Tapestry, Inc.

Good day and welcome to this tapestry conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please 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 the Vice President of Investor Relations at Tapestry, Christina Colon.

Good morning. Thank you for joining us. With me today to discuss our fourth quarter and year-end results, as well as our strategies and outlook, are Joanne Corvoisierat, Tapestry's Interim Chief Executive Officer, Andrea Shaw-Resnick, Tapestry's Interim Chief Financial Officer, Todd Kahn, President and Interim CEO and Brand President of Coach, Liz Frazier, CEO and Brand President of Kate Spade, and Giorgio Sarne, CEO and Brand President of Stuart Weitzman. 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. This includes 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, our most recent quarterly report on Form 10-Q, and the press release we issued this morning, and our other filings with the Securities and Exchange Commission for a complete list of risks and other important factors that could impact our future results and performance. Non-GAAP 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 reconciliation on our website, www.papistry.com forward slash investors, and then viewing the earnings release and the presentation posted today. Now, let me outline the speakers and topics for this conference call. Joanne will begin with a brief recap of our fourth quarter and year-end results for Tapestry. She will then provide an overview of our multi-year growth agenda. Todd, Liz, and Giorgio will speak to our individual brand strategies and initiatives. Andrea will continue with our financial results and our priorities going forward. Following that, we will hold a question and answer session. After Q&A, we will conclude with brief closing remarks. I'd now like to turn it over to Joanne Travoisarat, Tapestry CEO.

