Tapestry, Inc.

Please stand by. Your program is about to begin. If you need assistance on today's program, please press star zero. Good day and welcome to the 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 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 Provoisorat, 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 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. 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 brands. Scott will continue with our financial results, capital allocation priorities, and our 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 Prevoisorat, Tapestry CEO.

Good morning. Thank you, Christina, and welcome, everyone. As noted in our press release, our fourth quarter results exceeded expectations, capping a successful year. This is a testament to our passionate global teams whose creativity and exceptional execution continue to fuel our brands and business. They are navigating the current environment with focus and agility while meaningfully advancing our long-term growth initiatives. Touching on the highlights of the fiscal year, First, we delivered total revenue growth of 1% on a constant currency basis, reflecting the benefits of our globally diversified business model. These top-line results were led by international growth of 6% at constant currency, with gains across key regions, including increases of 14% in Europe, 9% in other Asia, and 5% in Japan, which together represent nearly 20% of tapestry sales with additional runway for growth. In Greater China, sales rose 3% for the year, as anticipated, which included declines in the second half as we anniversaried last year's strong growth of over 30%. Although the recovery in China has been more gradual than what we originally expected entering fiscal year 24, we continued to invest in our brands, teams, and platforms to support our long-term strategic growth agenda in the region and with this important consumer cohort. And in North America, revenue declined 1% compared to last year, while profit rose, driven by growth and operating margin expansion. Second, we remained focused on building new and lasting relationships with consumers by cultivating emotional connections with our brands. During the year, we acquired over 6.5 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, which highlights our ability to successfully engage our existing customer base as we drive new customer recruitment. Third, we delivered compelling omnichannel experiences, meeting and delighting our customers wherever they choose to shop. To this end, our global brick and mortar sales rose for the year on a constant currency basis. Importantly, this growth was driven by an increase in productivity across a fleet, which is highly profitable. In addition, we maintained our strong digital positioning with sales more than three times pre-pandemic levels, representing nearly 30% of revenue at accretive margins. Our digital business is powered by Tapestry's leading capabilities, which have enabled us to enhance the consumer experience across their purchase journey. Fourth, we fueled fashion innovation and product excellence as we remain focused on bringing the creativity, quality, and compelling value required to win with consumers. Nowhere was this more evident than at Coach, where we delivered record annual revenue, including growth in handbags with AUR gains, underscoring the strength of our brand and product offerings. Our success is also reflected in our strong gross margin delivery, as we achieved our highest annual gross margin in over 15 years. Overall, we generated record fiscal year earnings per share, which outperformed our expectations, growing at a double-digit pace compared to the prior year while making strategic investments in our brands and business. Moving forward from this solid foundation, our organization is embracing even greater ambition for the future, reinforcing a culture of innovation and accountability. We are taking action to accelerate growth at Kate Spade and Stuart Weitzman while building on the momentum of Coach, positioning us for long-term profitable growth. To this end, we've made two key changes to our executive leadership team. Sandeep Seth, CMO of Coach, has expanded his role to include a newly created position of Chief Growth Officer for Tapestry. Since joining Coach in 2021, he has been instrumental in working alongside Todd Kahn and Stuart Weavers in driving the brand's growth and evolution, including the successful launch of the Expressive Luxury repositioning. Sandeep will partner with me and our executive leadership team to strengthen the focus on growth across our portfolio, bringing deeper consumer insights into our strategies and building distinctive brand worlds. And earlier this month, we announced the appointment of Ava Erdman as CEO and brand president Kate Spade, effective in October. Ava is a proven brand builder and transformative leader, and I look forward to welcoming her to the organization. Before turning to a discussion of our results in more detail, I'd like to address the pending acquisition of Capri. While we are confident that this combination remains an exceptional strategic fit, there is significant work to do to bring innovation to their brands and reinvigorate their business amid their disappointing decline in standalone results. We believe we're well positioned to execute our integration plans and growth strategies, and that the path to value creation is clear and compelling under our ownership, bringing meaningful benefits to our customers, employees, partners, and shareholders around the world. With that, I'll now touch on results and go forward strategies across each of our brands, starting with Coach. Coach continues to build strength on strength, highlighting the power of expressive luxury. Throughout the year, our teams fueled brand heat and desire, notably with younger consumers, enabling Coach to achieve record annual revenue, which surpassed $5 billion at exceptional margins, with significant