Tapestry, Inc.

Please stand by. Your program is about to begin. If you need assistance on today's conference, please press star zero. Good day and welcome to this 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 full year 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 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 Kravoycerat, Tapestry's CEO.

Good morning. Thank you, Christina, and welcome, everyone. Fiscal 2025 was truly a breakout year for Tapestry. We delivered $7 billion in revenue, an operating margin of 20%, and $5.10 in adjusted EPS, all growing meaningfully versus prior year. Notably, we also achieved key targets we set at our investor day three years ago, namely to achieve over $5 in earnings, return more than $3 billion cumulatively to shareholders, and drive best-in-class total returns. We delivered these results in the context of a rapidly evolving and uncertain macroeconomic landscape, reinforcing that our business and our exceptional teams are resilient, agile, and built for growth. Our record results are more than numbers. Our success showcases that our strategies are working and that our systemic approach to brand building is capturing a new generation of consumers around the world. Touching on the strategic highlights of the quarter and year, We powered global growth, delivering accelerated gains and outpacing the industry in our key regions of North America, China, and Europe. We did this by building lasting customer relationships, highlighted by strong new customer acquisition. During the year, we acquired over 6.8 million new customers in North America alone, fueled by growth of Gen Z and millennial cohorts. We are creating emotional connections and reaching new young consumers as they enter our category, key to driving lifetime value and healthy, durable growth. We also delivered compelling omnichannel experiences, engaging with consumers wherever they interact with our brands to drive direct-to-consumer growth across channels. Our modern technology platform allows us to bring data-driven insights to our work, And in a world that is increasingly powered by digital, our human connections have never been more important. Together, they are the foundation of our proven and profitable direct-to-consumer business model that is a core competitive advantage. And finally, we brought fashion innovation and product excellence to customers throughout the year, fueling brand relevance and desire led by Coach, where our brand heat and momentum are strong and growing. This is evident in our continued gains in AUR and gross margin. The creativity, craftsmanship, and value we offer to consumers at scale have been and will continue to be differentiators of our brands and business. As we look forward, we have proven our ability to navigate a complex and dynamic external backdrop. And we will continue to execute, leveraging the power of our competitive and structural advantages. our global scale, our compelling value proposition, and the strong fundamentals of our business. Now moving to our results and strategies by brand, starting with Coach. Coach is a storied 85-year-old brand, and this fiscal year was the strongest in history. Our success is rooted in our brand-building capabilities. We've been intensely focused on understanding our target Gen Z consumer and creating emotional connections that fuel brand desire, which have allowed us to reimagine a heritage brand for modern consumers. Coach is redefining what's possible when you blend consumer obsession with disciplined brand building and creativity. And this is translating into compounding and durable growth. For the year, Coach delivered a 10% increase in revenue at strong margins, capped by 13% constant currency top-line gains in the fourth quarter, with double-digit growth across our key markets, with North America up 16%, China up 22%, and Europe up 12%. Our global growth, led by outperformance in our core leather goods offering, highlights that our unique expressive luxury positioning is resonating around the world. This is evident in our strong customer acquisition results, as we welcomed over 4.6 million new customers to coach in North America this year, with over 1 million new customers in the fourth quarter, of which nearly 70% were Gen Z and millennials. Importantly, these customers are transacting at higher AUR and have a higher retention rate than the balance of our client base, demonstrating that these relationships are healthy and sticky. Now, touching on our fourth quarter results in more detail. First, we drove double-digit gains in leather goods with broad-based growth across our offering. The iconic Tabby family continues to outperform and resonate with new and younger consumers. Our core Tabby shoulder bag 26 continued to anchor the offering, while chain Tabby and quilted Tabby remain global successes. Additionally, our New York family once again significantly exceeded expectations, proving to be a new and durable growth driver for the brand. Building on the strength of the New York platform in its first year post-launch, we're continuing to expand the Brooklyn and Empire collections while introducing new styles within the New York family, driving innovation and relevancy with our target consumer. Further, we grew our archival-inspired Coach Originals collection with a large Kiss Lock bag at $695, which in July once again sold out within minutes of launching online and within a day at stores, showcasing Coach's creativity and brand heat. And finally, our bag charms and straps also contributed to our momentum, providing consumers with further opportunities for personalization and customization, with the cherry bag charm remaining a particular Gen Z favorite as a way to enhance self-expression. Overall, Coach's growth in handbags and accessories continued to outperform the industry, demonstrating our innovation pipeline and the compelling value and craftsmanship we offer in the luxury market. With these advantages, we drove mid-teens handbag AUR growth for the quarter, led by North America. Further, handbag units also rose in the quarter globally and in North America, despite lower promotional activity at the brand. Looking forward, we expect gains in both AUR and units to drive our growth. Next, we grew our footwear business with a focus on sneakers, which drives lifetime value with our target Gen Z consumer. In the quarter, sneakers grew mid-single digits, led by the