The operator welcomes listeners to the Tapestry Conference Call and introduces the speakers, including the Global Head of Investor Relations and the Chief Executive Officer and Chief Financial Officer of Tapestry. The speakers will discuss the company's second quarter results, strategies, and outlook, and caution that forward-looking statements may differ from actual results. Non-GAAP financial measures will be included and a full reconciliation can be found on the company's website. The CEO will discuss highlights for each brand, while the CFO will cover financial results, capital allocation priorities, and the company's outlook.

The speaker, Joanne Crevoiserat, welcomes everyone and highlights the strong performance of Tapestry in the holiday quarter. She acknowledges the efforts of their global teams and mentions the 3% sales growth, driven by international markets, particularly in Greater China. The company also saw growth in sales to Chinese consumers globally. Joanne mentions their commitment to investing in their brands and expanding their business in China and worldwide. She then discusses the sales growth in Japan, Other Asia, and Europe, and the steady performance in North America. She concludes by emphasizing the company's focus on customer engagement.

In the second quarter, the company acquired 2.5 million new customers, with a focus on recruiting younger consumers. They also saw growth in reactivating lapsed customers. The company's omni-channel approach, with both in-store and online sales, contributed to mid-single-digit growth. They opened a new fulfillment center and invested in product innovation and excellence. Overall, the company achieved record earnings while making strategic investments for future growth. The following section will highlight the performance of each brand, starting with Coach.

In the second quarter, Coach had a strong performance with revenue growth and margin expansion. The leather goods category, particularly the Tabby family, saw significant growth and attracted new and younger consumers. The Willow, Rogue, and Idle families also contributed to overall growth. The brand's focus on innovation and creativity has led to improvements in handbag prices and growth in lifestyle products. Ready-to-wear and footwear also saw growth, driven by key styles and successful families. Coach also prioritizes building emotional connections with consumers through purpose-led storytelling.

The company has had success with their Wear your Shine and More than a Gift campaigns, which have attracted a large number of new customers, particularly from the Gen Z and Millennial demographic. The Coachtopia sub-brand, focused on circularity, has also garnered attention from younger consumers. The company remains committed to investing in sustainable growth and is confident in the future potential of the Coach brand. Kate Spade also saw profits increase, driven by gross margin expansion.

The company is facing challenges in their top line trends, but they have identified three key areas to focus on: strengthening the core bag offering, powering the omni-channel experience, and driving emotional marketing. They have seen success with new products, but declines in carryover families highlight the need for a more innovative core assortment. The company is committed to improving the execution of their handbag offering and will be launching new products with new materials, silhouettes, and branding elements. They will also continue to focus on novelty and lifestyle offerings, such as footwear and jewelry.

The company has launched a dedicated outlet website and is focusing on creating emotional marketing to engage customers and drive sustainable growth. They have acquired new customers in North America and are expanding their brand awareness internationally with physical activations. Moving forward, they will focus on top-of-funnel marketing to drive fashion credibility and customer engagement. They will also maintain a commitment to operational excellence to position the brand for long-term success. The company is leaning in with intention to accelerate their progress while continuing to advance their long-term strategies.

The company's vision for the Stuart Weitzman brand remains unchanged, but top line results were impacted by strategic reductions and off-price wholesale shipments. However, there was growth in China and improvements in gross margin and profitability. The brand focused on delivering emotional products, such as boots and casual styles, and launched a new sneaker collection. Marketing efforts, including collaborations with influencers, helped improve brand awareness and customer engagement.

The Stuart Weitzman team is focused on executing their strategic priorities to drive growth and profitability. Tapestry had a strong second quarter and is raising their earnings per share outlook for the fiscal year. They remain confident in their vision and ability to put the customer at the center of everything they do. The planned acquisition of Capri will further accelerate their strategies and drive accretion. They continue to make progress towards closing the transaction and are excited about the opportunity to expand their house of powerful brands. In the fiscal Q2, they exceeded expectations with top line growth, expanded gross margin, and record revenue and EPS. Their globally diversified direct-to-consumer business model and financial discipline contributed to their strong and consistent performance.