runway for growth ahead. Now touching on some details of the fourth quarter. With consumer insights at the heart of our work, our talented design and creative teams, under Stuart Weaver's leadership, once again delivered a range of innovative product offerings that distinguished the brand. To this end, we continued to drive growth in our handbag offering, led by our iconic platforms. The Tabby family delivered another quarter ahead of our expectations, over-indexing with new and younger consumers and nearly doubling versus last year. Quilted Tabby continued to outperform, and we further expanded the family with the introduction of the Tabby Backpack. During the quarter, the success of Tabby earned it a coveted spot on the list, ranking third among the 10 hottest products globally and helping to secure Coach's position on the list index for hottest brands, where it was recognized for its unique ability to offer luxury experiences that are inclusive and attainable. Further, given the power and halo of Tabby and consistent with our goal of meeting consumers where they are, we broke the distribution paradigm through a test that brought Tabby 26 to over 100 outlet locations globally, selling at full price, and the test is exceeding our plan. Importantly, the learnings from this test are informing our broader strategies in fiscal 25 and beyond, as we explore additional opportunities to scale innovative products and marketing campaigns across channels. Beyond Tabby, our Heritage Willow and Rogue families remain foundational volume drivers. We also launched Newness with the Juliet shoulder bag, while our viral sensation, the Coach Original Swing Zip, continued to resonate strongly with Gen Z customers. Overall, Coach's growth in handbags and accessories outpaced the industry for the year, which included AUR gains globally and in North America, and we see further runway longer term given our innovation pipeline and brand heat. Touching on AUR details for the fourth quarter, Coach's global handbag AUR was even with prior year at constant currency impacted by geographic mix headwinds, while North America handbag AUR growth remained positive. Next, we continued to build out the lifestyle assortment, expanding the brand's reach with consumers with the goal of powering customer recruitment, purchase frequency, and ultimately lifetime value. Footwear drove outsized gains, driven by the continued success of the low-line sneaker, as well as the recently launched Bryn sandal. In ready-to-wear, we achieved growth with traction and leather jackets, amplifying coaches' positioning as America's original house of leather. And in men's, we animated the league family with the flap, backpack, and messenger styles leading with consumers. Turning to marketing, we remained focused on storytelling under the brand's purpose, Courage to be Real. As part of this strategy, this spring we launched the brand's Find Your Courage campaign, featuring coach ambassadors that inspire consumers to embrace self-expression. By extending our top of funnel activations, we're creating continuous and meaningful conversations with consumers, building emotional connections with the brand, and driving cultural relevance. Importantly, as a result of these efforts, we've seen significant gains in unaided awareness, consideration, and purchase intent among Gen Z consumers, reinforcing that our strategies are working. Further, we launched unique and immersive retail experiences across the globe, highlighting our commitment to consumer engagement through experiences beyond product. We're also connecting with younger consumers through immersive platforms and virtual experiences in the world of gaming, with a recently debuted collaboration with Roblox and Zepeto, in keeping with our goal of innovating and new spaces for the brand. Overall, our holistic brand building activities helped to drive increases in new customer acquisition, as we welcomed approximately 4.2 million new customers to coach this year in North America. This included over 1 million new customers in the fourth quarter, of which approximately 60% were Gen Z and millennials. At the same time, we've seen significant gains in Google search trends in the U.S., a clear signal of the brand's momentum. As we enter a new fiscal year, our priorities are clear. We will continue to deepen our connection with consumers, grow leather goods, fuel gains across lifestyle with a focus on footwear, lead with purpose-led storytelling through high-impact and sustained brand-building campaigns, and expand retail experiences to bring expressive luxury to life through engaging the five senses. These pillars have driven our success and are the right strategies to take us into the future. In closing, Coach is an iconic brand driving modern relevance with brand momentum that is translating into strong financial results. Building on our record year, we are confident in the bright future ahead and our ability to drive healthy, sustainable growth as we continue to bring this storied brand to a new generation of consumers. Now moving to Kate Spade. During the quarter, we continued to advance our strategies and reinforce our foundation for the future. While top line results were challenged, profit once again rose significantly versus prior year, led by continued gross margin expansion and disciplined expense management. Moving forward, we are laser focused on realizing the full potential of the brand. Importantly, as mentioned, I look forward to welcoming Ava to the organization this fall. She brings a deep understanding of the rapidly evolving consumer landscape and a demonstrated ability to cultivate desire, cultural relevance, and passionate communities for distinctive luxury brands. I'm confident that Ava, working alongside the team in place, will enhance our execution to drive sustainable, profitable growth. Now touching on our results of the quarter in more detail. First, we remain focused on strengthening the brand's core handbag offering through innovative