We posted record revenue levels, double-digit growth at each of our brands. And those results last year and over the past 2 years have been delivered in a very difficult retirement. We saw top and bottom-line growth over that period, and we’re up double digits to pre-pandemic levels. And that really speaks to the success of our Acceleration Program. We’ve built a very strong foundation, and we see significant runway ahead. Given the macro backdrop, as you mentioned, we believe that our outlook is both prudent and realistic. We expect constant currency 6% to 7% growth for the year. And some of the drivers of our confidence, it starts with our team. I believe we have the best team in the business. Our team has proven to have agility, and we’ve been responsive to all of the changes that we’ve seen in the backdrop. Our brands are strong and getting stronger. And over the last 3 years, we’ve really pivoted the company with – to have a real focus on brand building and brand building capabilities, and we’re investing behind that and in the future of our brands. We play in attractive categories. The categories that we serve our customers have proven to be resilient over time and durable. And I think the success of our transformation is really underpinned by our laser focus on the customer. We’re staying closer and closer to our customers and executing behind that. And not only are we calling for growth in this fiscal year, but we see a tremendous amount of runway ahead across each of our brands, and we’re looking forward to sharing more of those details at our Investor Day coming up next month.

Operator:

[Operator Instructions] We will move next to Ike Boruchow of Wells Fargo.

Scott Roe:

Sure, good morning. And thanks for the question. So on the first part, maybe a little more unpacking on the shape of the year by quarter. So first of all, in North America, Joanne’s comments, we do see some moderation in our growth. We talked about low to mid-single-digit growth. But importantly, that’s off a base of drilling last year, 28%, almost 30%. And on a pre-pandemic stack more than 22%. So our business in North America is strong. It remains strong. And we expect that to be consistent throughout each of the quarters as we go through the four quarters of the year. Next, I’ll address the rest of the world excluding China and again, very strong year-on-year growth. Not quite as – we’re recovering there, not quite as strong on the 2-year stack. But versus last year, where we saw severe COVID impacts, Japan, rest of Asia, we’re seeing very strong double-digit growth, more than 20% in most regions, and we expect that to continue throughout the year. The one that’s a little different is China, as mentioned in the prepared remarks, just some perspective there. Last quarter, we were down about 32%. That’s a little better than we had guided. We guided down 35%. And importantly, as we exited the year and entered this year, we see the trends improving and continue to improve. So we’ve really just taken the trend line that we see and projected that through the balance of the year. So by Q3, we inflected the growth. And for the full year, we see a single-digit growth in China. So that regional difference by year really accounts for a lot of the progression. It’s really a consistency in the trends that we see. It’s not a big change in trend. It’s just the mathematics of how those different regions come together. And then one, in addition to the revenue cadence by quarter, we should also talk about some of the profitability drivers. And the biggest one is freight. So you may recall, we’ve talked about freight last year being elevated for two reasons. Ocean rates up as well as air freight. And we’re essentially out of the air freight business, but it takes a while for that rabbit to work through the snake, right? And as that inventory or the freight is attached to that inventory, we’re going to see still some negative impact year-on-year in Q1 because we don’t start anniversarying the big air freight until Q2 and beyond. So, in putting some numbers on that, in Q1, we still expect a headwind from freight somewhere around 150 basis points on the negative. That inflects in Q2 and beyond. And for the year, we see about 80 basis points of favorability in freight. And importantly, from Q2 through Q4, so Qs 2, 3 and 4, that’s going to be about 140 basis points favorability to last year, and that gets you to that ongoing rate of about half of what we saw last year coming back to us as a tailwind. And then the last point that creates just a little noise is FX. So FX, we mentioned in the prepared remarks, about 300 basis points impact on top line, about 100 basis points on bottom line. That’s a little more acute in the first quarter, about 350 basis points as we start to lap some of the movements in the in the USD as we move through the balance of the year. So, hopefully, that gives you a little bit of context on the shape. Second part of your question was GSP. As you noted, we did not reflect any assumption and changes in the law around GSP. It’s about $40 million in the annual duties paid because we don’t have the GSP regime in place. And if it should be retroactive, which in all recent past, it always has been, that would be about another $50 million. So, $90 million in total, assuming that it’s passed and assuming that it’s retroactive. So, a significant impact. It’s $0.30 plus or so.

Lorraine Hutchinson:

Thank you. Good morning. Can you give us your thoughts on health of the store fleet? And how you think about the footprint for each brand now that e-commerce is such a bigger part of the business?

Operator:

Our next question comes from Michael Binetti of Credit Suisse.

Joanne Crevoiserat:

Yes, I will kick it off by saying – and then I will pass it to Todd for some color on Coach. AUR, it continues to be – we continue to see pricing power across our brands. And for the quarter overall, we saw AUR growth. In the Coach brand in the fourth quarter, though we parse it out, Coach has been successful driving AUR growth for 3 years. And a lot of that is due to our focus on the consumer and delivering value and really leveraging data and analytics from our – in our platform, but also delivering the innovation that the customers value. And again, 3 years of a strong track record in the fourth quarter, the Coach brand in North America was down slightly, but still 40% above pre-pandemic levels. So, that gives you, I think an understanding of the pace of change that we have made in the Coach brand. But that – we still see continued opportunity for growth ahead, and I will let Todd touch on that. In our other brands, the Kate and Stuart, we are much earlier on that journey and continue to drive strong AUR growth and see runway ahead in those brands as well. So, bringing the power of our data-rich platform and our consumer centricity forward, it has had traction, and we see that going forward. But Todd, I will let you provide some color on Coach specifically.

Operator:

Our next question is from Adrienne Yih of Barclays.

Joanne Crevoiserat:

Yes. Thanks Adrienne. I will kick it off with our AUR and some of the data and analytics approach to how we thought about SKU reduction. And your point on understanding the assortment, we leveraged data and analytics to really help drive our SKU reduction efforts. We wanted to make sure that we did have the right assortment architecture and we cut a lot of the tail of the unproductive SKUs. But importantly, we leveraged analytics and market research to understand the consumer across the landscape and make sure that we had the right products to deliver against an understanding, a deeper understanding of the customer. So, as we developed our assortment architecture, understanding who the consumer is, who the target consumer is and where we wanted to place our bets, and it’s been an important and a huge win for us as we have come through a pretty volatile environment to have that focused assortment that has – each SKU has a purpose, and we are evaluating which SKUs are attracting new customers, what are the entry points for our brands, where are we seeing customers move up in AUR and delivering that value that they recognize. It’s been a tremendous help to have more focused assortment as we navigate a lot of the supply and demand changes around the world. And it’s been a tremendous help in terms of communicating to the consumer what’s important. So, with all of the changes that have happened over the last 2 years, we are better at identifying the SKUs. We are better at allocating those items, that assortment across the world. We are better at allocating our inventory behind those, and we are better at messaging our consumers behind the reduced SKU count. So, a lot of wins on that store.

Operator:

Our next question is from Mark Altschwager of Baird.

Joanne Crevoiserat:

Well, we see, Mark, the opportunity to achieve $2 billion. We are increasingly confident that as the team has really delivered and the brand is really performing, both on top and bottom line. And we see that traction with our existing customers. That has been our focus, right, to get the brand steady and growing in our core markets of North America and Japan. And we see tremendous runway and opportunity ahead to get to that $2 billion with growth in our core markets. We also go to your point, see opportunity to expand internationally. We have driven strong growth. Our business is small in both China and Europe. Europe has been performing quite well. We see opportunities to expand there. And over time, also impact the China market. So, that is an opportunity. The $2 billion is not contingent upon a big step into China. We see runway in our core markets in addition to China, which is right now, it represents a lot of white space for the brand to continue to grow beyond $2 billion.

Unidentified Analyst:

Hi Joanne, it’s Scott. Our survey data at Cowen is showing some pressure on the higher and customer as well. Just would love your thoughts on the strategy for the average unit retail increases at the Coach brand in the fourth year of doing this, just the nature of what’s achievable yet still offering clear value and innovation. And Joanne, you mentioned younger customer in your prepared remarks as well as opportunity for continued brand building. Could you be more specific about what you mean there and where you see the evolution of the innovation going? Thank you.

Todd Kahn:

Thank you. Good morning. We feel really good about where we are in AUR and particularly the place you focused on, which is the higher end. Two quick data points. First of all, in retail we saw AUR handbag growth even in the fourth quarter. And what that shows is the dramatic white space that exists today between Coach and the traditional European luxury brands. And I think what you see with Rogue and some of our more elevated products, the consumer is recognizing the value there and there is a lot of opportunities to continue to grow there. And so I see us further increase our AURs throughout the year, both in North America and globally. And we are going to see that in Japan, in China, coupled with innovation, I feel very good, particularly about us capturing more of that white space.

Operator:

Our next question is from Brooke Roach of Goldman Sachs.

Joanne Crevoiserat:

We are fortunate to play in a category that has historically had very – proven very resilient and had durable growth over years. We have seen pre-pandemic, the category grow in the mid to high-single digit range very consistently. And even through the pandemic, we saw consumers engaging with the category and coming out strong as we have recovered from the pandemic. But going forward, we expect the category to continue to grow in that mid to high-single digit level. And from the Coach brand, I give Todd and the team at Coach tremendous credit. They have really infused life and energy into that brand. We are acquiring new customers. We are driving innovation and really managing the business quite well. And you can see that in the customer acquisition that we are seeing at the Coach brand, we still have tremendous runway ahead for Coach. The category we see growing and we think Coach is very well positioned to continue to grow with the category at very strong margins.

Operator:

Our next question is from Dana Telsey of Telsey Advisory Group.

Joanne Crevoiserat:

Good morning Dana. First, I will start by saying we occupy an incredible position in the market, and we represent tremendous value for the quality and the innovation that we are delivering to consumers, and consumers are recognizing that. We have been seeing AUR growth consistently at Coach for 3 years. And consumers are recognizing the value that we are delivering in the marketplace. Where we are in the journey, we still see runway ahead across all three brands to drive AUR. We see pricing power across our brands, again, with customers recognizing that value. While Coach is further along on this journey, again, and as Todd just mentioned, we see runway ahead to drive more price increases more than offsetting inflationary input cost pressures as we move forward and as we deliver – continue to deliver great value in the market. And in the context of the market, we have seen the Pinnacle Luxury players move price up pretty substantially over the last 3 years. And that creates that white space for all of our brands to position our – and continue to position AUR higher. Again, at Kate Spade and at Stuart Weitzman, continuing to see strong AUR growth in the last quarter over the last year, earlier on the journey, so much more runway ahead in those brands as well.

Joanne Crevoiserat:

Thanks operator. I want to close by thanking our teams around the world for their passion and commitment. They drove these standout results that we delivered. We delivered record annual revenue this year with double-digit growth at each brand and our digital business reaching $2 billion, along with earnings 20% above last year, so a standout performance. Really clearly demonstrating the strength of our brands and the power of our transformation which positions us well for the future. We have significant long-term runway. And through a continued focus on the customer and commitment to brand building, I am confident in our ability to drive sustainable growth going forward. I am looking forward to sharing more details on our long-term roadmap at our Investor Day next month, and I hope to see you all there. Thank you.

Operator:

Good day, and welcome to this Tapestry Conference Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations, Christina Colone.

Joanne Crevoiserat:

