Tapestry, Inc.

Good day and welcome to this tapestry conference call. Today's call is being recorded. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the pound key. We ask that you please pick up your handset to allow optimal sound quality. At this time, for opening remarks and introductions, I would like to turn the call over to Christina Colone, Vice President, Investor Relations. Good morning and thank you for joining us.

With me today to discuss our quarterly and annual results are Victor Luis, Tapestry's Chief Executive Officer, and Andrea Shaw Resnick. Tapestry's Global Head of Investor Relations and Corporate Communications. 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, including projections for our business in the current or future quarters or fiscal years. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. Please refer to our annual report on Form 10-K, the press release we issued this morning, and our other filings with the Securities and Exchange Commission for a complete list of risks and important factors that could impact our future results and performance. Non-GAAP financial measures are included in our comments today and in our presentation slides. You may find the corresponding GAAP financial information as well as the related reconciliations on our website. www.tapestry.com forward slash investors and then viewing the earnings release and the presentation slides posted today. Now, let me outline the speakers and topics for this conference call. Victor will provide an overview of our fourth quarter and full year 2019 results for Tapestry as well as our three brands. Andrea will continue with details on the financial and operational results and our outlook for FY20. Following that, we will hold a question and answer session Where we will be joined by Todd Kahn, Tapestry's President and Chief Administrative Officer and Chief Legal Officer, Josh Shulman, CEO and Brand President of Coach, and Joanne Crevoiserat, Tapestry's recently appointed CFO. Following Q&A, we will conclude with some brief summary remarks. I'd now like to turn it over to Victor Luis, Tapestry's CEO.

Good morning. Thank you, Christina, and welcome, everyone. As noted in our press release, 2019 was a year of meaningful evolution for Tapestry. Importantly, we made significant progress on our strategic initiatives against the difficult retail backdrop in North America. Touching on results by brand, we achieved solid and consistent performance at Coach, which speaks to the success of our transformation strategy driving brand health and vibrancy. For the year, Coach's international and digital channels led, while the brand also outperformed its direct competition in North America. Coach's performance is key for two important reasons. First, Coach is the core of Tapestry. We understand that driving sustainable growth at Coach is essential to the success of our company overall. Therefore, we are incredibly proud of the brand's results in spite of the volatile backdrop. Second, this performance reinforces our strategic intent to diversify our acquired brands across geographies and channels. Turning to Stuart Weitzman, we made advancements across product, people, and processes, returning the business to top-line growth. The SW team remains focused on driving improved profitability in the year ahead. At Kate Spade, we launched a new creative vision for the brand, and while there have been some green shoots, we clearly need more time to drive an inflection to positive comps, especially given the brand's exposure to the competitive and traffic-challenged North America market. We acknowledge that there are opportunities and are addressing those areas with a sense of urgency. As we look ahead, we're revising our outlook for FY20 to reflect the current trends in our business, notably at Kate Spade. We believe this is prudent, particularly in light of the uncertain environment in North America and while we build the brand's awareness in global markets. Importantly, with continued momentum at the Coach brand, Our priority is to fuel an acceleration in our acquired businesses to unlock the power of our multi-brand platform. Therefore, while our long-term vision is unchanged, we are modifying our capital allocation policy in fiscal 2020, dedicating our resources to driving organic growth and do not expect to pursue strategic acquisitions. We are focused on balancing the investment in our brands to drive growth, with the return of capital to shareholders. To this end, we plan to increase the capital we return to shareholders, repurchasing approximately $300 million of common stock while maintaining our annual dividend, resulting in a total payout of nearly $700 million. Overall, we remain steadfast in our vision and are focused on maximizing the benefits of our global multi-brand platform. Now turning to our FY19 milestones and FY20 priorities across our strategic pillars. First, we made significant progress in reinforcing the foundation of our distinctive multi-brand platform in fiscal 2019. We generated the anticipated synergies from the integration of Kate Spade into our portfolio, which funded, in part, our key strategic initiatives. To this point, we made material investments in Tapestry's infrastructure Implementing phases one and two of our ERP system in FY19, with the third and final phase just