Tapestry, Inc.

Good day and welcome to this Tapestry conference call. Today's call is being recorded. Later, you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star and one on your telephone keypad. You may withdraw yourself from the queue by pressing the pound key. Please note, this call may be 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 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 Chief Executive Officer, and Scott Rowe, Tapestry's Chief Financial Officer and Chief Operating Officer. 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, the press release issued this morning, and our other filings with the Securities and Exchange Commission for a complete list of risk 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. Given that FY21 included an additional week in the fourth quarter, the years referenced in today's comments will be on a comparable 13- and 52-week basis, unless otherwise noted. 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 highlights for Tapestry and our brand. 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 Kong, 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 for voice or at Tapestry CEO.

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 three years ago to radically transform our organization to compete and win in a new world of retail. This meant changing the way we worked, 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 omnichannel 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 brand. As we crystallized our vision, which we aptly named the Acceleration Program, we could have never predicted the ways 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've 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 brand. 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 pre-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 action through our newly created Tapestry Foundation, becoming a founding partner of FIT's Social Justice Center and establishing a partnership with the World Wildlife 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's Mitigating Racial Bias in Retail Charter, underscoring our commitment to build a company that's equitable, inclusive, and diverse. Overall, we've made tremendous strides forward under our acceleration program. I'm confident in the foundation we've 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 4Million new customers in North America while driving momentum with our existing customers. Importantly, we achieve this while delivering strong operating margin of 30%. This speaks to the heightened level of innovation we're 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 TAVI, 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 TAVI 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're 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 utilize multi-layer influencer strategies to amplify our offering and enhance our marketing campaigns, including on social platforms such as TikTok. Overall, we've 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've 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 a 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've 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, continuing to build equity in iconic families, accelerate gains in men's and lifestyle categories, notably footwear and ready-to-wear, where we've 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 touchpoints 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 last 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 continued to build and innovate our product, infusing newness across the assortment. Knot, our core family and number one collection, again fueled the quarter's performance, delivering strength across the offering, most notably the crossbody option, which was launched last quarter. In addition, fashion shapes such as the Manhattan tote and the recently introduced top handle meringue 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 Kate Spade is known for, leading to new customer acquisition with over 50% of purchases made at the pop-up from new customers. At the same time, our Kate Spade New York Cabana hashtag challenge on TikTok, which boasted a wide cast of influencers, well outpaced expectations, garnering 8 billion views since launch. Third, we're utilizing data to maintain a consumer-centric approach and gain a deeper understanding of the preferences and drivers of customer purchases. For example, we've 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're 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've 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 three 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 and gauge 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're 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 five of our top ten styles. At the same time, we increased product relevancy through newer introductions, which continued to see traction. In fact, our versatile Stewart 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 touchpoints 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, increase 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 three 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 roadmap 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?