Good morning. Thank you, Christina, and welcome, everyone. Our third quarter results were well ahead of our expectations despite the challenging environment. We drove increased customer demand across our portfolio, resulting in double-digit top line growth at Coach, Kate Spade and Stuart Weitzman, and EPS well ahead of our outlook. Our continued outperformance demonstrates the vibrancy of our brands, the power of our digitally enabled platform and the successful execution of our strategy by our talented teams around the world. Importantly, our progress reinforces the significant runway we have ahead of us as we harness our unique blend of magic and logic. The combination of iconic brands amplified by an agile and data-rich operating model creates tremendous opportunity. Our brands are at the heart of our company. They occupy distinctive positions in the attractive and resilient accessories market. Each has a rich heritage and substantial potential for growth. This is evidenced by the strengthening brand heat we're seeing through meaningful new customer acquisitions as well as growth with existing customers across our portfolio. We are focused on building lasting relationships with our customers to increase lifetime value through continuous innovation in both our product and the experiences we offer throughout the purchase journey. The opportunities for our brands are enhanced by our platform, which has been transformed to power them to move at the speed of the consumer. We are leaning into our digital leadership, meeting consumers where they want to shop and providing exceptional experiences [Indiscernible]. We're also leveraging our rich consumer data and sophisticated analytics to establish and enrich our customer connections, augmenting our creative processes with a deep understanding of our customers, while bringing faster and more consistent execution to bear. The benefits of investments in digital and data analytics are highlighted by our results over the last two years, and we're still in early innings in terms of unlocking this potential. Our platform also affords the benefits of scale, shared learnings and talent mobility. These advantages are increasingly important in today's rapidly evolving landscape and allow us to have a greater positive impact on our customers, our people and the world at large. Before moving to our recent highlights, I want to recognize those that are being impacted by conflict in Ukraine and by the ongoing ravages of COVID-19 in China and elsewhere. Our hearts go out to them during this turbulent time. Now turning to Tapestry's performance in the third quarter. First, we maintained a consumer-centric lens by leveraging the magic of our brands and our powerful customer data and analytics capabilities to drive improvements in key customer metrics. We acquired over 1.4 million new customers who transacted with our brands across channels in North America, a mid-teens increase compared to the prior year, with continued growth in both stores and [Indiscernible]. Since the start of the Acceleration Program 21 months ago, we have brought in nearly 13 million new customers to our brands. Importantly, these customers purchased at higher AURs and have already returned to shop again at a higher frequency than the average. At the same time, we continue to effectively reactivate lapsed customers while realizing increased average spend, highlighting our focus on driving lifetime value to fuel sustained growth. Overall, the underlying momentum across customer metrics drove our standout performance in North America in the quarter. Second, we continue to lead in digital, driven by the investments we've made in our capabilities online. In the quarter, we delivered sales growth of over 20% in the channel which represented approximately 30% of our total business. As consumers remain extremely engaged in shopping online, we continue to expect to achieve $2 billion in revenue in digital in fiscal '22 with further runway ahead. Third, we continue to see pricing power across the portfolio and realized another quarter of global AUR gains in each brand's core category. Importantly, we have seen no negative impact on customer demand from these price increases, highlighting our value proposition, brand relevance and the increasing traction of our product offering. And fourth, touching on China, our business was impacted by COVID-related restrictions in the quarter. Although we expect these headwinds to continue in the near term, we remain optimistic given the proven resilience of the Chinese consumer and the long-term opportunity for growth. Overall, brand awareness and handbag purchase intent in China remains high, reflecting the quality of our efforts to build brand equity with Chinese consumers. In summary, we continue to make meaningful progress supported by the Acceleration Program and we are confident in our ability to drive sustainable growth going forward. I will now touch on third quarter highlights for each of our brands, starting with Coach. We drove another quarter of top and bottom line outperformance, achieving a sales increase of 11% compared to prior year, including a nearly 20% gain in North America. This continued growth reflects our consumer-centric strategy and agile execution and underscores the significant potential ahead for the brand. During the quarter, Coach continued to advance its strategic initiatives. First, we delivered a focused and compelling product assortment across categories. Our iconic leather goods families are the foundation of our assortment and fuel consistent growth. Taavi, Rogue, Field and Willow were our top-selling groups in the quarter, driving half of retail's handbag revenue. To continue to spark consumer interest, we've animated these families with new colorways, fabrics and embellishments. Outside of our core styles, the studio bag, featuring a push lock C closure, resonated with consumers, while the launch of the new Hero shoulder bag, posting a horse and carriage snap closure, outpaced our expectations. In our lifestyle categories, we're driving outsized growth yet remain underpenetrated versus the market. In both footwear and ready-to-wear, customers are embracing our highly branded pieces, reinforcing Coach's desirability and the incremental commercial opportunities these categories represent currently and over the long term. Second, we continue to build brand awareness within men and delivered over 20% growth in the quarter, led by strength across backpacks, ready-to-wear and footwear. Importantly, given the success, we expect to approach $950 million in revenue this fiscal year, closing in on our near-term target to reach $1 billion in sales. Third, our product offering was further enhanced by the use of data, which provides customer insights and analytics to support new, more agile ways of working and higher SKU productivity. Together, this supported a significant pullback in promotions and drove full-price selling, resulting in an increase in global handbag AUR. In North America, handbag AUR rose at a high single-digit pace, marking 12 consecutive quarters of gain. Our momentum and the customer's response to the style and craftsmanship of our product reinforces Coach's pricing power and a further opportunity to increase prices to offset inflationary cost pressures. While we have raised prices selectively over the last quarter, the majority of the benefit will be realized at Coach beginning in fiscal year '23. Fourth, we drove customer engagement through 360-degree marketing activations. We amplified our spring product introductions on social platforms, notably TikTok, targeting Gen Z and millennial consumers. Additionally, building on the success of the brand's February fashion show themed Somewhere in America, we created localized, immersive experiences through a collection of pop-ups across the globe, including a Coach Laundromat, convenience store and bagel shops. These fun and unexpected venues enabled us to attract new customers and expand the way our brand is perceived. We also emphasized our values through the Coach (Re)Loved Program, an opportunity to engage with the customer in different ways by offering circular pathways for our products, whether through upcrafting, restoring or remaking. Given the success of the program thus far, we've expanded its reach across our North America retail stores. Overall, the combination of these actions drove further improvements in customer metrics, including the acquisition of over 800,000 new customers transacting in North America channels. At the same time, purchase frequency again rose, and we reactivated lapsed customers at an increasing rate. Fifth and finally, we again drove outsized revenue growth in the digital channel, which rose nearly 25% compared to last year or more than 5 times where we were three years ago. In the quarter, e-commerce represented nearly 30% of sales. In closing, Coach is consistently building momentum, reflecting the new and innovative ways we're engaging with consumers. Based on our underlying growth, we continue to expect the brand to approach $5 billion in revenue this fiscal year while maintaining exceptional margins despite the COVID-related challenges we're facing. Looking ahead, we have significant runway to drive growth across our product offering by enhancing our leadership position in leather goods and delivering outsized gains in men's and our lifestyle categories. Additionally, we see meaningful long-term potential across high-growth channels and geographies, such as digital and China, given consumer demand and the brand's value proposition. Taken together, we remain confident in Coach's ability to gain market share, given increasing brand heat and the relationships we're fostering with our growing customer base. Now moving to Kate Spade. Sales and operating income significantly outperformed expectations once again this quarter. Revenue rose 19%, which included a 25% increase in our North America business. The brand continues to gain momentum as we forge connections with our customers by leaning into Kate Spade's unique positioning within the market. Overall, our strong results year-to-date speak to the relevance and clarity of our brand purpose and underscore that we have the right strategy in place to drive sustainable growth over the long term. Turning to progress against our strategic priorities in the third quarter. First, we amplified key platforms as we continue to build and innovate our core product offering while infusing newness in our novelty platform. Within handbags, success was balanced across our core styles and new introductions. The Knott remained our number one collection, which we expanded to include a crossbody tote. At the same time, recently launched styles, such as the Carlyle and Avenue outperformed expectations. Further, we invested in novelty introductions that demonstrate the brand's unique personality and play a key role in storytelling to drive interest and engagement with consumers. This quarter's offering featured handbag shaped as flowers, tennis balls and butterflies. These styles won with our highest-value customers and they carry AUR well ahead of the average. Importantly, this strong performance as well as deliberate actions to decrease promotional activity and strategically raise prices resulted in nearly 20% global handbag AUR growth. Second, we drove brand heat by engaging the consumer through emotional storytelling and a community-driven approach in keeping with our DNA. Our floral-focused spring campaign reinforced our brand purpose by evoking the color and joy that Kate Spade is known for. We delighted our community with the opening of an experiential Kate Spade townhouse in New York City, which was met with a line of enthusiasts nearly two city blocks long. This pop-up embodied the full brand expression as we offer custom experiences pulled from the pages of our new Kate Spade book and also included a preview of our upcoming fall collection. Digitally, we increased our reach on social channels, notably TikTok, where we're engaging with a younger and more diverse audience. Importantly, our successful execution of these brand-building activities is underscored by a 3-point sequential increase in brand awareness for surveys hosted in the U.S. by YouGov. Third, we strengthened the foundation of our lifestyle positioning through a focused assortment across ready-to-wear, footwear and jewelry. These categories help boost customer acquisition and engagement and they remain an important driver of purchase frequency. Lifestyle currently represents over 20% of total sales. And looking forward, we see opportunity to grow these categories to serve all customers, boost lifetime value and fuel global expansion. Fourth, we drove strong trends in our e-commerce business, building on Kate Spade's already solid digital presence. Recently, we've implemented live streaming across social platforms to gain further reach for our pop-ups and events, including the Kate Spade townhouse experience. Through continued digital innovation, we fueled mid-teens growth in e-commerce which was nearly double pre-pandemic fiscal year '19 levels. Fifth and finally, we maintained a consumer-centric approach and utilized data to gain a deeper understanding of customer preferences and purchase drivers. Our performance in the quarter was led by higher spend among our existing customer base, including those deeply lapsed. At the same time, our investments in the brand have resulted in continued customer acquisition, adding nearly 600,000 new customers this quarter in our North America direct channel. Stepping back, during the initial phase of Kate Spade's transformation, we focused on rebuilding the brand's foundation and clarifying our purpose. We kept our brand vision at the forefront of our strategy as we set out to re-establish our core products and customer base. Today, as a result of these efforts, we are clear in our positioning within the market with consistent results that indicate our increasing traction. Looking ahead, our next phase is to weave the why of Kate Spade into our mission, expression and execution to connect more deeply with our community. We're harnessing the power of the brand to drive growth, enabled by diversified categories and a balanced global distribution. We also continue to be laser-focused on delivering higher AUR, building on our recent success. This will be a key element of capturing the significant margin potential we see in front of us. Overall, we remain incredibly excited for the opportunity ahead and remain confident in our ability to achieve $2 billion in revenue and a high-teens operating margin over the planning horizon. Turning to Stuart Weitzman. During the quarter, the brand continued to make progress against its growth strategies. First, we delivered significant operating margin expansion, reflecting the bold and nimble execution by the Stuart Weitzman team in the face of a challenging environment. Importantly, despite a deterioration in trends in China due to COVID, we remain confident in our ability to return to profitability this fiscal year. We're leaning into the strength we're seeing in North America, notably in the wholesale channel, which is helping to offset the pressures in China. Second, we maintained a consumer-centric strategy by leveraging our data analytics capabilities to deliver a compelling assortment for our customers as we capitalize on the recent market shift toward occasion wear. Sandals fueled the quarter's demand as iconic styles, including the nearly nude as well as new introductions such as the rider platform and summer wedge resonated with customers, specifically millennials. In addition, we introduced the versatile and timeless Stuart pump, which exceeded expectations and has been well received for return to work. Our streamlined and relevant offering, coupled with lower promotional activity and select price increases, drove AUR growth in the quarter. In fact, AUR rose over 20% in North America. Looking ahead, we see further opportunity to increase prices while maintaining our positioning within the overall market. Third, we fueled brand heat through focused narrative backed by emotional and relevant marketing. Our spring campaign features the mother-daughter duo of Kate Hudson and Goldie Hawn, wearing the Alina platform and Stuart pump, all of which became a top 10 style following the launch. Our engaging messaging helped to drive recruitment of new customers at a double-digit rate while continuing to reengage and reactivate clients. Fourth, we gained momentum in the wholesale channel. Stuart Weitzman has now re-established a presence in all Nordstrom full-price stores in North America, representing significant progress from where we were just one year ago. At the same time, we've added depth within our international luxury accounts across Europe. Fifth and finally, we continue to invest in digital and delivered a double-digit increase in demand. While digital now represents 20% of global sales, an increase of 5 points compared to fiscal year '19 pre-pandemic levels, we still see runway ahead. Overall, Stuart Weitzman remains on track to deliver a profitable year in fiscal year '22 fueled by better-than-expected performance in North America. The brand's product and marketing initiatives, coupled with solid execution, continue to drive results. We are confident in our significant top and bottom line improvements long term as we build brand awareness globally and capitalize on the recovery in China, where Stuart Weitzman has a strong position. In closing, Tapestry is a powerful combination of iconic brands that offer tremendous value for our customers and a platform that has been transformed to drive innovation and customer engagement. Our foundation is solid and our brands are poised for growth. Further, we participate in advantaged categories that have increased at mid- to high single-digit rate over time and have proven resilient in the face of macroeconomic shocks and global crisis. These categories serve an important emotional and functional need for consumers which is as relevant today as ever before. With the resilient nature of our categories, the attractive positioning of our brands and the emotional connections we are building with our customers, we are confident in the significant runway ahead. We look forward to discussing each of these elements in more detail along with our road map for continued growth at our upcoming Investor Day in September. With that, I'll turn it over to Scott, who will discuss our financial results, capital priorities and fiscal '22 outlook. Scott?

Operator:

[Operator Instructions] We will go first to Bob Drbul with Guggenheim. Your line is open.

Joanne Crevoiserat:

Yes. Thank you, Bob. Overall, I'm seeing strength and momentum across our business. In our third quarter, we delivered strong growth in all regions outside of China, more than offsetting the headwinds we saw in China. We talked about in our prepared remarks the strong growth in North America at 22%. We also saw strength in Europe, in Japan and rest of Asia, which again more than offset the temporary headwinds we're seeing in China due to COVID and really showing the resilience of our model. We delivered double-digit global growth in Coach, Kate Spade and Stuart Weitzman in the quarter. Tapestry is a powerful combination of iconic brands and we have a transformed platform that's driving innovation and customer engagement. And I see us gaining traction across our brands. We're continuing to acquire new customers. We're driving growth and increased spending from our existing customer base. And our Q3 performance really highlights the strength and the underlying trends we're seeing in the business. Our outlook for the year reflects continued headwinds in China, mostly offset with continued outperformance across the rest of our regions, mainly North America. And our outlook also represents record top line sales for the year for Tapestry at $6.7 billion.

Ike Boruchow:

Just -- it's a pretty dynamic world we're in clearly. I guess, Joanne or Scott, when I think about the potential for GSP to hit next fiscal year in this renewed authorization $1.5 billion, it seems like you have the dry powder to drive another 10% earnings growth next fiscal year. And you probably don't want to get explicit, but could you give us some guardrails on how to think about, after we get through Q4, just how to think about the next 12 months given all the puts and takes in the business right now?

Scott Roe:

You’re right. We’re not going to give guidance. If I think about just sort of the factors, listen, we've got really strong brands that have momentum, that are positioned well against really resilient categories. And we've seen this over a long period of time and some very volatile environments in the past as well. I mean our consumers engage and continues to respond. We also have pricing power. We've talked a lot about that AUR which gives me confidence in our ability to maintain margins over time. So the combination of great brands, well positioned and the ability to maintain margins means we can continue to invest in driving our business and our digital capabilities and our marketing, we transformed this P&L over the last couple of years. And that gives me confidence in our ability to continue to drive top and bottom line. And the last thing I'd say is this [Indiscernible] that's really been remade over the last two years, and you saw that in our guidance today. We're actively returning that cash to shareholders. So that's another driver or lever in terms of earnings as we look forward.