product and distinctive brand codes. During the quarter, we expanded the Grace family and specialty, along with the Phoebe and Spadeflower programs and outlet. These families are resonating with our target consumer and will represent foundational elements of our assortment going forward as our pipeline of newness continues to grow. We also recognize that to successfully drive our product strategies, we need to amplify these efforts through more comprehensive brand building initiatives, including holistic marketing campaigns that build engagement with the brand and its products. Turning to Kate Spade's lifestyle offering, which is a differentiator for the brand. During the quarter, we delivered growth in jewelry, driven by millennial and Gen Z recruitment, as well as repeat purchasing and gifting. In addition, in June, we opened the brand's first dedicated jewelry location in London, a test which will provide learnings as we explore the opportunity for growth in the category. Second, we powered the omnichannel experience to drive customer engagement. As you know, in fiscal year 24, we launched a katespadeoutlet.com site, replacing the brand's surprise site and providing a better experience for outlet consumers to discover and shop the brand online. The outlet digital channel grew in the quarter, with growth in both new and existing customers at higher margins. Third, we remain focused on creating emotional marketing to fuel brand relevance and heat. During the year, we acquired nearly 2.3 million new customers in North America, including nearly 500,000 new customers during the fourth quarter. Accelerating this progress will be key to our success. To this point, we will continue to distort our investment to top and mid-funnel marketing to support brand building and growth, particularly with younger audiences where we are seeing unaided awareness improve with Gen Z consumers. Finally, throughout the year, we maintained a commitment to operational excellence, which underpinned the brand's meaningful gross margin and profit expansion. This is structural to our business and an integral part of our go-forward strategy. Turning to our strategic initiatives for fiscal year 25, we have a clear imperative for growth. To achieve this in the year ahead, we will fuel brand heat to drive consideration and accelerate customer acquisition, strengthen the core handbag foundation, grow lifestyle, and maximize the omnichannel opportunity. Overall, Kate Spade is a unique and purpose-driven brand with a distinctive position in the marketplace and significant expansion opportunities. Its mission of bringing joy to consumers around the world is powerful, and we continue to have a relentless drive to deliver sustainable, profitable growth. Now turning to Stuart Weitzman. Our results for the year were challenged, significantly impacted by external pressures in the brand's two key markets of North America and Greater China. Despite disappointing financial results, we continued to focus on brand-building initiatives to drive awareness, growth, and profitability long-term. Touching briefly on our focus areas across product and marketing, during the quarter, we expanded our assortment of sophisticated casual styles, highlighted by momentum and flats. Additionally, we continued to extend the brand's reach through gains in new and emerging categories, including men's and handbags. Importantly, new innovation is driving traction at wholesale, with the business growing double digits at POS in North America and Q4. Further, order bookings through the spring 25 season are up over 30% to last year. This will support an improvement in revenue and profitability trends in the year ahead. Finally, during the quarter, we remained focused on driving brand relevancy through emotional storytelling in keeping with the brand's ethos of inspiring strength and confidence. Overall, we saw an increase in aided awareness, Google search, and social engagement in the US for both the quarter and the year, which represent leading indicators of stronger business results in the future. Looking ahead to fiscal year 25, the Stuart Weitzman team is prioritizing fueling brand relevancy with emotional storytelling, growing their icons and key item platforms while further expanding casual and new categories and accelerating growth in wholesale where there's clear traction. Overall, we see long-term potential for the brand with an empowered team focused on delivering improved top and bottom line performance. In closing, Tapestry delivered record full year earnings per share, outperforming expectations, and once again demonstrating the power of brand building, customer centricity, and operational excellence. I want to reiterate my gratitude to our incredible teams globally who continue to drive our success. From this position of strength, we have a bold vision for the future. We know that the landscape is rapidly evolving. Consumers have an incredible amount of choice and they're exercising those choices every day. We also know that the most successful brands are winning on innovation and emotion. And in this environment, we're well positioned to compete and win. Beyond our organic growth opportunities, there's a clear and compelling path to value creation through the acquisition of Capri, leveraging our platform and leadership to bring meaningful benefits to customers, employees, partners, and shareholders around the world. Importantly, we also understand that all great visions require great execution. The year ahead will again require agility and adaptability, controlling the factors we can and managing our business responsibly to drive long-term growth. While we are not immune to macroeconomic and other external factors, we can define our own destiny given our distinctive brands, talented global teams, and strong cash flow. These differentiators provide us with strategic and financial flexibility to continue to deliver enhanced value in fiscal year 25 and for years to come. I'll now turn it over to Scott.