launched last week, all without business interruption. We could not be prouder of our teams for their diligence and hard work throughout this multi-year project. We launched comprehensive 2025 corporate responsibility goals, recognizing our role as a leader in our industry to affect change and solidifying our commitment to social responsibility. These goals are consistent with the values-led culture that we're building. And we brought in key new tapestry leaders, Noam Peransky, Chief Digital Officer, Tom Glazer, COO, and most recently, Joanne Crevoiserat as our CFO to help set and execute our strategic agenda. Looking ahead to FY20, we are focused on leveraging the investments we've made in our platform, specifically Our investments in our ERP system will help to drive standardization across the organization. In addition, we are excited to benefit from Tom Glazer's unique and deep operational experience in multi-brand, multi-category fashion supply chains. One of our key initiatives, led by Tom, will be to identify opportunities to improve our demand to production planning cycle while increasing our speed to market across categories. This is especially important as we accelerate product innovation and the number of customization programs within our brands. It will also be important as we bring the Kate Spade footwear business in-house in the second half of the fiscal year, which I will touch on shortly. Next, driving global growth. In FY19, we expanded our international presence through both distributor acquisitions and new store openings in key regions. This allows us to directly control and drive our business internationally, capitalizing on our scale and market knowledge across brands. Importantly, we also gain traction with Chinese consumers globally, which as of FY19 represented a high teens percentage of tapestry sales and where we see tremendous opportunity for growth. Throughout the year, We drove awareness for our brands with targeted events and marketing campaigns featuring locally relevant influencers, a first for Kate Spade and Stuart Weitzman. And perhaps the most significant highlight of FY19 was Coach's first-ever runway show in Shanghai, which garnered 1.6 billion impressions. Turning to FY20, capturing growth with the Chinese consumers for all brands remains a key strategic initiative. Our focus will be creating seamless and innovative experiences both offline and online as we continue to translate each of our brand's key messages into locally relevant content. Which takes us to digital and data labs, where we are building the skills and capabilities that truly differentiate us from the competitive set. During the fiscal year, we officially launched Tapestry's data labs portal, a personalized suite of data science and AI tools that are changing the way we use and interact with data, providing access to those on the front lines of our business. As mentioned, we recently welcomed Noam Paransky as our new Chief Digital Officer to lead our company-wide digital innovation agenda. He will play a key role as our enterprise leader to deliver innovative omnichannel experiences across all our customer digital touchpoints. His objective is to create a scalable, tapestry global digital ecosystem comprised of people, process, and technology to enable global teams to act locally with greater agility and at greater velocity. GNOME has hit the ground running. We are excited to announce the launch of China Next, an agenda focused on the China market. Adding fuel to our digital leadership on Sina Weibo and WeChat, This initiative connects two of Tapestry's key strategic priorities, driving digital innovation and growing our business with Chinese consumers. And not only are we focused on driving local engagement, we expect our China Next digital innovation agenda to provide learnings that we can leverage on a global scale. Overall, driving advancements in digital and data labs will be an important area of focus in FY20. and we look forward to updating you on our progress in the quarters ahead. And finally, brand innovation. Nothing is more important than this. As a brand-led and consumer-centric company, our goal is to nurture authentic, innovative brands to capture the opportunities within the attractive and growing premium bags and small leather goods footwear and outerwear categories. We estimate that these combined categories total $95 billion Thank you for joining us. Global comparable store sales rose 2% in the fourth quarter, led by outperformance in our international channels and across our e-commerce platforms, consistent with the previous quarter. The drivers of our positive global brick-and-mortar comparable store sales were conversion, reflecting our strong product offering, as well as traffic. This was Coach's seventh consecutive quarter of comp store sales growth. By region, we delivered overall positive comps across all of our international regions, including Europe, other Asia, greater China, and Japan. Our international wholesale business also rose on a POS basis in the quarter. Comps in North America were flat to the prior year, accelerating sequentially, including the positive impact of the shift in timing of Easter along with the negative impact of continued pressure from lowest tourist spend as well as ongoing volatility in Daegu or reseller activity. In addition, our North