Oliver Chen:

The average unit retail momentum has been really impressive. What's ahead with the promotional activity profile? What should we assume in our models there? And also regarding pricing actions, specifically at Coach brand, would love further detail on what you see as opportunity ahead and how you're balancing this against the consumer environment which sounds quite robust in the U.S.

Todd Kahn:

Yes. Just building on what Joanne said. First, you think about the new customers that come into the brand in the last 2.5, 3 years, and even in this last quarter we saw 800,000 new customers coming to the brand. So they're experiencing Coach at elevated prices. And that's what you see with the AUR growth. We feel really good about where we're at and how much room we have because, first of all, we built our iconic style. We're amplifying those styles. We're making compelling stories around them. We're creating a value proposition. And as Joanne alluded to, when you think about where Coach is positioned today relative to traditional European luxury, there is more white space now than has ever existed. And I just see that as tremendous opportunity for continued growth on our AURs, on our initial pricing. And we will continue to maintain the discipline of not going back to periods where the brand was highly discounted.

Scott Roe:

Can I just jump in, Joanne. Just one clarification, we've always been in the cloud, right? And so there is some accounting changes which caused some geography differences from a reporting standpoint, but we’ve started talking more overtly about the cloud. But just to know, that's not necessarily a change in direction. That's just a change in geography based on some of the more recent pronouncements that have come out and just being in line with that Sorry, Joanne.

Operator:

[Operator Instructions] We will go next to Mark Altschwager with Baird. Your line is open.

Joanne Crevoiserat:

Yes. Let me kick it off with what we're seeing in the consumer. And what I can tell you is that we're seeing a strong consumer that's increasing their engagement with our category and with our brands. You can see that in the numbers we're putting up, but we're continuing to see strong growth in customer acquisition. 1.4 million customers in the third quarter alone. That's 13 million new customers over the last 21 months since we've launched our Acceleration Program. And we see that, that consumer is increasingly younger, a younger consumer and has been transacting at higher AUR and they're coming back to our brands more frequently. And I think that leads you to -- handbags in our category, handbag and footwear have remained an emotional purchase, both emotional and [Indiscernible] for our consumer. And as the world has reopened and consumers are increasing their connection in the real world and occasions and return to work, we see that driving demand across our categories and across our brands. We're driving increasing brand heat and, as I said, the emotional connection with our consumers is growing. So we feel well positioned moving forward. And as it relates to SG&A, I'll let Scott maybe talk a little bit about what we're seeing there. But I would also say that we are seeing pricing power in our -- across our brands. So consumers are engaging with our brands and the brands have established pricing power. And we see wide space in the market given the value that we represent. And that, we believe is -- and we feel confident will be offsetting inflationary pressures as we move forward.

Todd Kahn:

And just to add for Coach very specifically. We've come off of a very strong, and I know our sister brands have as well, Mother's Day. That gives us a lot of confidence in the future. And even in Japan, Golden Week was very strong for us. And one question you asked about AUR growth. We've had AUR growth across all of our channels. So it isn't just concentrated at the bottom or at the top. We're taking it up across all of our price points. So that's really powerful for us.

Michael Binetti:

Scott, just a few housekeeping little ones quickly and then a bigger question -- bigger-picture question. You mentioned the Shanghai DC reopening in mid-May, I think that's pretty quick here. It sounds like you have some pretty clear indications there. Just what you're seeing in your ability to open that soon. And then the comment that you expect freight to improve in fourth quarter and then into fiscal '23. I know it was a little worse than you were initially thinking in the third quarter. So just the moving parts that you see there. But then I guess backing up to go off Ike's question a little bit earlier, I think what -- you guys are controlling the controllables so well. I don't really think what's going on in China and GSP really have much to do with you. Margins are great. And Scott, you've obviously got the treasury buying a lot of stock here. I think where the stock is, the market is very hungry for any kind of downside support to what fiscal '23 could be. Just is there anything that you can offer us to just help us think about what's the minimum that the business can deliver in a reasonable scenario next year?

Joanne Crevoiserat:

Yes. And I'll just reiterate that we are optimistic about the future, Michael. We're driving both the brand health metrics and the consumer metrics and are gaining traction in our strategies in terms of leveraging those. Our data, bringing magic and logic together and driving our business forward. And Scott alluded to earlier, we've invested and we'll continue to invest in brand building. We have made substantial investments and they're working, they're paying off, and we see that continuing. We've acquired 13 million new customers across our brands in the last 21 months. We see those customers engaging with our brands through the innovation and product and innovation and marketing, and they're coming back to our brands more frequently, and we'll continue to leverage that for growth going forward. And we are looking forward to providing more discrete details at our year-end call on what '23 looks like. But our brands and our company are poised for growth.

Michael Binetti:

So at the moment already in inventory, you see it moving through. Okay. I appreciate.

Brook Roche:

Can you provide a little bit more context on your philosophy on capital allocation and how you're thinking about that balance between reinvesting in the business to drive that future growth versus returning capital via repurchases? As you look over the course of the next one to three years, what are the most important internal areas of investments that we should be planning for? And where have you pulled forward those investments since the inception of the Acceleration Program that should provide support if a downside scenario does materialize?

Scott Roe:

The only thing I would say is capital allocation priorities, just to restate them, invest in the business, dividends growing faster than earnings and then returning excess cash. Remember, coming from the early days of the pandemic, we're able to actually spend more and to return more than our annual cash flow because we had increased our maintenance capital in light of the early days of COVID. So we had the good fortune of being able to be in a really strong, relatively low leverage cash position and at the same time saw the intrinsic value of our shares dislocated from what the market reality is were. So we have leaned in, right? And I think the way I would say about it is it's not a change in priorities, but this is a cash-generative machine. It's cash -- free cash flow is about 2 times what it was pre-pandemic. And you should think of us as disciplined capital allocator. So as we continue to generate this free cash flow, we're going to invest first in our business, we're going to grow our dividend and you should think about returning cash through share repurchases programmatically over a period of time. This will be another lever for price appreciation over the long term.

Omar Saad:

Wanted to dive a little bit deeper on the handbag trends kind of across the brands and in the industry. It feels like you guys have AURs up a lot, especially on a multiyear basis for the Coach brand. We're hearing that from other players in the marketplace. Is it fair to assume that kind of unit volumes in the handbag category versus, let's say, 2019 are substantially down industry-wide in the kind of aspirational category? And is there a chance for meaningful unit growth even in this kind of inflationary environment kind of going forward?

Todd Kahn:

Thank you, Joanne. We are -- we have not hit our unit counts from '19 but the delta has shrunk pretty dramatically. And I see that as an opportunity for us. And all of the things that Joanne mentioned, the lifetime value, the increased AUR, the overall complexion of our customer is changing. And beyond women, we're very excited about the opportunity in men's. We're about a year ahead of our goal of getting to a $1 billion men's business. And what we like about that is it adds new customers to our mix and the brand. And when you think about it, we merchandising, we call them men, often, it's an all-gender program. But what I also am very excited about in the last year, we've added 1.5 million male customers into the brand. And when you think about opportunities and AUR growth there, particularly in those categories, where some of our highest AURs in the company. So I feel really good about the room we have, the new customers, the frequency of purchase will eventually get us to both AUR growth from pricing, but also unit growth.

Adrienne Yih:

Congrats on the progress. You can see it in the frontline stores in particular, no promos. Scott, my question is for you. Can you give us an update sort of on what the state of the China market looks like? Maybe some color on digital versus stores. Obviously, e-commerce has been able to be delivered. Are you seeing any improvement in that front, the distribution of stores in Tier 1 cities. Just like anything that you can give us with regard to what the current state of affairs is, seeing any signs of improvement current day to get to that kind of June reopening target.

Adrienne Yih:

And just a quick reminder. The Tier 1 cities -- are you primarily in the Tier 1 cities right now? I know there were some stores in Tier 2, but not a lot. So if you assume 80% is in Tier 1 in the lockdown cities.

Todd Kahn:

And the only thing I'd like just to add for the Coach. First, and it's all of our Tapestry in place, we have an incredibly fantastic team on the ground in China. The resilience that they have shown through this and the creativity is -- I mean I am in awe of what they are able to do even in pretty tough conditions. And just in the last month or so, we've seen a real increase in virtual selling and that is something that could be really interesting as and an, not and or, when the stores reopen. So again, our teams are incredibly creative, they're resilient and it gives us that much more confidence that when these events end, we'll have an even greater runway and connectivity with our clients there.

Joanne Crevoiserat:

Well, thanks. I'll say a few words just to wrap up. First, to build on what Todd was just talking about, I want to thank, first and foremost, our teams around the world for their relentless focus on the customer. This is continuing to drive our strong results. And our thoughts are especially with our teams in China who are navigating COVID and supporting each other during this difficult time. As you've seen in our results, our business is performing and I'm even more confident [Indiscernible] in a rapidly changing environment. Tapestry has tremendous runway for growth, with a positioning that's both unique and advantaged. Our powerful iconic brands are uniting magic and logic to deliver compelling [Indiscernible]. We play in attractive category that has proven durable high growth. We have a diversified direct-to-consumer business model. And we've transformed our platform with digital leadership is fuelling customer engagement. Our strong underline momentum is particularly evident in customer matrix we highlighted today. Long term we’re playing offense and lining in our conviction is reflected in our capital allocation actions, we’re investing in brands building as well as accelerating and increasing our share purchase given the significant growth potential ahead. So thanks for joining us this morning, and have a great day.

Operator:

Good day, and welcome to this Tapestry conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Global Head of Investor Relations, Christina Colone.

Joanne Crevoiserat:

Good morning. Thank you, Christina, and welcome, everyone. We delivered record sales and adjusted earnings in the holiday quarter, highlighted by an inflection at Kate Spade, ongoing momentum at Coach and a return to pre-pandemic revenue levels at Stuart Weitzman. Importantly, we realized the significant acceleration in sales trends, driving strong double-digit growth over pre-pandemic levels and well outpacing our expectations across brands. We took bold and deliberate actions to deliver for our customers and effectively navigated industry-wide challenges to meet increasing demand for our brands. These results are a testament to the significant transformation of our business, the strong consumer backdrop and engagement with our categories and the ingenuity and agility of our teams across the globe. We are a different company than we were just 18 months ago, backed by the strength of our unique brands and the benefits of our multi-brand platform. Now turning to the highlights from the second quarter. We continue to make meaningful progress against the acceleration program by sharpening our focus on the consumer, leveraging data to lead with a digital-first mindset and working with speed and agility. First, we maintained a consumer-centric lens by utilizing our customer data and analytics capabilities to enhance engagement, resulting in improvements to key customer metrics. We acquired nearly 3 million new customers who transacted with our brands across channels in North America, a low double-digit increase compared to the prior year with growth in both stores and online. This brings total new customer acquisition to over 11 million over the past 18 months. Importantly, in each brand, we're increasing retention rates and reactivating lapsed customers effectively as we continue to prioritize driving customer lifetime value to fuel sustained growth. Second, we advanced our digital capabilities through significant investments in the channel to improve the customer experience and drive conversion. We realized another quarter of outperformance with sales up approximately 30% versus last year, nearly 3x pre-pandemic levels. Digital sales represented 1/3 of our total business as customers continued to shop online even as in-store traffic trends improved. Given strong consumer engagement in this channel and the power of our platform, we expect digital to reach $2 billion in revenue in this fiscal year with further runway ahead. Third, we again increased global AUR at each of our brands, reflecting the power of our brands, the traction of our compelling product assortments and our innovative marketing. In addition, we've benefited from the infusion of data into our decision-making to streamline our offering and tailor messaging to consumers. This has resulted in lower promotions and higher SKU productivity, while also helping to identify opportunities to strategically raise prices to offset inflation. And fourth, we invested further in our China platform to foster distinctive connections and engagement with Chinese consumers. In the quarter, revenue on the Mainland rose mid-single digits, representing an increase of over 35% compared to fiscal year '20, despite disruption associated with COVID, including travel restrictions, traffic pressure and lockdowns in certain cities. Greater China revenue rose high single digits in the quarter. Importantly, we continue to resonate with the Chinese consumer globally as sales for this cohort rose low single digits against pre-pandemic levels. In the quarter, sales growth in China was fueled by digital as we continue to innovate and meet consumers where they want to shop. As such, we've expanded our presence on social media platforms while maintaining leadership positions on Tmall and TikTok even as new brands have launched on the platform, highlighting our prominence in the market and strong brand engagement, specifically with younger consumers. In fact, we achieved record sales during 11/11 on Tmall's Luxury Pavilion with Coach as the #1 ranked brand in the handbags, luggage and leather goods category and Stuart Weitzman as the #1 ranked footwear brand. Looking forward, while we anticipate volatility in the near term due to the pandemic, we remain confident that China represents a meaningful long-term opportunity across our brands. This was reinforced by our recent China brand tracking survey results, which showed handbags and small leather goods as a category where consumers intend to spend more over the next 12 months. I will now touch on second quarter highlights for each of our brands, starting with Coach. We again outperformed expectations, delivering 24% sales growth compared to last year. Revenue trends accelerated on a 2-year basis, increasing 20% above pre-pandemic level. This strong growth was enabled by the foundational changes we've made to ensure the consumer remains at the forefront of our strategy. As a result, Coach achieved its highest quarter revenue and profitability in nearly 10 years. The brand continues to gain traction with consumers globally across categories and genders, further increasing our confidence in the runway ahead. During the quarter, Coach made progress against its strategic initiatives. First, we remain focused on building iconic families to create a foundation for our product pipeline in future seasons. Our core assortment, notably the Taavi, Willow and Fields continue to drive our performance. At the same time, newly launched styles, including the studio bag and reinvigorated icons, such as the Rogue resonated with our customer base. Second, we further infused data into our decision-making to more effectively address the functional and emotional needs of our clients. This enabled a significant pullback in promotions and drove full-price selling, resulting in an increase in global handbag AUR. In North America, handbag AUR rose low double digits, marking the region's 11th consecutive quarter of gains. Our momentum and the customers' response to the style and craftsmanship of our product reinforces Coach's pricing power and the further opportunity to increase prices to offset inflationary cost pressures. Third, we emphasize the brand's values through approachable messaging, highlighted by our inclusive holiday campaign. In addition, we connected with all audiences through the authentic recreation of Jennifer Lopez's iconic "All I Have" music video, which resulted in strong social engagement. Our marketing initiatives were rounded out by the unique storytelling moments created by our successful Ski capsule including pop-up cabins at Rockefeller Center, a custom-branded virtual game and our first foray into the NFT world featuring characters from the collection, which were claimed in second. Overall, these actions helped to drive strong customer metrics, including the acquisition of over 1.5 million new customers transacting in North America. At the same time, purchase frequency again rose, and we reactivated lapsed customers at an increasing rate. Fourth, we again drove strong revenue growth in the digital channel, which rose over 30% compared to last year and has nearly quadrupled since fiscal year '20. We maintained this momentum even as store trends improved, underscoring the long-term opportunity for our online business. Fifth, we delivered mid-single-digit sales growth in China or an increase of nearly 45% against pre-pandemic level. This improvement was led by outperformance in digital. At the same time, we continued to invest in our physical presence. In keeping with our focus on growing the brand with the emerging middle class, we're adding approximately 10 new Coach stores in the region this year on a net basis, primarily in Tier 3 and 4 cities. We're also renovating key storefronts and expanding our footprint in nontraditional locations to build awareness particularly with younger consumers. Sixth and finally, we drove double-digit growth in our men's business with notable success in our horse and carriage pattern. We believe men has runway in bags and small leather goods as well as in broader lifestyle categories, increasing our conviction in reaching $1 billion in revenue at high margins over the planning horizon. In summary, we're combining Coach's iconic history of quality and craftsmanship with new and innovative initiatives to engage with consumers. The continued outperformance of the brand is a direct reflection of the advantages of the Tapestry platform, the benefits of the strategic investments we're making in marketing and our ability to meet the consumer where they want to shop. We're driving sustainable [Technical difficulty] Coach approaching $5 billion in sales in fiscal year '22, while maintaining exceptional margins. Now moving to Kate Spade. Before I turn to the details of the second quarter, I'd like to take a step back to acknowledge the significant transformation and tangible improvements the team has made through the acceleration program. Over the last 18 months, we've returned Kate Spade to the brand our customers know and love. We've rebuilt our product foundation through the introduction and amplification of brand codes, which will serve as the platform for future icons. At the same time, we're maintaining a consumer-centric lens and infusing data into assortment planning and marketing. In North America, we acquired nearly 5 million new customers and have improved brand awareness. We've also reactivated over 2 million customers during this time frame. In addition, we increased overall digital sales penetration to over 35% as of the most recent quarter as we focus on meeting the customer where they want to shop. And in keeping with the progress we've made to deliver great products, we've grown the brand's global handbag AUR highlighting pricing power for the future. Our work has fueled increasing momentum, giving us further confidence in the long-term opportunity for meaningful sales and market share growth. Moving to our second quarter. Kate Spade sales grew 33% compared to last year. Importantly, we drove a significant inflection against pre-pandemic levels and realized an 18-point sequential acceleration. At the same time, the brand delivered operating margin expansion ahead of both prior year and pre-pandemic level. These results were fueled by the successful execution of our strategic priorities. First, we maintained a consumer-centric approach, resulting in approximately 1.3 million new customers purchasing with the brand across North America direct channel. At the same time, we continue to drive strong double-digit growth in both existing and reactivated customers by utilizing data to gain a deeper understanding of customer preferences and purchase drivers. Second, we amplified key platforms as we continue to build and innovate our core product offering, notably our Knott and spade flower jacquard again outperformed expectations. In addition, newly introduced core styles resonated with the consumer, including our Carlyle family [indiscernible] pattern, which brought in a new and younger customer. Importantly, the strong performance of the core offering as well as deliberate actions to decrease promotional activity resulted in low double-digit global handbag AUR growth. Third, we drove brand heat through activity centered around increasing engagement with the consumer, while reinforcing our brand values to surprise and delight customers. This included new and exciting experiential initiatives such as opening a Disco truck in downtown, Manhattan, offering an exclusive jacquard handbag at a pop-up in Tokyo and wrapping some of [indiscernible] in our signature spade flower. Further, in keeping with the brand heritage, we continue to invest in novelty platforms to maximize our emotional connection with shoppers. The Sequin embellished Slice Pizza bag at an AUR of over $300 was a top novelty performer and it hit across our social media accounts. Overall, these activities to increase brand heat are paying off with growing brand awareness per our most recent U.S. brand tracking survey. Fourth, we maximized our lifestyle positioning through a focused assortment, including occasion options across ready-to-wear footwear and jewelry that were embellished with emotional details such as Pearls and Rhinestone Bows. Overall, these categories outperformed expectations and helped to boost customer acquisition and engagement as lifestyle remains an important driver of purchase frequency. Finally, we're building on the brand's already strong digital presence. We've continued to test and learn new ways to foster consumer engagement, such as the infusion of shoppable content through key social media platforms. Our innovative online approach backed by the passionate Kate Spade community helped to drive approximately 30% revenue growth in the channel compared to last year or double pre-pandemic level. Over the past year, we've rebuilt the brand foundation. These fundamental adjustments are taking hold and unlocking the next phase of growth for Kate Spade. We're continuing to lean into our iconic roots infusing our recently introduced brand codes and delivering strong marketing aligned with our product and values. We are incredibly excited for the opportunity ahead and remain confident in our ability to achieve $2 billion in revenue and high-teens operating margins over the planning horizon. Turning to Stuart Weitzman. The brand drove significant trend improvements in the holiday quarter, highlighted by 37% revenue growth compared to last year and a return to pre-pandemic sales level. In addition, we delivered improving operating profit with operating margin expanding over 250 basis points. We continue to advance our overall growth strategies in the second quarter. First and importantly, the Stuart Weitzman team delivered the brand's highest quarter of operating income since fiscal year '18. This progress was fueled by the strategic actions we've taken through the acceleration program, notably optimizing our fleet globally, improving our digital foundation and reestablishing our presence with wholesale partners. Second, we remain focused on digital in China, areas that represent significant long-term growth opportunities. In the quarter, digital sales rose over 35%, representing an increase of approximately 70% compared to 2 years ago at attractive margins. For Mainland China, we delivered growth on both a 1- and 2-year basis. Third, we maintained a consumer-centric strategy by infusing data analytics into assortment planning and capitalizing on market shifts to "buy now, wear now" styles and dress and occasion wear. This drove the recruitment of new customers at an increasing rate, while continuing to reengage and reactivate clients. Fourth, we drove brand heat by sparking desire through our product assortment backed by engaging marketing, which featured Kate Hudson for the holiday campaign. We built upon our authority in boots and booties with outperformance in the Nora and Stuart. We also infused newness into our icons, including updated constructions of the lift and the introduction of our Nudistcurve. Our compelling assortment, coupled with higher full price sell-throughs and a reduction in promotional activity drove our second consecutive quarter of AUR growth. Going forward, we see continued opportunity to increase prices while maintaining our positioning within the overall market. And fifth, the brand continued to regain momentum in the wholesale channel, notably with key domestic full-price partners. Overall, we're making continued progress at Stuart Weitzman and remain on track to drive strong revenue growth with a return to profitability this fiscal year. In closing, our strong holiday results across each of our brands, support the higher revenue and earnings outlook provided today. Importantly, the outperformance we've delivered is a direct reflection of our consumer-centric strategy as we continue to grow our data and consumer insights capabilities to enable increasingly powerful customer engagement. Our momentum also highlights the incredible execution of our team and the agility of our platform as we've successfully navigated the volatile backdrop. We're continuing to offer compelling and innovative products, underscored by the increased traction and pricing power of each of our brands. I'm confident in the long-term potential of our multi-brand portfolio and look forward to sharing our continued progress as we move forward. With that, I'll turn it over to Scott, who will discuss our financial results, capital deployment priorities and fiscal '22 outlook. Scott?

Operator:

[Operator Instructions]. We'll take our first question today from Bob Drbul with Guggenheim.

Joanne Crevoiserat:

Certainly, Bob. We delivered standout results and a significant inflection in Kate Spade in the second quarter. That was driven by product, people and our focus on the consumer. And Q2 has strengthened our confidence in the long-term opportunity we see to return -- to build Kate Spade to be a $2 billion brand. And I do want to recognize the team for the work over the past 18 months. They've leveraged our Tapestry platform and the acceleration program to rebuild the foundation of the brand, returning Kate Spade to the brand our customers love. And just a few highlights on the second quarter. Sales growth of 33% in the second quarter, 16% above pre-pandemic levels. That was an 18-point sequential improvement, so a significant inflection. And we're doing that with stronger operating margins ahead of both last year and pre-pandemic levels. We're continuing to build on the digital strength in the brand with 30% growth there, nearly double pre-pandemic levels. We're acquiring new customers, 1.3 million new customers in the quarter, and we're reactivating, importantly, reactivating lapsed customers back to the brand. And also importantly, we saw a low double-digit increase in global handbag AUR, which shows the power of the product offering that we're building. The team has been focused on building and amplifying key platforms. We've called out the Knott and spade flower, which continue to perform and new styles like the Carlyle that are bringing in new customers. These are resonating, and we're seeing higher full price selling across our assortments. And I would also add, importantly, we're also seeing growing brand awareness in our consumer research. So a lot to be excited about at Kate Spade. Kate Spade has a unique position in the market, and we are confident in the ability to achieve $2 billion in revenue at high-teens margins over our planning horizon.

Irwin Boruchow:

Scott, maybe for you, just on the inventory dynamics. Is it possible to give us a little bit more color on the inventory shortfall this quarter? What exactly is the revenue headwind to the total business and specifically the Kate Spade in 3Q. Just because it's important, I think, for us to understand the trajectory of that brand because it looks like you guys are making some big improvements there. And then are you -- in your forecast, is there anything that you're expecting these headwinds to kind of linger into the fourth quarter?

Scott Roe:

I'm not on mute. Can you hear me?

Scott Roe:

Okay. I'm sure that was my error. Sorry. Yes. So hey, this is a good story, right? We took bold and early actions from an inventory standpoint to position ourselves well for holiday. And as you can see by the strong quarter we had, it worked, and -- particularly in Kate. So the message here that we were trying to convey is that we sold through a lot of inventory and we wish we had a little more because the demand is really strong and continues into the third quarter. So this is going to put some pressure on our ability to chase the demand in the short term. But over time, we've seen that our production is back in line. We talked about that last quarter. We still have some issues on the logistics side, elongated lead times. So the message here is that, first of all, the demand is strong. We've had a really strong quarter. We wish we had a little more inventory, particularly in Kate Spade, and that's going to put a little hamper on our ability to chase that strong demand, but we'll be back in shape by the end of the year, and we'll see that this is not going to be a lingering issue from our standpoint. The other thing I'd just briefly mention, as we brought in this inventory and had a cost, we talked about that, that's not new, right? So that cost is -- you see it in our gross margin in the short term. Importantly, though, because our flow of inventory is now back to approaching normal levels, we significantly moderated the amount of air freight and expedited freight on a go-forward basis. So that's largely behind us. It will take a while for that to work its way through the P&L, and we'll see some of those impacts in the third quarter. But on an ongoing basis, we have significantly curtailed the amount of excess freight to get that inventory back in shape.

Scott Roe:

Yes. We haven't put a number on that. Just know that the demand is stronger than our ability to supply it in the short term, and we will see some -- some moderation in the third quarter and in the growth rate at Kate. That is not a reflection of the underlying demand or the strength of the brand. It's more of a supply-demand match in the short term.

Operator:

We'll go now to Erinn Murphy with Piper Sandler.

Joanne Crevoiserat:

Yes. We have fundamentally transformed our business to strengthen our engagement with the consumer in this channel, and you can see that in our results. We are meeting our customers where they choose to engage and shop. And that's really been delivering results. We've invested in capabilities, including in talent to power the work here and drive better consumer experiences across our digital platforms. As you mentioned, we're approaching $2 billion in business. We reached 1/3 of our business in the holiday quarter, which is triple pre-pandemic level. So seeing a lot of traction here, and we continue to see new customer growth in these channels. So we feel great about the growth both from the revenue standpoint, but also from the customer profile, the new customers, the younger customers that we're increasingly attracting to our brands. And we're also seeing this digital business as accretive to our margins as digital margins are higher than the respective brick-and-mortar. So that $2 billion represents a margin benefit to us, but also represents an opportunity because at $2 billion, it's less than 1/3 of our business on an annualized basis, and we think it can go higher from here. So we feel very optimistic about our digital business and continue to invest in those capabilities. And then to your question about stores, we also believe that stores represent an important touch point for our brands. And consumers are shopping across channels. We did see improvement in store trends this quarter. At the same time, we continued to deliver strong growth in digital. So as customer shopping behaviors are changing, we're investing behind those experiences and those omnichannel experiences that make that a great touch point for our customers, and it's an important touch point for our brand. We have been focused on driving higher productivity and profitability across our store fleet. And even though our traffic levels in store business overall hasn't exceeded pre-pandemic levels, our margins in our store fleet have exceeded pre-pandemic levels. So we've done the work to ensure we're driving more profitability and more productivity out of our store fleet, and we continue to invest in great experiences for our consumers across all channels.