The company's discipline has allowed them to invest in long-term brand growth while also delivering record earnings. In the second quarter, sales increased by 3% on a constant currency basis, with strong international growth of 12%. China saw a 19% increase in revenue, while other international regions also saw growth. Direct-to-consumer sales grew by 4%, while wholesale sales declined by 4%. The company's gross margin was the strongest in over a decade, driven by lower freight expenses and operational outperformance.

In the second quarter, SG&A rose 5%, which was better than expected due to operational savings. The company is controlling costs while making strategic investments in their brands, people, and business platforms. As a result, operating margin expanded 220 basis points and operating income increased by 14%. The company also reported a record second quarter EPS of $1.63, representing 20% growth. They ended the quarter with $7.5 billion in cash and investments and total borrowings of $7.7 billion. The company is closely monitoring the Red Sea conflict, but currently expects minimal impact on their operating results and customer experience. They also declared a quarterly cash dividend of $0.35 per common share, representing a 17% increase compared to last year.

The company is providing guidance for fiscal year 2024, which does not include the impact of the planned acquisition of Capri. They are raising their EPS outlook for the year while maintaining their revenue outlook, with expected growth in North America, Greater China, Japan, Other Asia, and Europe. The company plans to invest a portion of its Q2 profit back into its brands and business. They anticipate operating margin expansion and gross margin gains, including a benefit from moderating freight costs.

The company expects to see a deleverage of 100 basis points in SG&A expenses due to reinvestments in their brands, people, and business. They anticipate net interest expense of $20 million, a tax rate of 20%, and a weighted average diluted share count of 233 million shares. The projected EPS for the year is $4.20 to $4.25, representing 8% to 9% growth. They also anticipate free cash flow of $1.1 billion and CapEx and cloud computing costs of $190 million. The company expects consistent top line growth of 2% throughout the year, with stronger growth in the fourth quarter. They plan to reinvest a portion of their outperformance in the second quarter, resulting in operating income in the second half to be roughly in line with the prior year. The third quarter is expected to have a slight increase in SG&A expenses and revenue in line with or slightly above the previous year, while the fourth quarter will see gross margin expansion and modestly higher SG&A expenses.

In the third quarter, the company expects EPS to be around $0.65 and anticipates growth in the fourth quarter. Their capital allocation priorities remain the same, with a focus on investing in brands and businesses, debt repayment, and returning capital to shareholders through dividends. The planned acquisition of Capri is expected to drive significant value creation and be immediately accretive to earnings. The company expects Capri to generate double-digit EPS accretion and strong returns, with a projected free cash flow of $500 million. Progress has been made towards completing the transaction.

Tapestry Inc. reported strong results for the quarter, with revenue gains, margin expansion, earnings growth, and cash flow generation. The company remains confident in its ability to achieve its stated leverage target within 24 months post close and expects to complete the acquisition of Capri by 2024. The strength of the Coach brand was highlighted, and the company remains committed to driving sustainable growth and shareholder returns. The analyst also asked about the softening of trends at Capri since the announcement of the deal.

Joanne Crevoiserat, CEO of Coach, gives an update on the company's performance in the holiday quarter, highlighting growth in revenue, operating income, and earnings per share. She credits the success to the brand's operational excellence and discipline, and mentions the momentum they are gaining. She then passes the floor to Todd Kahn, who expresses confidence in the brand's future due to their focus on the Gen Z consumer and successful campaigns such as "Wear your Shine." He also mentions the success of their product innovation, specifically the Tabby family.

The speaker discusses the company's successful growth due to their storytelling and compelling product. They mention their "coachgenomic" model which focuses on increasing gross margin, reducing costs, and investing in marketing, leading to a virtuous cycle of sales and customer lifetime value. They also mention their acquisition plans and the progress they are making towards closing the deal, while remaining focused on driving their organic business. They conclude by mentioning their strong second quarter results.

The speaker asks for an update on the company's fiscal '25 organic goals, particularly in regards to the Coach brand's performance. Scott Roe responds by reiterating the $465 goal, explaining that while the goals have evolved differently than anticipated, the company's model and discipline as capital allocators give them confidence in achieving their goals. The next question is from Matthew Boss of JPMorgan.

Joanne Crevoiserat discusses the importance of customer obsession and understanding the target customer for Tapestry's brands. She mentions the use of customer research and data to create a more emotional connection with consumers. She also talks about the changes in the company's ways of working and how teams are using insights to drive growth. Matt Boss asks Scott about gross margin drivers and the planned acquisition's impact on double-digit accretion in year 1.