Highline and Soho sneaker families, which are driving momentum and selling at one compelling price point across all channels, another clear indicator that our one-coach strategy is working. Turning to marketing, we continue to drive cultural relevance through emotional storytelling that highlights our brand purpose and product offering. Coach's On Your Own Time campaign featuring the Spring 2025 collection and starring global ambassadors Elle Fanning, Naja, Koki, and Young Ji Lee continue to drive brand momentum across markets. Our sustained investment behind this campaign is in keeping with our strategy to deliver cut-through and continuous brand and product stories to consumers. We also added a second purpose campaign during the quarter, not just for walking, in support of our SOHO sneaker launch. The campaign was inspired by our consumer insights, showcasing what consumers want from a sneaker today in the many facets of their lives. And finally, we cultivated desire for Coach through unique, authentic, and immersive retail experiences. This is another example of how our teams are successfully turning insights into action. Our data continues to highlight that Gen Z consumers like to shop in the real world and in person with engaging experiences. As a result, we've brought new store concepts, pop-ups, and food and beverage to consumers across the globe, expanding into non-traditional formats and locations to delight consumers and build interest for the brand. In addition, the learnings from this work will enable us to move with greater impact as we expand our store footprint and deliver new brand experiences in the future. In closing, Coach is driving standout results guided by a clear brand vision to be the world's most inclusive, genuine, and loved fashion brand. Our fiscal year 25 results highlight that we are building strong brand and cultural relevance, fostering emotional connections driven by product innovation and the creativity of our talented global teams who are operating with excellence, focus, and intention. From these exceptional results and this position of strength, we are confident in the future for this powerful, iconic brand. Now moving to Kate Spade. Our actions to reset the brand for durable growth are underway. In the fourth quarter, performance was pressured, as expected. Revenue decreased 13%, while bottom line results reflected continued gross margin expansion, as well as strategic reinvestment in brand marketing. As we've shared, we are in the early stages of this turnaround and will be focused on key leading indicators of progress, informed by our experience at Coach. These include increasing unaided brand awareness and search interest, followed by an improvement in traffic and customer acquisition, which will ultimately compound to drive top line growth. We are tracking these KPIs with consistency and rigor, leaning in where we see traction and pivoting, if necessary, to ensure our success. Overall, we are deliberately resetting the brand and backing it with disciplined investments. While these actions will pressure revenue and profitability in fiscal year 26, they are essential to strengthening the brand's foundation and unlocking sustainable, profitable growth for the long term. Now let's touch on the quarter. Our first strategic priority is to fuel brand heat and relevancy by investing in marketing focused on our target Gen Z consumer. And we took a step forward in the quarter with the launch of our spring campaign, featuring influential Gen Z celebrities Ice Spice and Charli D'Amelio. Initial reads were positive, with strong organic engagement and a lift in consideration, consistent with our goal to reestablish Kate Spade as a top-of-mind brand for our target consumer. Our second key strategy is to strengthen our handbag offering, simplifying and elevating our assortment anchored in Blockbuster families. During the quarter, we amplified the Deco Collection in retail and the Kayla in outlet, which were featured as the heroes of our marketing campaign. As a result, both families were the top-selling bags in their respective channels, over-indexing with new, younger consumers at strong AUR. and we're bringing more innovation to the assortment while we streamline our offering, reducing handbag styles by over 30% by fall, allowing us to stand behind our big ideas with clarity and intention. Importantly, we are bringing deeper consumer insights and methodical consumer testing to all aspects of this work to ensure greater relevancy throughout our assortment. Next, we are focused on maximizing omnichannel cohesiveness with a compelling, consistent brand message across all consumer touchpoints. Alongside efforts to create a more compelling consumer journey, we remain focused on driving higher full-price selling, a building block to scale in a healthy way. In closing, fiscal year 26 is a year of investment for Kate Spade. We are taking strategic and financial steps to reset Kate Spade for long-term growth, applying our brand-building learnings from Coach and aggressively leaning into action to turn around the brand. While a turnaround takes time, we are confident in our path forward and the brand's opportunity for healthy and profitable growth. Now turning briefly to Stuart Weitzman. As previously announced, we completed the sale of the brand to Calaris on August 4th. This action was consistent with our commitment to be diligent stewards of our portfolio and disciplined allocators of capital. I want to thank the Stuart Weitzman teams for their work to support the brand and customers during this transition and wish them success as they build their next chapter of growth with Calaris. In closing, Tapestry achieved a record year as we are successfully connecting with a new generation of consumers around the world. Importantly, we capped our future speed agenda, exceeding earnings targets with our strongest growth year and momentum building in our business. And while the external backdrop is increasingly complex, our growth proves that our competitive advantages enable us to adapt and thrive in any environment. Our foundation is strong and our focus is clear. Our performance underpins our confidence that we have the strategy, capabilities, and team in place to scale and win with significant runway for growth and value creation. I look forward to sharing our roadmap for continued growth at our Investor Day next month. I'll now turn it over to Scott.