Lorraine Hutchinson:

Can you talk to the current environment in China? And then from a longer-term perspective, how big of a driver is China and Kate achieving its $2 billion revenue goal?

Todd Kahn:

Thanks, Joanne. As most of you know, the Coach brand has been in China for over 20 years. We have deep, deep roots in the country. And in our recent brand perception study, 2 things were very noteworthy. One, the majority of the Coach customers in China have a positive economic outlook for the next 12 months. And that gives us a lot of energy around our clients and our customers there. Two, the Coach brand is a beloved brand that successfully compete with traditional European luxury brands. And we love that positioning. And we're going to continue to invest and grow in China. For example, last summer, we held a major fashion show in Shanghai showcasing our winter collection. That showcase led to the sales of the Ski capsule that we showed and sold in our stores in the second quarter. We will return this summer with another winter show in China, continuing to build on the momentum and really focusing on both the emotional and functional needs of our Chinese clients. So again, both our mid- and long-term expectations and growth in China are very robust, and we're really excited about what the Coach brand is going to deliver under the Tapestry platform in that area.

Oliver Chen:

The average unit retail increases of the Coach brand have been really impressive. But what's ahead with maintaining that and anniversarying that in terms of sustaining that momentum? And as a follow up, NFTs and the Metaverse have been increasingly embraced by luxury brands. What are your thoughts on the strategy there and how that may be executed as well as this is a different question, ESG and supply chain, just key priorities that you have for ESG and supply chain as well.

Todd Kahn:

Great. Thank you, Joanne. Oliver, you know Coach at its best balances logic and magic. And the Tapestry platform has enhanced the logic side, particularly with our digital center of excellence and our consumer insight work. On the magic side, over the last 2 years, we have created an environment where our creative team, led by Stuart Vevers can thrive. This combination has resulted in 11 quarters of increased handbag AUR in North America, a second quarter resulting in the highest revenue and profitability in 10 years, a sustainable top line approaching $5 billion in this fiscal year, substantially greater SKU productivity, over 1.5 million new customers transacting with the brand in North America just this last quarter, meaningful growth in men's ready-to-wear and footwear and all men's categories. Finally, our inclusive, authentic and fun storytelling in our marketing. These are foundational changes for our brand. And what this allows us to do is to continue to push and get priced in our product. And when I've been asked over and over again in many quarters now about how much more room is there in AUR. I look at where the Coach brand sits today relative to traditional European luxury. And the white space between where we transact and where traditional European luxury transact is at the greatest delta in 20 years. That gives us a lot of confidence and a lot of room to grow our price positioning. So I'm very optimistic about our future. I know Joanne will talk about sustainability. On the NFT, we dipped our toes in the water last quarter. We are going to look at it. I think I'd like selling physical real product, and our consumers like to touch and feel, but I do think that's an opportunity to explore as we really get closer, particularly to a younger consumer. So you'll see more of that over time. And then I'll kick it back to Joanne to talk about sustainability.

Operator:

[Operator Instructions]. We'll go next to Mark Altschwager with Baird.

Joanne Crevoiserat:

So thanks, Mark. We have seen a lot of success in digital, and we're seeing strong returns on the investments we are making. There is a technology component to this, and it combines both our digital and our data and analytics capabilities. We have a strong technology foundation that allows us to adopt new technologies and new innovations quickly. So embedding data and analytics into our processes in a more robust way is helping drive conversion. It's helping drive our marketing as well. The platform and foundation we're investing in, and that's helping us with performance and we've seen improvement. This holiday quarter, our digital business grew 30%, I call it strength on strength, but we did that and we delivered a much better experience for our consumers. And we saw our customer satisfaction scores increase significantly across the holiday quarter with the changes we're making. So it's impacting the experience. It's impacting our results and conversion, but I also -- the talent that we're building and, to your point, those investments are increasingly in talent and having the teams that are helping drive this innovation and they're doing great work. I would say innovation is the final piece that is powering our business. And we're very focused on moving with speed to be where our customers are. And you can see the innovation we're delivering on those spaces being on new platforms and innovating quickly. We were -- in China, we were the first fashion brand to be -- to have a commercial site on TikTok. We remain #1 on TikTok and Tmall there. We have shoppable content across social media platforms. And even the NFT that we talked about earlier is a sign of how we think about innovation, testing and learning and moving quickly to be with our customer and stay close to our customer. So that is the focus of the investments, and we're seeing strong returns.

Operator:

Our next question comes from Michael Binetti with Credit Suisse.

Scott Roe:

You're consistent, my friend.

Scott Roe:

Yes. Maybe I'll start and then Todd maybe will build a little bit as you think about margins and AUR. But listen, in terms of the -- I think your question was around what we're seeing in freight on Coach and the impact on margins. Really not a big difference overall. The overall guidance I gave you, Michael, is not so different by brand in terms of how it's allocating. So as you try to think about the ongoing margin structure, there's nothing that I would call out that's particularly unique 1 brand to the other. We took these bold actions pretty much across the Board because a lot of the issues we were seeing were universal in our supply chain. And again, I think you see the results in Q2, some of those actions that we've made. Remember my earlier comments, though, in terms -- we did the expedited freight and the air freight for a very specific reason. We saw Vietnam, which at the time was about 40% of our production was down, and we had a hole in our supply that we made up for through those expedited, I'll just say, airfreight actions. Again, to repeat, we now see the flow more normalized. That's largely in the rearview mirror. It will take a little while to work through the P&L because it attaches to the inventory. And as that inventory sells through, you'll start to see that, particularly in the third quarter. But on an ongoing basis, we do see elevated ocean rates, but a lot of this expedited freight is going to go back to more normal levels. And already that's happened. It just takes a while to go through the P&L. And we also have pricing action on an ongoing basis. I don't know, Todd, if you want to build on that, what you're seeing in the Coach brand.

Scott Roe:

And Michael, let me just take your SG&A question real quick, too. I would say, listen, there's some timing quarter-by-quarter as we think about different marketing actions, top of the funnel actions. I would just point you to the big picture here, right? We have taken up our top and bottom line guidance for the year. We have maintained our gross margin and SG&A shaping, and we still intend to increase our operating margin for the full year. So is there some timing quarter-by-quarter? Yes. I think the bigger picture here is we had a strong quarter, and we've taken up our guidance and we still maintain the fundamental metrics that we talked about even despite a volatile backdrop, as I mentioned before. So I think that, from my standpoint, it's the big picture here.

Brooke Roach:

Joanne, I would like to dive a little bit deeper into the 3 million new customers across channels that you acquired in North America this quarter, which is a strong result against a tougher year-on-year compare. Can you talk a little bit more about what specifically you're seeing that are driving those new customer acquisitions and the sequential improvement you saw in this quarter? And then on the forward, I would love to hear a little bit more about the specific marketing efforts you have planned to keep that momentum going into the back half of this fiscal year.

Todd Kahn:

And I could just add on the Coach side, the new customers we're seeing are -- we're seeing higher AURs from those new customers. And one of the things we've developed, which we're very proud of, and I think gives us a lot of runway in this area of retention is the Coach Insider program. We have seen that our insiders transact 20% more frequently as compared to nonmembers, and their baskets are higher. So we see that across both our retail and our value channel. So we're excited about this. And what's really unique to the Coach Insider program, it's not a discount program. It's about early access. It's about being truly an insider, and that's what the customer is so engaged with. We've heard stories from our clients about their being featured on the insider program and how much joy and pleasure they get out of that. So you'll see us continue to develop these programs and the benefits of being a Coach Insider to again create that connectivity with our customer in a much deeper and profounder way than just transacting.

Tracy Kogan:

It's Tracy Kogan filling in for Paul. I was wondering if you could talk about your factory outlet strategy for Kate. How many stores do you guys have there currently? And what's your ultimate target? And I'm wondering if you have the same AUR strategy at the factory outlet channel for Kate, as you do with Coach.

Operator:

Thank you. That concludes our Q&A. I would now like to turn the program back to Joanne Crevoiserat for any additional or closing remarks.

Operator:

This does conclude today's program. Thank you for your participation. You may disconnect at any time.

Operator:

Please standby. Your program is about to begin. [Operator Instructions]. Good day and welcome to the Tapestry Conference Call. Today's call is being recorded. After the speakers' opening remarks, there will be a question-and-answer period. [Operator Instructions] At this time for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations at Tapestry, Kelsey Mueller.

Joanne Crevoiserat:

Good morning. Thank you, Kelsey and welcome, everyone. I'm pleased to report that the strong momentum we saw throughout last year has accelerated further in the first quarter, with our sales now 9% above pre-pandemic level. Our operating margin has improved 8.5 points compared to fiscal year '20, even as we've reinvested in key growth drivers for our business. The fundamental changes we've made through the acceleration program to transform Tapestry and our brands have enabled our teams to act with agility, to drive highly effective customer engagement, and support increasing demand. This performance also reaffirms our confidence in our differentiated platform. Our 3 unique brands are enabled by our talented teams, technology infrastructure, globally diversified supply chain, and a 90% direct-to-consumer model. These assets, coupled with our growing data and consumer insights capabilities, have fueled more targeted product development, more efficient pricing, and more effective marketing, all of which support accelerating revenue, higher gross margin, improving profitability, and most importantly, stronger connections with our customers. Now, turning to the highlights from the first quarter. We continue to make meaningful progress against the acceleration program by sharpening our focus on the consumer, leveraging data to lead with a digital-first mindset and transforming Tapestry into a more responsive organization. First, we kept the consumer at the forefront of our strategy, which drove further increases in customer recruitment. In fact, we acquired approximately 1.6 million new customers across our direct channels in North America, an increase of over 20%, with growth in both stores and online. Second, we leveraged our unique data and analytics capabilities to enhance engagement with our consumers. As a result, retention improved year-over-year at each brand, including strong re-engagement with the 4 million customers acquired last year in our North America digital channels. In addition, we drove a higher number of repeat transactions and reactivated lapsed customers at an increasing rate. These examples highlight the advancements we've made to utilize customer insights, to increase engagement with our brands, and drive higher lifetime value. Third, we enhanced our expertise in the digital channel, a margin accretive business across brands. We've made significant investments, including in talent to improve the customer experience and drive conversion. As a result, we realized a sequential acceleration in e-commerce revenue trend in the quarter. A meaningful achievement as we lapped difficult online comparisons from last year. Sales rose close to 50% with digital penetration now nearly 4 times pre-pandemic levels. At the same time, trends across our global store fleet again improved with operating margins that continue to exceed pre-pandemic levels. Fourth, we further strengthened our positioning in China, a region that represents significant long-term opportunity, supported by the rising middle-class. While COVID resurgences during the quarter impacted traffic across the industry, we delivered sales growth of over 25%. Compared to pre-pandemic levels, sales increased roughly 65%, accelerating versus the prior quarter. And importantly, we grew on both the mainland and with Chinese consumers globally, which increased at a low double-digit rate versus fiscal year '20. And fifth, we increased global AUR at each of our brands, reflecting traction with our customer base and the deliberate structural changes we've made to reduce promotional activity and improve assortment productivity. Now, let me touch on the first quarter highlights for each of our brands. Coach delivered another exceptional quarter, accelerating further off an already strong base. Revenue rose 27%, representing an increase of 15% compared to pre-pandemic levels, or a 13-point sequential improvement. Operating margin expanded fueled by gross margin, which reached nearly 75%, the highest rate in any quarter in the last 10 years. These results are a testament to the increasing brand heat and strong customer demand and engagement we're seeing at Coach, highlighting progress against the Brand’s fiscal year '22 growth strategies. First, we drove another quarter of AUR gains as we benefited from strengthening pricing power and our deliberate actions to improve SKU productivity and lower promotional activity. Globally, Coach's handbag AUR increased high single-digits in both the retail and outlet channels. In addition, we achieved the tenth consecutive quarter of AUR improvements in North America, which rose low double-digits. This continued improvement reflects our pricing power and strong engagement with consumers as we focus on enhancing customer lifetime value. In the quarter, we acquired over 900,000 new customers across our North America channels. A high-teens increase compared to the prior year. At the same time, purchase frequency rose versus last year. Second, we continued to develop our iconic families to create a foundation for our product pipeline in future seasons. With notable strength in key families such as Tabby and [Roe] (ph). In addition, we are led by Stuart Vevers' creative vision, who is building on 80 years of iconic Coach codes. Notably, the Signature C and Horse and Carriage, both of which have supported increasing sales across all channels. Third, we increased investments and drove stronger returns in marketing, leveraging our data capabilities to drive outsized growth in our digital business. In the first quarter, e-commerce increased over 60%, representing a sequential improvement on both a 1 and 2-year basis, underscoring the significant opportunity that this channel represents. Fourth, we again drove growth in China. Sales rose over 25% compared to last year, with improvements across stores and E-commerce, as we diversify our approach to meet the customer where they want to shop. This includes better leveraging existing platforms and establishing relationships with new online forums. As we build on the strength of our brand and our positioning with the emerging middle class, we continue to see tremendous long-term potential in China. And fifth, we outperformed in the men's business in keeping with our ambition to deliver $1 billion in sales in the category over our planning horizon. In the quarter, we reinvigorated some of our iconic weather good - silhouettes, infusing camo print in retail and the Basquiat collaboration in outlet. In summary, Coach continues to stand out even amid external pressures. Customers are engaging with the brand at an increasing rate, given the traction of our product and marketing. We're driving continued momentum as we enter the important holiday quarter. The brand has proven that the foundational changes we've made are working and our results are sustainable. We are increasingly confident in our ability to drive both revenue and profit gains for fiscal '22 and beyond. Now, moving to Kate Spade. The brand continued to make steady progress against its strategic priorities and outperformed internal expectations across the P&L. We built on the increasing traction we're seeing with consumers, which drove topline improvement during the quarter. Importantly, direct sales, excluding wholesale, increased mid-single-digits versus pre -pandemic levels, a sequential improvement compared to the fourth quarter. These results confirmed that the growth strategies we're executing to return Kate Spade to its roots and improve the underlying foundation of the brand are taking hold. In the quarter, we maintained a consumer - centric approach in our execution. Acquiring over 650,000 new customers across channels in North America. A significant increase over last year. At the same time, we reactivated lapsed customers with outsized growth among those customers lapsed over 3 years, reflecting a renewed connection with our core customers and confirming the efforts to clarify the brands positioning are gaining traction. Second, we continued to build out our core product offering by amplifying key platforms. Most notably, The Knot and Spade Flower again outperformed expectations and active strong foundations for future growth. The strength of these recent introductions, coupled with deliberate actions to improve full-price selling and pull back on promotional activity, fueled another quarter of global handbag AUR growth, which rose low double-digits. The progress we've made has increased our confidence in Kate Spade 's pricing power, as we deepen our connection with consumers and execute on our strategic agenda. Third, we drove brand heat by deploying marketing centered on our Kate Spade community and leaning into our DNA as a best-in-class storytelling brand. We employed new ways of reaching our customers, including a variety of social media platforms and a re-imagined and uniquely Kate Spade approach to New York Fashion Week. which featured a pop-up Apple Orchard in downtown Manhattan, incorporating our I Heart New York Collection. Fourth, we maximized our lifestyle positioning by continuing to strengthen the foundation of Ready-Wear, Footwear and Jewelry, all of which outperformed our expectations. Overall, the brands differentiated and broad offering supports our goal to increase lifetime value as those customers buying lifestyle products tend to purchase more frequently and spend more. And fifth, we utilized our already strong digital platform to continue to grow e-commerce sales, which rose over 15% in the quarter, as we test, learn, and scale innovative and new ways to engage the consumer online. In closing, we're leading with our values to strengthen the emotional connection with our passionate Kate Spade community. We are excited by the brand's progress and our solid performance underscores that we have the right strategy in place. We have significant [Indiscernible]. And our ability to achieve $2 billion in revenue at high-teens operating margins over the planning horizon. Turning now to Stuart Weitzman. The brand has made continued progress towards achieving our overarching goal of restoring profitability in the current fiscal year. To achieve this, we advanced our growth strategies in the quarter. First, we improved operating margin compared to prior year, further increasing our confidence in our return to profitability this year. This was driven by continued outperformance in high-growth areas, including digital in China. Our e-commerce channels rose over 30% globally, driven by customer experience upgrade to improve conversion. And in China, a market that remains a significant opportunity for the brand, revenue increased over 25%. Second, we recruited an increasing number of new customers compared to last year and drove higher retention rates overall. The consumer remains at the forefront of our strategy, as we capitalize on shifting market trends, most notably the return to in-person socialization and the growing need for occasion and dressy footwear. At the same time, our iconic collections continue to resonate. Notably, the Nudist family, which brought an increasing number of new and younger customers to the brand. Third, we drove brand heat through a tailored offering, supported by marketing actions to engage the consumer. Stuart Weitzman's momentum was evidenced by a return to AUR growth, which rose low double-digits compared to prior year, reflecting deliberate action to lower promotional activity as well as select price increases, which we intend to continue on a strategic basis. This was a key driver of the gross margin expansion of over 250 basis points. Fourth, we strengthened our wholesale partnerships, specifically with key domestic full-price partners, resulting in high teens growth in the channel. Overall, our solid execution is evidenced by our improving financial performance. We're laser-focused on the consumer by offering compelling product and marketing to enhance customer engagement and increase our productivity in key regions and channels. This in turn will support our goal to restore profitability in fiscal 22. Now, turning to the overarching strategies for the holiday quarter, the consumer backdrop is healthy and our recent internal survey work in North America highlights the demand for the handbags and footwear categories remain strong. We're remaining nimble and keeping the customer at the center of our priorities. First, we're controlling the factors within our control and playing offense. We've moved quickly and taken bold and deliberate actions to mitigate industry-wide inventory constraints. We're also messaging the customers earlier in the holiday season to elongate the shopping period and capture demand early. Importantly, we will be maintaining our discipline around discounting and selectively increasing prices as we lead with messaging on innovation and values over price. Separately, we are creating engaging omni -channel customer experiences as in-store traffic continues to improve and online engagement increases. Across brands, we're employing exciting initiatives to surprise and delight consumers during this important shopping period. At Coach, we've kicked off the holiday season in a truly iconic fashion with our re-creation of Jennifer Lopez's All I have video, nearly 2 decades after the original, featuring our signature codes. At Kate Spade we're creating magical holiday moment with our To All a Sparkly Night collection which captures the sense that the littlest things can be life's biggest indulgences. And at Stuart Weitzman, our recently launched campaign featuring Kate Hudson arrives just in time for the start of the holiday season, as well as celebrations for our 35th anniversary. Overall, our first quarter results and the momentum we're delivering are evidence that our strategy, led by the acceleration program is working. We've radically transformed our Company, realizing material operating margin improvement, while fueling investments in key growth areas of our business. We're largely a direct-to-consumer business with a digital first mindset, building a deeper understanding of our customers. We're utilizing these capabilities along with the additional benefits of our multi-brand platform to drive even further growth at Coach and accelerate the trajectory of both Kate Spade and Stuart Weitzman over our planning horizon. I'm encouraged by the growing vibrancy of each of our brands and the strengthening engagement with consumers, backed by the work of our talented and passionate teams. Our confidence is underscored by the stronger outlook for fiscal year '22 and additional shareholder return plans announced today. We've entered the second quarter with momentum, and have proactively put in place plans to deliver for our customers this holiday season and into the New Year. We are well-positioned to capture market share at structurally higher operating margin in the years to come, creating significant value for all our stakeholders. With that, I will turn it over to Scott, who will discuss our financial results, capital deployment priorities, and fiscal year '22 outlook. Scott?

Operator:

[Operator instructions]. We will go first to Bob Drbul with Guggenheim. Your line is open.

Joanne Crevoiserat:

Good morning, Bob. Our confidence is really driven by 3 factors. Our acceleration program initiatives are gaining traction and driving brand heat. We're seeing a strong consumer backdrop and we're taking bold actions to manage the environment. We're pleased with the momentum we're seeing across brands. The actions we've taken through our acceleration program have transformed our Company and are driving strong and sustainable results. We see brand heat building as evidenced with the AUR growth that we're delivering in each of our brands. We're also seeing acceleration in top line trends. In the first quarter, we delivered growth of 9% above pre-pandemic levels, which was an 8-point acceleration from the fourth quarter. We're delivering that with significant gross margin expansion, which is allowing us to deliver structurally higher operating margins, while also reinvesting in the key growth drivers of the business. And we're seeing continued strength in digital in China, which are 2 areas that we've talked about represent long-term opportunity for Tapestry. As I mentioned, as we look at the landscape, consumer spending is healthy and demand for our categories remains very strong. So, although the environment continues to be dynamic, we've moved aggressively to manage the supply side of the equation, to protect the strong trends that we're seeing and serve our customers, really keeping the customer at the center of our strategy and of our execution. And our teams have a proven track record of managing these dynamics and we are very confident in our ability to deliver for our customers this holiday and beyond. And that confidence Bob is really evidenced by the increased guidance and incremental share repurchase program that we announced today.

Operator:

And in the interest of time, we do ask that you limit yourself to 1 question. And we can go now to Ike Boruchow with Wells Fargo. Your line is open.

Scott Roe:

Good morning, Ike. Sure. We've seen elevated input costs, and that's not really a new dynamic for us. And also, as we've said, we've seen higher AUR s and higher prices, right? So, as we look at the overall structural gross margin and operating margin picture. We've got confidence in our ability to maintain our margins even in the face of some elevated costs that we see being with us for some period of time.

Operator:

We'll go now to Erinn Murphy with Piper Sandler. Your line is open.

Joanne Crevoiserat:

Let me jump into the Kate Spade comments, Erinn. We are making steady progress at Kate Spade and we do have the right strategy. We are clarifying the brand positioning and we're seeing traction across the P&L and in fact, direct sales for the quarter increased mid-single-digits versus pre-pandemic level. On a direct basis, we are growing above pre-pandemic levels, and that improved quarter-over-quarter. And we are focused on returning the brand to its roots and driving stronger consumer engagement. We acquired over 650,000 new customers across North America channels to the brand this past quarter alone. And we're reactivating lapsed customers at an increasing rate, which gives us confidence that the strategy is working, that we're reaching the core Kate Spade consumer, and we've worked hard to improve the product assortment there. We talked about new platforms like the Knot and Spade Flower, which continue to perform, and those represents important platforms for future growth. And we're seeing increased global handbag AUR. AURs grew low double-digits, so all signs that Kate Spade is on the right path, on the direct business growing, again, to pre-pandemic levels. And it reinforces our confidence that the brand can achieve $2 billion in revenue and at a high-teens operating margin as we move forward.

Erinn Murphy:

Very helpful. Thank you so much.

Kelsey Mueller:

The next question comes from Mark Altschwager with Baird. Your line is open.

Joanne Crevoiserat:

Yes. Let me start and then I'll pass it to Todd who can give you an update on Coach specifically, but across all of our categories, we see the opportunity to take price and we as brands in the portfolio are gaining pricing power. And we're structurally positioned to be able to improve our AURs, with the data and analytics applications, and the structural changes that we've made across our assortments. It's not just the handbag effort and we're looking across our assortments, we're understanding what our consumers are looking for and expecting from our brands. And we're getting better and better at leveraging that data to tailor our assortments appropriately, tailor our messaging, and evaluate pricing across. We feel good about the progress we've made, but we see tremendous run, we're really just getting started. We're a data-rich Company and we're learning to use this data in better and better ways and that you're seeing throughout the P&L, including in gross margin and AUR increases. But Todd, I'll pass it to you to talk about what you're seeing in doing at Coach.

Mark Altschwager:

Thank you.

Lorraine Hutchinson:

Thank you. Good morning. I just wanted to focus for a minute on the new customer acquisition, at both Coach and Kate. Can you talk a little bit about what strategies are working best for you? And if there are areas that you need to lean into from an investment perspective?

Todd Kahn:

And I will just add for Coach, in the last quarter as you saw, we increased 900,000 new customers. And what we're seeing is the increase frequency. We're seeing over 40% of the new customers are Gen-Z and Millennials, so that bodes well for our future and couldn't be more excited about the opportunity. And even as we invest in Jiuzhou, we see a true Omni opportunity here. And there is a synergistic opportunity between our brick-and-mortar and our digital and they feed off each other, in a really great way. And with the acceleration program and leaning in on understanding the data, it helps us create better store experiences and even helps us determine where to put stores into the future.

Operator:

We'll go now to Michael Binetti with Credit Suisse. Your line is open.

Scott Roe:

Thank you.

Joanne Crevoiserat:

Yeah. Let me jump on the China question. We were pleased with our growth in China, as you mentioned, we accelerated on a 2-year basis. And although we did experience pockets of COVID related disruption, we delivered growth. We grew greater than 25% on the year, but to your point, 65% on a 2-year basis. And we are seeing continued strong engagement with customers in the market and brand sentiment remains strong, particularly in the Coach brand. And we're seeing growth, I guess, in I would say Coach and Stuart Weitzman, our 2 biggest brands with the highest penetration in the market. And Kate, as you know, remains relatively smaller. But we see tremendous runway ahead. Of course, we're monitoring the developments in the market and environment remains dynamic, but we're staying very close to the customer and we're well-positioned. All of our brands are well-positioned against the growing middle-class. So, as we stay close to the customer and deliver the product and the experiences and show up where the customers are increasingly innovating in places like Dally and the Tik Tok of China and putting our brands where our customers are and being very relevant to that customer, we expect and we continue to see we have tremendous runway in the market.

Todd Kahn:

Yes. Thank you, Scott. The one thing I'd like to add is as we maintain these really fabulous margin, if you look at the first quarter, Coach captured market share in our primary category of handbags. We look at the handbag growth globally between 15% and 20% and we saw Coach 's results way above that. So, the combination of being able to capture market share while maintaining these margins -- we're not buying the market, we are maintaining a really healthy business. And I think that is one of the key differentials between us and where maybe we historically were.

Adrienne Yih:

Good morning. Congratulations. The sector just seems ripe for multiple years of healthy growth. My first question is, Joanne or Todd, can you talk about the penetration of sales in the Coach brand over 400 versus under 400 versus last year? Is she buying higher-end goods, as well as buying them more frequently? And then Scott, I would imagine that prior to this, basically, everything was on the ocean and so, just wondering what percent is air freighted in 2Q? What's expected to be air freighted in 3Q? Just as a percent of what you normally do. Thank you.

Scott Roe:

Sure. Yeah. That's probably a simple one. Adrienne, we're not -- we haven't given the exact percentages. I guess, historically, we've seen about a 90-10 split ocean versus airfreight and -- or expedited freight. And obviously, we're at an elevated level at this point. I guess, the thing I would really point you to you though is my earlier comments. Around that -- based on our visibility to normalizing production flows, we're really seeing that moderate in the back half of the year and getting back to -- I'll say, maybe not exactly normal, but certainly an improved environment as we move through the balance of the year.