America wholesale shipments were above prior year and our business at POS increased despite a lower level of promotional event days. We are particularly proud of the brand's sequential improvement in North America in light of the weakened traffic trends in both outlet and full-price retail malls. We believe this speaks to the vibrancy of the brand which is outperforming its direct accessible luxury peers fueled by innovation across channels and product, marketing, and in-store experience. Looking at our progress against brand strategies for FY19, we drove leather goods innovation across the pyramid of fashion, occasion, and price. In retail, our signature assortment, Comp the Comp, reflecting the continued demand for this most proprietary brand icon. While an outlet, we benefited from our good, better, best strategy in our core women's handbag business. We fueled brand momentum and sales through collaborations, drops, and pop-ups, including Disney, ExCoach, and most recently, the Rexy Remix, a collaboration with Chinese artists, which was featured on the runway of our Shanghai fashion show. During the year, we had over 130 pop-ups, Engaging with our customers in a new way. We gained traction in lifestyle categories, including footwear and ready-to-wear, while growing our men's business to almost $900 million at POS. These initiatives were supported by compelling marketing campaigns, which balanced our position as a fashion authority while broadening our messages. We launched Michael B. Jordan as the first global ambassador of CoachMens, and post innovative, culturally relevant and disruptive messages throughout the year. We also drove e-commerce growth and digital innovation globally as we continue to enhance our omnichannel capabilities. Overall, we saw strong double digit increases in the brand's followers on Instagram, WeChat and Weibo. Moving forward in FY20, we will first accelerate product innovation and disruption. Second, Drive fashion authority through cultural relevance, tapping into celebrities and influencers. Third, inject excitement into stores with light touch, high-impact refreshes. And fourth, fuel digital innovation and e-commerce growth, benefiting from the enterprise initiatives underway. In summary, we are excited about the seasons ahead and remain confident in our largest brand's opportunity for continued growth. as we look to accelerate innovation and relevance globally. Moving to Kate Spade and focusing on the fourth quarter. Total sales rose 6% on a reported basis and 7% in constant currency, driven by new store distribution as well as the acquisition of the brand's operations in Singapore, Malaysia, and Australia, which we have not yet anniversaried. Comparable store sales fell below our expectations, declining 6% on an aggregate basis. Conversion comp in our bricks and mortars business accelerated on a sequential basis and was positive for the quarter, reflecting the emerging positive signs we are seeing with Nikola's new product offering. However, traffic comp was significantly under pressure against the challenging backdrop in North America and compounded by the anniversary of the difficult comparison following the passing of the brand's founder, which drove unusually high traffic as discussed last year. Conversely, our international business was essentially in line with our expectations and on a relative basis significantly outpaced the performance in North America, including positive comps in Greater China. Turning to product. While the penetration of Nikola's collection was consistent with our expectations in both retail and outlet, clearly, overall sales were not on plan. We feel strongly that we have the right strategic and creative direction based on customers' response to the brand's new iconic elements and strength we're seeing in select handbag offerings, such as the Margot, Molly, and Nikola families, and most recently, the introduction of Polly. We've also experienced traction in jewelry and ready-to-wear. However, we were missing breadth of choice in key silhouettes, such as where to work satchels, as well as in the diversity of material ways. In addition, during the quarter, we introduced previous retail best-selling styles into the outlet channel, Cameron Street and Jackson Street, which did not perform as expected. In short, While we refine the balance across silhouettes and full price, the outlet channel is in need of a much more substantial amount of distinctive newness than we planned. Looking forward, our overarching objectives for Kate Spade remain unchanged, leveraging the brand's unique positioning of optimistic femininity and leadership in the attributes of fashionable and fun. That said, We felt it was important to provide you with some additional color on the specific actions underway to immediately address the areas of opportunity. First, we are applying our product and merchandising learnings by launching additional satchels in keeping with the brand's feminine aesthetic, updated in modern and relevant ways. We're introducing new designs in a broader range of high quality materials that provide the structure, durability, and functionality that the Kate Spade brand is known for. We also believe there is an opportunity in cross bodies and backpacks, given the hands-free trend in the market. We're bringing in additional witty and