The company is using their brand positioning and product development to understand and fulfill the needs of their target consumers. They leverage data and insight to improve their execution and attract younger consumers. The focus on these strategies has led to 2.5 million new customers, with nearly half being Gen Z and Millennials. The company also expects to see continued gross margin improvement due to their understanding of their consumers and their pricing power.

The speaker discusses the company's outlook for the future, including their focus on reinvesting in the business and their confidence in the Capri deal. They also mention the strength of the Coach brand in China and their expectation for mid-single-digit growth in the market.

The company has confidence in the long-term opportunity in the market and attributes their success to their teams building strong brands and connecting with consumers. Consumer desire for their brands remains high and purchase intent for handbags and leather goods is still strong. The company is optimistic about the opportunities in China and sees potential for AUR growth and expansion. They are also excited about the growth of Coachtopia in the Chinese market. When asked about the outlook for North America handbag and accessories, the CEO mentions that they are seeing growth in all markets, including China, and are excited about the brand positioning and potential for expressive luxury.

The confidence in stronger growth in the back half of the year is driven by the company's performance in Q2, which was in line with last year but above expectations. The company is prioritizing a healthy business and managing it well, with a focus on newness and innovation in their brand messaging. The outlook for the rest of the year is similar to the first half, with no dramatic changes. The company is aware of competition but is focused on their own game and the growth of new customers.

In paragraph 24, the speaker discusses the potential for growth in North America and the company's confidence in the fourth quarter. They mention the importance of using data and growing awareness in their mature market. The speaker also addresses a question about revenue guidance for the third quarter, attributing the flat forecast to noise and issues in China. The second part of the paragraph includes a question about the company's philosophy on brand selection, which the speaker defers to another person to answer.

The speaker discusses the company's performance and the recent acquisition of Capri. They mention that there may be short-term fluctuations, but the overall picture is positive. They also explain their decision-making process for capital allocation, which involves evaluating strategies, ownership, financial outcomes, and execution difficulty. The acquisition of Capri was deemed compelling based on these criteria.

Joanne Crevoiserat, the CEO of Kate Spade, expressed confidence in the brand's long-term vision and strategies despite ongoing challenges in sales. The team showed discipline and agility in the quarter, leading to expansion in gross margin, operating margin, and profit. However, the top line remains a challenge, and the brand has higher aspirations for growth. To address this, they are focused on strengthening their core handbag foundation and delivering newness and innovation in their assortment. They expect to see growth in newness in the back half of the year and into fiscal 2025.

The company sees three main opportunities for growth: powering the omni-channel experience, increasing emotional marketing, and executing their plans quickly. They have already launched a new website and are investing in top-of-funnel marketing to drive brand heat. The company is also focused on improving margins and reducing inventory to make room for new products. The use of insights and data helps them make better decisions and respond to trends more quickly.

The company has been able to react to inventory and expenses, resulting in gross margin and operating expansion for Kate Spade. The company sees Tabby as a great platform and plans to continue to innovate on it. The average unit retail is a combination of mix and like-for-like sales. The company launched Quilted Tabby, which is doing well. The company is pleased with the results and sees Tabby as a multiyear opportunity. The company is also being disciplined in their approach to pricing and discounting.

The speaker discusses the company's brand Coachtopia, which is not yet financially significant but is creating a positive impact on the brand's image. They mention the potential for a product called "loop" to become a major platform in the future. The speaker also mentions the company's focus on improving the customer experience and strengthening the core equities of the Kate Spade brand. The question of what drove the gross margin beat is also raised.

The speaker responds to a question about operational performance, specifically in terms of brands and channels. They mention a 300 basis point increase in the quarter, with 170 of that being attributed to freight. They expect this to moderate but still be positive in the second half, with a total of 120 basis points for the full year. They also mention growth in gross margin across all brands and attribute it to pricing power and increased marketing. The speaker concludes by thanking the audience and the company's global team for their efforts in building the brand and maintaining consistent execution.

Tapestry had a successful second quarter, with record revenue and earnings per share. They have also raised their earnings outlook for the full year and are confident in their ability to continue growing and providing returns for shareholders. The earnings conference call has now ended.

This summary was generated with AI and may contain some inaccuracies.