Adrienne Yih:

Fantastic. Very helpful. Best of luck.

Operator:

We'll go now to Matthew Boss with JP Morgan. Your line is open.

Joanne Crevoiserat:

Yes. I'll keep it up. As we embarked on our acceleration program, we saw a huge opportunity to better understand and serve our customers where they wanted to shop and that really had us leaning into investments we had made historically, but leaning into our capabilities in digital and data. We are, as we said, 90% direct-to-consumer business. We know a lot about our customers, and we knew we had an opportunity to better engage our customers and meet customers as their shopping behaviors were changing. We have invested quite a bit and we've grown that business tremendously. We are seeing continued engagement at Coach, where we have runway, but across all of our brands, we're seeing continued engagement, customer acquisition through digital channels. That's not to say, that's our only focus. The Omni channel customer and customer shopping behaviors are changing and continue to change rapidly. So, we're staying close to the customer and we want to be available with our brand to our customers where they want to shop and how they want to shop. And we're staying close to that, we're making the investments we need to make and we're seeing really high returns on those investments, leveraging data and getting closer to our consumers. Leaning into those digital capabilities has been paying off and it's not just acquisition, as I mentioned earlier. It's really -- once we acquire our consumers, driving and to drive higher lifetime value, and that's engaging them across our broad array of categories in each of our brands. So proud of the work the teams are doing. As I mentioned, it's early days for us, we're happy and very pleased with the traction we're seeing. But a long runway ahead.

Matthew Boss:

Great color. Best of luck.

Brooke Roach:

Good morning and thank you so much for taking the question. Joanne, I wanted to follow up on the prior question on customer acquisition and retention. And you highlighted that customer re-engagement and transaction levels among those existing customers are really building a strong foundation and improving here. Could you possibly share some additional insight on what strategies have proven to be most effective in getting that customer to continue to come back and repeat and re-engage with that brand? And then Scott, maybe as a follow-up, some other companies have talked a lot about labor supply as being a big focus recently. Can you talk to the impact of your recent employee initiatives and your staffing levels? Maybe, what you're seeing in terms of wage rates at retail and in distribution centers going forward. Thank you.

Todd Kahn:

For just the Coach brand, I just can add two points

Brooke Roach:

Thank you very much.

Joanne Crevoiserat:

Thank you, Catherine. The Q1 was a strong quarter for Tapestry with outperformance across all brands. We are building momentum and our confidence in the tremendous runway ahead for our brands is underscored by the increased guidance and shareholder returns we announced today. We've moved quickly and decisively in navigating industry-wide headwinds to meet rising demand for our brands. As always, our results are driven by our passionate teams who are moving with greater agility and are ready to deliver for our customers this holiday and beyond. Thanks, everyone, for joining us this morning and have a great day.

Operator:

Please stand by. Our program is about to begin. [Operator Instructions]

Christina Colone:

Good morning and thank you for joining us. With me today to discuss our Fourth Quarter and full-year results, as well as our strategies and outlook, Joanne Crevoiserat, Tapestry Chief Executive Officer, and Scott Roe, Tapestry Chief Financial Officer and Head of Strategy.Before we begin, we must point out that this conference call will involve certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These includes projections for our business and the current or future quarters or fiscal years. Forward-looking statements are not guarantees and our actual. Along with [Indiscernible] by 22. Scott will continue with our financial results and priorities going forward. Following that, we will hold a question-and-answer session where we will be joined by Todd Kahn, CEO, and Brand President of Coach. After Q&A, Joanne will conclude with brief closing remarks. I'd now like to turn it over to Joanne Crevoiserat, Tapestry CEO.

Scott Roe:

Thanks, Joanne, and good morning, everyone. I'm thrilled to be with you today after joining Tapestry just a few months ago. While I'm still relatively new, I can already see that this is a truly unique Company with strong, and engaged talent.Great brands that are well-positioned in attractive market spaces, and a distribution model that allows us to directly own our consumer relationships coupled with advanced digital and analytics capabilities. As we move forward, my focus is to work alongside our management team to align business, and financial strategies, to drive sustainable, long-term growth which profits shareholders and all stakeholders alike.Looking back at FY21, it was a transformational year for the organization as Joanne mentioned. We effectively executed our acceleration program against the difficult backdrop, created a foundation for sustainable growth.Specifically, we increased the penetration of our margin accretive, digital and China businesses, which led overall growth in the fiscal year. We expanded gross margins primarily through higher AURs driven by lower levels of promotional activity.We grew operating margin by 300 basis points versus FY19, reaching peak levels with Tapestry. This despite significant investments in talent, digital capabilities, and marketing, which were more than funded by gross profit gains and $200 million in gross SG&A savings delivered through the acceleration program.And we further strengthened our financial position through tight inventory management and a reduction in debt levels while achieving $1.2 billion in free cash flow, resulting in an ending cash position of approximately $2 billion. Turning to the details of the Fourth Quarter, total sales rose a 126% versus prior year on a 14-week basis, or a 113% on a 13-week basis outpacing pre-pandemic levels, an important milestone.These results were led by strength at Coach while Kate Spade and Stuart Weitzman delivered material sequential improvements in trends. By region, North America led the overall growth rising approximately a 150% versus FY20 and a high single-digit percentage versus FY19., fueled by digital and a continued improvement in our brick-and-mortar businesses. In mainland China our strong momentum continued, as revenue increased approximately 60% on a one-year basis and over 40% compared to pre-pandemic levels.Across the balance of Asia, sales rose materially compared to the prior year, the remain below pre-pandemic levels with notable pressure in Japan, given the continued state of emergency and lack of tourist sales. And Europe, while a small portion of our total sales, experienced a sequential improvement in trends on both a one-end to your basis as locked down measures were lifted.And while revenue remained well below Fiscal 19, given the lack of tourist travel, our local demand did rise in the quarter. By channel, we maintained strengthened digital, which grew more than 35% compared to prior year, reaching 30% penetration. That's three times 2019 levels.While our stores remain pressured, slightly better traffic drove a sequential improvement for the channel. And at wholesale, while revenue remained below FY19, trends improved with particular strength in duty-free growth in China. Moving down to P&L, we realized another quarter of overall gross margin expansion compared to prior year and FY19, with all brands exceeding expectations. We continued to successfully execute our strategy to maintain price discipline, reduced SKU counts, and leverage data analytics to more effectively tailor our product assortment and marketing messaging to the consumer. As anticipated, SG&A rose significantly given the prior year's atypical comparison due to the impact of COVID-19.At a two-year basis, the increase in SG&A was attributable to higher marketing spend of almost $100 million compared to Q4 - Fourth Quarter '19, and an increase in our annual incentive plan given our out-performance this year. In addition, our expenses for the quarter included the $25 million contribution towards the endowment of the newly established Tapestry Foundation.Taken together, we achieved our fourth consecutive quarter of operating income growth and margin expansion compared the pre-pandemic levels. Earnings per diluted shares for the quarter was $0.74 on a 14-week basis or $0.65 on a 13-week basis, a significant increase compared to a loss in the prior year, and 7% ahead of pre-pandemic EPS levels.Now moving to distribution. We continued to optimize our global fleet to prioritize profitability. For Tapestry, we closed a net of 59 locations globally in FY21, including 10 net closures in the fourth quarter. As compared to Fiscal 19 year-end, we have closed a net of 90 locations across our brands.Turning to a discussion of our balance sheet and cash flows, we ended the quarter in a strong position with $2 billion in cash and equivalents and total borrowings of $1.6 billion. Total inventory at quarter-end was approximately in line with last year and 6% below FY19, reflecting in part deliberate actions to reduce SKU counts and prioritize inventory turn.And we generated $1.2 billion in free cash flow in FY21 versus $202 million in the prior year and $518 million in Fiscal19. This included CapEx of $116 million, a decline of 44% versus prior year, as we prioritize investments in high return projects, notably in digital, while tightly controlling overall spend and reducing our outlay for new stores.Now touching on our capital allocation priorities. First, we continue to prioritize investments in the business to support strong returns and long-term profitable growth. Second, we're committed to returning capital to shareholders through both dividend and share repurchases.In keeping with this strategy, we are pleased to announce today a plan to return over $750 million to shareholders. Specifically, the board declared a quarterly cash dividend of $0.25 with an anticipated annual dividend rate of a dollar per share.Over time, our intent is to increase the dividend at a faster rate than earnings growth. We also expect to repurchase approximately $500 million worth of stock in FY22 under our current authorization. Importantly, once we have more visibility and do a normalization in the external environment, we expect over time to more aggressively return cash to shareholders.Finally, in keeping with our objective to reduce leverage, we expect to repay our July 2022 bonds, totaling $400 million at the end of this fiscal year. So when considered together, the dividend share repurchase and debt repayment are intended to approximately equal our projected free cash flow in the fiscal year.And as Joanne mentioned, these actions demonstrate our confidence in the underlying strength of our business, as well as our commitment to driving total shareholder returns. Now moving to our Fiscal 22 outlet. Before touching on the specific details, it's important to note the paradigm shift compared to just a year ago.Entering COVID, there was a macro demand concern and we took bold actions to adjust supply in order to preserve liquidity. As you can see on our adjust reported results, we were very successful in achieving our goals while continuing to accelerate investments to drive increasing momentum in our brands. Today, we find ourselves in a dynamic where the consumer demand backdrop is strong, while supply chain remains challenging.So I want to emphasize the underlying strength in trend of our business and separate that from the uncertainty in the macro-environment, primarily due to COVID-related impacts, which are largely out of our control. Therefore, the outlook we're giving you as a reflection of what we know as of today.It's a point in time. While we have visibility into the risks that we see on the horizon, we're not trying to predict that, which is unknowable. We have taken the position that we'll be aggressive on protecting the momentum of the business, by securing significant expedited deliveries at an additional cost in order to mitigate the impact of supply chain disruptions, at least through the holiday period.Further we'll continue to increase AUR as prices are levered to counter some of the additional cost pressures. Of course, we'll continue to monitor the impact of the new development on our outlook over time. Now, turning to the details of our FY22 outlook.Please note that all growth rates as compared to prior year, are on a comparable 52-week basis. We expect revenue to increase at a mid-teens rate versus FY21 resulting in approximately $6.4 billion in sales which would mark a record for the Company.This includes the expectation for a continuation of strong growth in digital and Greater China as well as improving global trends in stores. While we expect stores to show improvement, revenue is currently planned to remain below a pre-pandemic levels. Turning to gross margin, we expect to sustain the Company's strong margins through continued AUR improvements and lower promotional activity.Our outlook also incorporates the expectation for GSP's renewal, for the retroactive benefit in the second fiscal quarter, which is currently planned to partially mitigate the negative impact associated with higher freight costs currently embedded in our plan. Touching on SG&A, we expect expenses to grow relatively in line with sales for the year.We continue to estimate that we will realize approximately $300 million in structural gross run rate expense savings, including a $100 million of incremental savings from the prior year. We are utilizing these savings to fund investments in the business, including $50 million of planned higher marketing spend, which is expected to represent approximately 7% of sales in fiscal '22, up roughly 75% or 3 full percentage points compared to FY19.We're also investing in our teams, adding talent to growing areas of the business such as digital. And we're focused on continuing to retain and develop these strong teams as evidenced by our recently announced commitment that all U.S.Tapestry employees will earn at least $15 per hour. Operating income is expected to increase at a mid-teens rate, resulting in operating margin modestly ahead of prior year, and an increase of over 300 basis points versus 2019. Net interest expense for the year is expected to be $65 million, and the tax rate is estimated at 18.5%, assuming a continuation of current tax laws.Weighted average diluted share count is forecasted to be in the area of 283 million shares. Approximately even with last year with share repurchase activity expected to offset dilution. We anticipate EPS to be in the range of $3.30 to $3.35, reflecting leverage to the bottom line.CapEx for the year is projected to be about $220 million. We anticipate approximately 40% of the spend to be related to store development, primarily in China with a balance dedicated to our digital and IT initiatives, including the initial investments related to build-out our new distribution center.Specifically, as our digital business continues to grow, we've recognized the opportunity to sharpen our focus on the consumer by expanding our distribution capabilities. We recently signed a lease for a new distribution facility based in Las Vegas, which we believe will allow us to better serve our customers in the western part of the U.S..Finally, we expect inventory levels to be up meaningfully throughout the year as we pull forward receipts to match strong demand in phase elongated lead times from supply chain pressures due to COVID disruptions. Given the dynamic environment and last year's atypical comparisons, we, again, expect significant variability by quarter.Revenue growth versus prior year is expected to be front-half weighted, given relatively easier compares due to lapping COVID impacts, with the first quarter foretasted to increase more than 20%. Earnings growth in the first half is expected to be somewhat pressured due to incremental SG&A investments, along with last year's unusual compare, including lower expenses due to compensation reductions, lease abatements, and the timing of government assistance. That said we still expect EPS growth in the first half versus prior year, particularly in Q1.So in closing, we drove strong results in FY21 by our significant progress is a testament to the successful execution by our passionate teams, the power of our brands, and our competitive advantages including our differentiated platform. The bold and deliberate actions we've made under Tapestry's acceleration program has transformed our organization.These changes are foundational, and will continue to be a meaningful point of difference for our brand. As we look ahead with regard to those things, we can control, we're continuing to build momentum and we are confident in our ability to leverage the solid foundation to drive sustainable top and bottom-line growth across our portfolio brand.And with respect to those things we can't control, we've taken aggressive actions to protect our strong momentum, and mitigate those macro challenges we see today. Our conviction is underscored by our capital allocation actions, highlighting our optimism for the future and commitment to an enhancing value for all stakeholders. I'd now like to open it up for Q&A.