Thank you, and good morning, everyone. I'm honored to have the opportunity to speak with you today as Tapestry CEO, particularly given this pivotal moment in the company's history. I have a passion for our business and our brands, and I see tremendous opportunity ahead. In addition to having a portfolio of three strong brands, Tapestry has built a powerful platform to enable our brands to achieve higher heights than they could on their own. Today, I'll be sharing the work we're doing to strengthen this platform through the Acceleration Program that we announced this morning. This program is aptly named as it will accelerate our path to stronger growth and operating margins in each of our brands in the years to come. I'm pleased to be joined on the call by our brand CEOs, all of whom have significant experience in building businesses and brands. Together, we've been hard at work laying the foundation of this plan, and I'm excited to have Todd, Liz, and Giorgio share more details about the opportunities we see in each of our brands moving forward. Over the past few months, Tapestry has been confronted by significant change, both externally and internally. Amidst these changes, our steadfast commitment to our purpose and values, as well as focus on our multi-year strategic agenda, have remained constant. Looking forward, I'm confident that Tapestry's next chapter of growth is ours to write. Let me start by sharing the guiding principles of Tapestry's acceleration program, which include, first, sharpening our focus on the consumer. Second, leveraging data and leading with a digital-first mindset. And finally, transforming into a leaner and more responsive organization. These principles both inform our strategies and focus our execution, which will fuel desire for Coach, Kate Spade, and Stuart Weitzman, driving accelerated revenue growth, higher gross margins, and substantial operating leverage across Tapestry's portfolio. Before discussing the details of our strategic plan, I want to briefly touch on the key financial highlights of our fourth quarter results. We exceeded internal expectations across key metrics, demonstrating the power of our unique brands and the decisive actions taken to adapt our business to the rapidly evolving environment. Our teams moved quickly to better support and engage consumers, leveraging social and digital capabilities. And our customers responded, with digital growth increasing triple digits year over year. Performance in mainland China was also a bright spot, returning to positive growth in the quarter. We made progress in safely reopening our stores globally with the vast majority of our fleet fully open and operational by the end of the fiscal year. Importantly, we delivered significantly better than expected margins by maintaining a disciplined promotional strategy while implementing effective cost management initiatives. We ended the year in a solid liquidity position with $1.4 billion in cash reflecting the health of our balance sheet and inventories well positioned heading into the new fiscal year. I'm incredibly proud of our team's passion, resilience, and focus during these unprecedented times. Our people are the key to our future success, and I'm confident that we will continue to execute at a high level as we move forward. Further, I'm convinced that Tapestry's ability to weather the challenges over the past few months is due in part to our culture of embracing diversity. We have always strived to contribute to a world that is inclusive. We understand that we are better together when different voices, life experiences, and perspectives allow us to develop entirely new ideas, solutions, and products. This principle drives everything that we do, and it is embedded in the DNA of our company and in each of our brands. Before jumping into the key pillars of our acceleration program, I want to provide some context for the work we've been doing. We began a comprehensive review of our business in the fall of last year. This diagnostic work crystallized the path to fuel accelerated growth for Tapestry and each of our brands. Of course, we are now clearly operating in a different environment than when we began that review. However, as I mentioned earlier, the changing landscape has not changed our priorities. In fact, it has been a catalyst to accelerate them. I'll now walk you through the key elements of our acceleration program, which serve as shared priorities across our organization. First, we're sharpening our focus on the consumer. We will operate with a clearly articulated purpose for each of our brands and an unwavering focus on the consumer at the core of everything we do. Authentically engaging consumers is foundational to the success of any brand, and we have strong brands with rich heritage to build from in this work. To ensure that we deliver on the potential of our brands, we are more clearly defining the distinctive brand equities in key customer segments for each of our brands. This clarity will guide decision-making, and it will drive stronger, consistent execution at all brand touchpoints and deeper engagement with consumers. This is critically important because we understand that to win in today's environment, the bar is high. Consumers have more choice than ever before, and consumers' priorities are changing. They are increasingly driven by their values, are more connected, and seek brands with authenticity that engage seamlessly and align with their values. Our three powerful brands, all with authentic heritage and distinctive positioning in the market, are well positioned to thrive in this context. We will deepen our connection with our consumers through our grounding and purpose, authentic principles and heritage, and our relentless focus on the omnichannel experience. Todd, Liz, and Giorgio will expand on the specific work happening in each brand in a few minutes. And to keep that customer front and center, our second priority is to become more data-driven and lead with a digital-first mindset. We are building industry-leading data and analytics capabilities and will operate with a digital-first mindset to drive decision-making, increase efficiency, and personalize the consumer experience. As we look to build on our strong foundation, we are focused on changing not just what we do, but how we do it. We understand that leveraging insight about our consumer requires us to become more sophisticated users of the data that we have, which is why we're embedding data-driven decision-making throughout the value chain. This really touches all aspects of our business, including product design, development, merchandise planning, marketing, and pricing. For example, we are leveraging data to inform assortment choices at a store level to better reflect local consumer preferences, driving higher AURs and productivity. In another example, we are more dynamically influencing our marketing, running small tests to understand consumer response, measuring our results, iterating the process, and scaling wins. As we continue to develop resources and processes, our teams will be armed with more tools for real-time measurement and analytics. We're empowering them to champion this test and learn approach that allows us to gather new information quickly and move with speed to respond to changes in consumer preferences and demand. Perhaps most importantly, leaning into the momentum that we're driving in our digital channels, we will offer immersive customer experiences across our e-commerce and social platforms. I've been so impressed with the way our teams have responded to recent challenges and the innovation they've introduced to engage consumers over digital and social media platforms, reaching consumers where they are and how they want to engage with us. We've seen tremendous traction across our digital channels as a result, evidenced in part by the recruitment of new, younger customers to our brands at an accelerated rate. In fact, in the fourth quarter alone, we recruited nearly one million new customers across brands in North America through our digital channels. We're also reengaging lapsed customers who are shopping with our brands. And not only are we driving revenue growth online, but we're driving profitability as well, as our digital businesses carry higher operating margins than their respective bricks-and-mortar channels. At the same time, we recognize that physical stores will remain an important touchpoint in the consumer shopping experience. However, we are reevaluating the role of stores through an omnichannel lens in the context of the evolving consumer backdrop. We are taking a rigorous approach to assessing our brick and mortar fleet by raising the bar on profitability thresholds. Our focus is to improve profitability across our fleet while delivering a consistent brand experience for our increasingly omnichannel consumer. Finally, we intend to transform Tapestry into a leaner and more responsive organization. As part of this work, we reduced our global corporate headcount costs by 20% on a run rate basis. As a result, we are emerging as a more streamlined organization that will drive faster decision making, leveraging scale and best practices. In the near term, this better aligns our cost base with current demand environment. And over the long term, it will support operating leverage and profitable growth. We believe these actions will serve to unlock the potential of our global teams and brands. We also continue to leverage the tapestry sourcing model to drive efficiencies across our brand portfolio. I was pleased to have had the opportunity to travel to Asia not long before the travel restrictions went in place to spend time in those markets with our teams and consumers, as well as spending time with some of our largest service providers and suppliers. We have incredible teams and strong partners supporting our business who continue to innovate and adjust to the current environment while maintaining our high standards. Over the past few years, we have reduced production lead times from four months to three months without jeopardizing service delivery. And we delivered significant synergy savings through the power of our scale. Our work is continuing with an opportunity to drive more speed into our process and strengthen our strategic partnerships across raw material suppliers and service providers. Our supply chain capabilities have always been a competitive advantage for our company. and we will continue to improve, driving more speed and responsiveness to deliver the beautiful, high-quality products our customers expect from us. In closing, we believe the successful execution of these priorities will fuel desire for our brands, enabling us to accelerate growth across our portfolio while enhancing the profitability and cash generation of the overall business. I'm confident that our strategy is the right one for our future. We have three powerful brands And Tapestry is the enabling platform to help them do what they can't do alone by providing consumer insights across brands and across regions, providing the tools and consumer knowledge to unlock value. A globally diversified supply chain, which we are now evolving to make even more responsive. A technology infrastructure and robust digital capabilities available across the globe. And access to global talent across brands. Importantly, we have the right team of strong and seasoned leaders in place who work collectively to create and implement this plan and who are committed to seeing it through. I'm confident that together with their fantastic global teams, we have the ability to translate these initiatives into shareholder value creation through accelerated growth in revenue and profitability across our portfolio over our planning horizon. Now I'll turn the call over to Todd to dive into the details of the Coach brand. Todd?