emotional novelty items, which have been hallmarks of the brand, both as permanent and limited edition offerings. We're also planning to launch product collaborations across categories to drive excitement and buzz. For holiday, We're launching a new Make It Mine personalization program in both specialty stores and on our e-commerce site, which will feature an updated multifunction bag and accessories offering, designed to appeal to a broad audience. We're also excited by the footwear opportunity for the brand as we take the business in-house from our licensed partner, Steve Madden, beginning in the calendar 2020. We showed our new spring collection at Fannie just last week, and the response was very positive as buyers described the offering as relevant, fun, exciting and truly lifestyle in addressing many usage occasions. For stores, we're continuing to expand our distribution with the focus on international markets. That said, we are deliberately pulling back on the number of new store openings for the brand while we focus on maximizing awareness and productivity. In marketing, we will drive brand awareness and aspiration with bold collaborations with global and local celebrities and influencers, leveraging the power of social media and PR buzz across markets. In outlet, we're leaving no stone unturned. We're looking at product design, branding, merchandising, in-store experience, and on-mall and direct email marketing. In product, we're focused on accelerating the pace of newness with an assortment that is more clearly differentiated from the Safiano Heavy competitive set. This will also include the launch of new materials, branding elements, and collaborations unique to the channel. We're also building out the successful Nikola designed Ava Group. With these measures in place, we have a comprehensive plan to drive an inflection in the business. Overall, We are acting swiftly and decisively, applying our learnings to drive positive change, and we remain confident in our direction and the $2 billion opportunity for improved profitability. Turning to Stuart Weitzman. In FY19, our priority was to return the brand to top-line growth, addressing the production challenges we faced exiting FY18. I'm pleased that we were successful in doing this. with revenue increasing 17% in the fourth quarter on a reported basis and 20% in constant currency, driving the mid-single-digit gain for the year. We made important advancements in several key areas. In product, we focused on fit and construction, creating foundational pieces that were consistent with the brand's DNA. We broadened our footwear offering while maintaining our authority in iconic Stuart Weitzman styles, We also introduced brand new codes that we will build upon in the seasons and years ahead. We gained further credibility in handbags and leather goods, which remains an area of opportunity for the brand. We also drove international expansion, particularly in China, where we doubled our store footprint, including the acquisition of our business in southern China. And we completed the buyback of our operations in Australia, where we will leverage Tapestry's multi-brand hub. Finally, we evolved the brand's marketing, featuring a cast of new and culturally relevant global brand ambassadors, distorting our investment to digital. Looking ahead to fiscal 2020, our strategic pillars include, first, enhancing our systems and processes to improve profitability. Key to this will be optimizing the supply chain in the wake of our phase three S4 go-lives. Second, maintaining the brand's boot and sandal authority while expanding our footwear expression, especially in flats and sneakers, in keeping with current trends. This is paramount as we look to recapture the brand's leadership position in top-tier wholesale accounts. To this end, we were pleased with the initial positive feedback we received from our department store partners during the brand's spring market presentation last month. Third, Driving credibility in handbags through exceptional functionality and differentiated design and branding. Fourth, fueling customer desire through marketing, increased brand awareness globally, and acquiring new customers. And fifth, expanding globally with a focus on China, building on our current momentum. In summary, we've made significant progress in sharpening the focus of the brand's core strength, and we remain excited about the opportunities for Stuart Weitzman. To recap, we have a clear vision and a unique global multi-brand platform. Our model is distinctive. We're brand-led and consumer-centric with the culture built upon values of optimism, innovation and inclusivity. Each of our brands have differentiated attitudes, bringing diversification to our portfolio. At the same time, Each can leverage Tapestry's core capabilities and infrastructure to drive meaningful synergies. Before I turn it over for the financial review, I would like to welcome our CFO, Joanne Crevoiserat, to the team. I know that many of you have had the opportunity to work with her throughout her career. We're delighted that she's joined Tapestry. She has extensive financial and operational experience with established retailers and global brands, I am confident that she's the right person to lead our strong finance team as we execute our strategic initiatives and long-term vision. Joanne?