Robert Drbul:

Good morning. And Scott, welcome and congratulations. My question I have generally, Joanne, you mentioned improving consumer demand and continued momentum into FY22. What signs give you confidence in the strong trajectory that you guys do have planned? Thanks. [Indiscernible].

Joanne Crevoiserat:

I'm sorry. Can you hear me?

Robert Drbul:

Yes, I can.

Robert Drbul:

Great. Thank you very much. Good luck.

Operator:

Then we will take our next question from Ike Boruchow with Wells Fargo. Please, go ahead. Your line is open.

Scott Roe:

That -- Good to hear from you. That was quite a question, man. First of all, tactically, GSP, it's about 50 basis points from a margin standpoint. So, and you're right, I said in my prepared remarks second quarter. So that means a little bit of a drag in the first quarter as you're not seeing that take effect and our thought is that and hope is that it will be reestablished. I think 10 out of the last 14 times this has come up it's been approved, so we have solid basis for making that assumption, but it's not done until it's done. So we wanted to give you all visibility into that. Observations about Tapestry, I'm going to take it a little higher level. First of all, what a great team. I'd been so impressed by the people and the capabilities. This is a team that has taken bold action over the last -- we haven't wasted the pandemic and the focus around building those foundational platform capabilities is impressive. You see it in the numbers. You see evidence of that and we've got three great brands that are focused on attractive market spaces, and we've got a lot of work to do. So over time, I see -- I laid out capital allocation priorities, which are investing in our great brands. That's our highest return today. Number 2, the dividend, we -- you saw we reinstated that, and returning cash to shareholders. That's where our focus is right now. Longer-term, who knows what the future brings, but we've got really exciting opportunities with high returns right in front of us, and that's where we're going to be focused.

Scott Roe:

Thanks, Ike.

Scott Roe:

Yeah after -- I could just went dead. We may be live.

Joanne Crevoiserat:

We appear to be having technical difficulties, everyone. Hang in there. Hopefully, we'll be able to take all your questions, and even if we have to spend a little more time on the other side of the hour.

Erinn Murphy:

Great, awesome, nice to be back into Q&A. So welcome, Scott and I can't wait to hear or see the man satchel you'll be sporting next time we all travel together. I guess, it's going to be an upgrade. So I guess my question is, on the Kate Spade margins. It's really good to see some of the green shoots that you have there now and the expansion relative to 2019, but they still trail the Coach brand by 20%. So just curious, I guess maybe Joanne and Scott for you, how you see that evolving over time? And really, what's the potential with the Kate Spade margin profile over time? And then if I can just have a clarification from Todd, the AUR for Coach, I believe you said was up high single-digit. How did that compare outlet versus full price in the quarter? Thank you.

Todd Kahn:

Just picking up on Coach. We were really pleased with the continued AUR growth we saw in handbags this quarter. In fact, it was the 9th quarter in a row that we increased our AUR and it really was led by North America. And we don't disaggregate AUR by channel, but I will tell you both channels had increases in AUR and we feel really pleased with what we're accomplishing and what we can accomplish in front of us.

Operator:

And we will go next to Mark Altschwager with Baird. Your line is open.

Scott Roe:

We don't break down the guides specifically by brand, but obviously with, by the way, record earnings -- record top-line estimated 6.4 billion and with Coach being roughly 3 quarters of the total. You can assume that very strong top-line growth [Indiscernible] in, and really sequential across all the brands, right? We're seeing the strong improvement that we saw last year continuing into this year. So growth in all, and I just know that you talked about top-line but we're also returning to profitability on Stuart(ph) next year is our expectation. So really, really strong continued momentum across all but of course, Coach just [Indiscernible] mathematics is driving the lion's share of that.

Scott Roe:

Yeah, sure, Mark. We've talked about next year that we're consolidating these record margins and even expect slight improvement next year. And as it relates to SG&A -- So that's the overall picture. As it relates to SG&A, remember what Joanne said. We're saying it's about flat or in the neighborhood as last year as a percentage of sales. But underneath that, there's a lot going on. We continue to invest in those platforms and growth drivers for the long term. Joanne mentioned marketing. I had it in my prepared remarks, our digital capabilities, analytics, etc. But underneath that, the acceleration program, and as the savings according or attendant to that have given us the ability to see leverage elsewhere. So some of these things are certainly variable, right? I mean, we can -- we flex and we do. Based on the data and analytics, and the insights that we see, we lean into marketing where we see that we have returns. Certainly, those are choices that we can make, and we do have some optionality, and variability in the model. But I got to tell you, we're seeing results from continuing to invest, creating that flywheel effect, and based on our confidence of reinvesting back in our business, it's our intent to continue to do so. As evidenced by the strong trend, leaving the fourth quarter and leading into the guidance we just talked about for next year.

Scott Roe:

Thanks, Mark.

Oliver Chen:

Hi, thank you. The average unit retail momentum has been impressive. What do you see ahead as you anniversary increases and as you seek to continue to offer value to the customer? Would also love your thoughts on the evolution of the Coach brand as a lifestyle brand. As you think about footwear and men's and other categories, what will be some priorities and how are you thinking about the handbag families, such as Tabby and others relative to how you thought about handbag family groups in the past? Thank you.

Todd Kahn:

Yes. Thank you. We are really pleased with how we've changed the brand very materially over the last year, partly because of the acceleration program and probably because we really changed the conversation with our customer from leaning in, and the call to action being around price and promotion, to move to value and values. And this has really fundamentally changed us, and there has really increased our AUR. Our approach to how we merchandise is fundamentally different. We have reduced our SKUs, but we've leaned into Icon and Stewart [Indiscernible] (ph) and the creative team have been getting data from the customer and really leaning in. So, you mentioned Tabby. Tabby is a brand -- is a collection we launched in June of 2019. By February of 2021, it would normally have been out of the mix. Instead, we doubled down, we re-launched it with Pillow Tabby. It became the number one bag. You saw this month we've launched Soft Tabby, and then we're going to see Pillow Tabby reemerge. So having these iconic styles that are not so pressured by short selling window, really materially changes our outlook. And then regarding lifestyle, one of the opportunities I think we have is, well we call it [Indiscernible]. Men's product is an all-gender product often. And one of the things we recognize is we can do better, not necessarily merchandising at exactly the same way we merchandise historically women's product. So you'll see us mix in more outerwear, more cut and sew opportunities. And it is really resonating with our customer. And then finally, I'm a big believer, and have been for many years, in the opportunities that we have with footwear. And you're seeing it as win in those category, both in our own stores, retail and outlet, but even in wholesale, which is obviously a very competitive environment, but is the most democratic environment. And when we're winning there, we know we actually are winning in the category.

Joanne Crevoiserat:

Thanks, Oliver. Driving engagement requires consistent and innovation. Innovation in products. We're learning a lot about those new customers and we're also engaging them in different ways. We're meeting our customers where they are and we're better capable to meet those customers and engage them with our data and analytics capabilities, with our increasing presence on social media, and the innovations we're bringing to life there. And at the end of the day, it's about delivering great products. So taking those insights, and really understanding our consumer at a deeper level. And that's a lot of the foundation that we built this past year. is how do we really, truly understand our customer, our consumer, and embed that consumer and those insights in the product development process where our creative teams bring their terrific product and creativity to bear against things that consumers value. And our focus, moving ahead, is with all this new customer acquisitions, driving higher lifetime value with our consumers going forward.

Operator:

And we'll take our next question from Lorraine Hutchinson with Bank of America. Please, go ahead.

Joanne Crevoiserat:

I'll start and maybe steal all of Scott's thunder here, but that has been -- we think stores matter. And as we focus on the consumer, it's about providing a seamless experience for our consumer regardless of where they choose to shop. And we've been incredibly successful at building a digital business and meeting our consumer on digital platforms. But the store platform and that physical touchpoint is still important. If you go back a year, what we said is -- or more than a year now, we said, while stores are still important, we have higher profitability expectations for our fleet and productivity thresholds. We've taken bold actions to structure our fleet in that way, but we're also investing to make sure that that represents the right experience and the right physical touchpoint. We're adding omnichannel capabilities for our consumers. And that's paying off. It's paying off on the top line but it's also because we've seen incremental growth in our brick-and-mortar fleet as the world recovers from the pandemic. But what we've also seen importantly, and here's where I'm stealing a little bit of Scott's thunders, is we've seen operating margins of our store fleet actually above pre-pandemic levels even right now on depressed volume and a depressed traffic. So Scott, I don't know if there's anything you want to add. But I'll throw it to you.

Todd Kahn:

One thing and at the risk of piling on. What we've seen in North America, which really builds well for our store fleet is, with all of this digital growth, as we see a return to traffic in stores, in those areas, we have not seen our digital penetration, our digital sales in those areas shrink. So the wonderful thing, and this really brings home the point. It is an omni world. It's an not an or. We see our ability to continue to grow digital, while seeing very profitable interaction in our stores as traffic returns.

Michael Binetti:

Guys, let me add my congrats, Scott. Nice to hear you at another -- with another great team here.

Michael Binetti:

I want to -- I guess, Scott, I'll ask you on Slide 17 here in the deck, you mentioned improving visibility could let you more aggressively return cash to shareholders. I'm just curious, maybe a thought there early on here is, how you think about leverage in the business, given what we know about the very strong cash flows of this business pre-pandemic and that it's improving now? I wonder how you think what the appropriate level is early on. And then, I'd also be curious on the SG&A guidance to follow up with Mark's question earlier. This will be the first year in a more normal environment, more normal after you to a big reset to the structure of SG&A last year. So, I know there's a lot more variability in there. Have you took some corporate costs out, you're generating really good ROIs on the market investments you've made, sounds like you still have good growth from high-margin drivers like AUR, Kate margin targets high-teens overtime versus the 10% exit rate this year. So I'm just wondering, it seems like a lot of good margin drivers in there to the extent that we do see revenues coming in above plan. How should we think about what flows through to earnings this year and an upside scenario for revenues?

Michael Binetti:

Thanks a lot.

Brooke Roach:

Good morning. Thanks so much. And thanks for taking the question, and Scott welcome.

Brooke Roach:

I wanted to ask two quick questions. First with -- Joanne, can you talk to the plan step-up in marketing investments this year. Where those investments will be most focused in your excitement on brand-building into FY22? And then for Scott, I wanted to get your thoughts on industry-wide supply chain and freight costs. How is Tapestry managing through some of these challenges? Can you provide any additional color on the impact of these industry-wide challenges that are embedded into your margin outlook for the fiscal year? Thank you.

Scott Roe:

And Brooke, as it relates to elevated costs that we're seeing, we are seeing some elevated costs primarily due to expedited freight, airfreight, essentially, as we absorb and deal with the supply chain disruptions that we see. And our outlook reflects additional airfreight really through the holiday period, which is as far as we can see in terms of getting the deliveries and trying to maintain the strong momentum we have. You heard Joanne say it, right? We've -- The great those here is demand for our brands is strong. And while we see some disruption, we're taking bold actions, and we got out ahead of this a little bit in terms of securing as much supply as we can to keep that strong momentum going. We talked about gross margins being roughly equal to this year. And then that means we're consolidating on record-high gross margins, up 300 basis points versus a couple of years ago. And underneath that, we have some elevated costs related expedited freight. We also see the continuing build in AUR pricing leverage less discount, and the general trend of the business which is helping us offset that. So those are the puts and the takes. I would say though by quarter, it's not necessarily going to be a straight line. We're going to see, as some of this freight cost turns into the P&L, it may not come exactly matched with some of the price increases, but overtime for the year that's the picture that we see.

Operator:

We'll take our final question from Matthew Boss with JPMorgan. Please go ahead.

Scott Roe:

Kevin, maybe I'll take that one or at least start. So first of all, yes, we had a great performance from an inventory standpoint. For all the reasons that have already been said and done versus last couple of years. This is part of a very focused effort and simplify, and reducing SKU and seeing real progress there, and it's one of the factors for cash flow. But as we look to next year, we are going to see elevated inventory positions, starting in the first quarter. And the reason for that is twofold. Number one, just supporting the growth of the business. Number two, we're expedited, as I said, what we can to bring in inventory, whether it be even by air or by sea. sea, we're getting inventory in as fast as we can reasonably do in order to keep the momentum of the business. And those factors together are going to be a slightly elevated increase in inventory, but I have no concerns about this at all. This is inventory that is supporting the trend of the business. And frankly, if we could get more, we probably would. So you're going to see that dynamic play out. It's not significant, but understand what's really driving it. And you asked about our ability to chase. Listen, we're doing what we can. I just told you, expedited air freight. We're looking to I think we were quick to get in front of our suppliers and we've secured what we can. So to the best of our ability, we will chase it. It's going to be a difficult environment to chase, frankly, given the dynamic in the short term. But we feel good about all the levers that are in our control to set us up as well as we can.

Kevin Lander:

Okay. Thanks very much.

Joanne Crevoiserat:

Thank you, everyone for joining us this morning and hanging in there through our technical difficulties. Fiscal '21 was a transformational year for Tapestry. And I want to extend a huge thanks to our teams around the world for their unwavering passion and dedication to our business. As we just talked about, the dynamics environment continues, but we're in a position of strength with a proven track record of success, and we have increasing conviction in our ability to accelerate top and bottom-line growth with a focus on delivering for all our stakeholders, our customers, our teams, our community, and our shareholders. I appreciate your interest in Tapestry. Have a great day.