Tapestry, Inc.

Good day and welcome to this Tapestry conference call. Today's call is being recorded. After the speaker's opening remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key on your telephone keypad. 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.

Good morning. Thank you for joining us. With me today to discuss our first quarter results, as well as our strategies and outlook, are Joanne Prevoisorat, Tapestry's Chief Executive Officer, and Scott Rowe, Tapestry's 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 Security 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 statement. 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 other 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. In addition, as we continue to anniversary the onset of the COVID-19 pandemic, we will be providing financial information compared to FY20 or pre-pandemic and FY21 where applicable. For a full reconciliation to corresponding GAAP financial information, please visit our website, www.tapestry.com forward slash investors, and then view the earnings release and the presentation posted today. Now, let me outline the speakers and topics for this conference call. Joanne will begin with first quarter highlights for Tapestry and our brands, along with an update on our strategies for the holiday season. Scott will continue with our financial results, capital allocation priorities, and outlook 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 Kravoy-Threat, Tapestry's CEO.

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 levels. 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 three 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 continued 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 trends 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 four 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 10th 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 Rogue. In addition, we are led by Stuart Weaver's 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 a on both a one and two 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 leather goods silhouettes, infusing camo print in retail and the Basquiat collaboration in outlets. 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 top-line 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 confirm 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 three years, reflecting a renewed connection with our core customers and confirming the efforts to clarify the brand's 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 act as 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 reimagined 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-to-wear footwear and jewelry, all of which outperformed our expectations. Overall, the brand's 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... confident in our ability to achieve $2 billion in revenue at high teams 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 a return to profitability this year. This was driven by continued outperformance in high growth areas, including digital and China. Our e-commerce channels rose over 30% globally, driven by customer experience upgrades 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 actions 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 that demand for the handbag and footwear categories remain strong. We're remaining nimble and keeping the customer at the center of our priorities. First, we are 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 to 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 omnichannel 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 recreation of Jennifer Lopez's All I Have video, nearly two decades after the original, featuring our signature codes. At Kate Spade, we're creating magical holiday moments 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'll turn it over to Scott, who will discuss our financial results, capital deployment priorities, and fiscal year 22 outlook. Scott?