The operator introduces the Tapestry Conference Call and informs listeners that the call is being recorded. The Global Head of Investor Relations, Christina Colone, then introduces the speakers for the call: Joanne Crevoiserat, Tapestry's CEO, and Scott Roe, Tapestry's CFO and COO. She also mentions that the call may include forward-looking statements and directs listeners to refer to the company's Annual Report and other filings for a complete list of risks. Non-GAAP financial measures will also be discussed and a full reconciliation can be found on the company's website. Joanne will begin with brand highlights and Scott will cover financial results, capital allocation, and the company's outlook.

Joanne Crevoiserat, CEO of Tapestry, begins by thanking the participants and mentioning the company's outperformance in the third quarter. She highlights the company's commitment to brand building and operational excellence, as well as their success in navigating the dynamic market. The quarter saw consistent revenue growth internationally, driven by tourist traction, while sales declined in Greater China and North America due to consumer challenges. The company remains confident in the long-term opportunity in China and continues to invest in growth. Finally, the company prioritizes consumer engagement and emotional connections with their brands.

In the third quarter, the company acquired 1.2 million new customers in North America, with a focus on younger generations. They also improved lapsed customer reactivation and launched immersive retail experiences globally. Digital sales remained strong and accounted for over 25% of revenue. The company also saw success in fashion innovation and product excellence, particularly in handbags at Coach. This led to operational gross margin expansion and the highest third quarter gross margin in almost 20 years. The company is committed to bringing creativity, quality, and value to customers worldwide.

The company had a strong third quarter, exceeding expectations with higher margins and profits. This success was driven by their brand building, consumer focus, and operational flexibility. The Coach brand performed well, with growth in handbags, particularly in the Tabby family. The Quilted Tabby was a popular new addition, and other iconic styles like the Timeless Willow and Rogue remained strong. The company also introduced new styles to appeal to younger consumers, such as the Coach original Swing Zip and ACE Tote, which have been popular on social media and with Gen Z customers.

In the past year, our innovative and creative products have contributed to an increase in global handbag AUR and sales in North America. We plan to continue this success with our pipeline of new products and by expanding our lifestyle assortment. Our footwear, men's, and ready-to-wear categories have also seen growth, thanks to core styles and new launches. We have also focused on purpose-led storytelling and creating emotional connections with our customers through campaigns featuring members of the Coach Family and unique retail experiences. One of our most successful stores, Coach Play in Tokyo, celebrates our brand's heritage and local culture while appealing to younger consumers.

In March, Coach opened its first full-service restaurant in Jakarta, showcasing its expanding presence in Southeast Asia and commitment to connecting with consumers through experiences. This approach has helped drive new customer acquisition, particularly among Gen Z and Millennials. The brand's investments in brand building have also increased brand awareness in the US. Coach is also focused on its sub-brand, Coachtopia, which promotes circularity and sustainability. While it remains a small portion of the assortment, Coachtopia has gained momentum with younger audiences. Kate Spade's top line results were lower than expected, but profit exceeded expectations due to gross margin expansion and disciplined expense management. The brand is also focused on bringing enhanced innovation to consumers, which has been well-received by customers.

In summary, the progress made by the brand reinforces their focus on building a more profitable business while driving top line growth. They have broadened their core handbag assortment and introduced new products to drive higher customer recruitment, AUR, and gross margin. They also plan to refresh their carryover families and increase the pipeline of handbag newness in the future. In addition, the brand continues to deliver emotional lifestyle assortments and has seen growth in jewelry, a key recruitment and profit driver. They have also launched a dedicated outlet website to improve the omnichannel experience and increase customer lifetime value.

The company is focused on creating a unified experience for consumers and driving sustainable direct-to-consumer growth. They are also investing in emotional marketing and operational excellence to support long-term success. Results for Stuart Weitzman were impacted by challenges in North America and Greater China, but the company remains committed to investing in product and marketing to drive growth and profitability. They have expanded their assortment of casual styles, which are performing well at key full-price wholesale accounts.

In this paragraph, the company discusses their increase in wholesale bookings for the fall and pre-spring seasons, as well as the launch of new categories such as men's collection and expanded sneaker assortment. They also highlight their successful marketing efforts, including collaborations with influencers and increased brand desire. The company remains confident in their strategic agenda and the pending acquisition of Capri, which will bring significant benefits to all stakeholders.

Capri Holdings is investing in and growing its brands to bring more innovation to consumers globally and better compete in the luxury market. They aim to be a home for talent and elevate employee and consumer experiences. The company remains confident in the proposed acquisition and is working to close the transaction in 2024, despite facing a lawsuit from the FTC. In the meantime, they continue to focus on executing their current business and strategic growth agenda. In fiscal Q3, the company exceeded expectations with strong gross margin expansion, free cash flow generation, and investments in future growth drivers. Sales were in line with the prior year, with 3% growth internationally, led by gains in Japan, Other Asia, and Europe. Japan saw 2% growth, while Other Asia saw a 15% increase, with growth in all countries in the region.

In the third quarter, growth continued in Europe with a 19% increase in revenue compared to last year. Revenue in Greater China declined 2% due to the end of COVID-related restrictions. In North America, sales declined 3% but gross margin significantly outperformed expectations. Direct-to-consumer business declined 4%, while wholesale revenue grew over 20% due to international strength and strategic growth initiatives. Gross margin for the quarter was the strongest in nearly two decades, driven by lower freight expenses, FX tailwinds, and operational outperformance. SG&A remained relatively flat and benefited from operational savings and a $20 million expense timing shift into the fourth quarter. Operating margin expanded 110 basis points and operating income rose 6%, well above plan. Third quarter EPS of $0.81 also beat expectations by $0.15, fueled by an operational beat and favorable expense timing. The balance sheet and cash flows were also strong.

The company ended the quarter with $7.4 billion in cash and investments and $7.7 billion in total borrowings, reflecting the bond financing for the planned acquisition of Capri. Inventory levels were 12% lower than the previous year, showing their focus on disciplined inventory management. The company expects to end the fourth quarter with inventory in line with the previous year and plans to return $325 million to shareholders through dividends. The company's fiscal year 2024 EPS outlook remains unchanged, supported by stronger margin results and a commitment to being disciplined stewards of their brands.

The company expects revenue of over $6.6 billion, with growth of about 1% on a constant currency basis. This growth is expected to come from regions such as Greater China, Japan, Other Asia, and Europe, with a slight decline in North America. The company also expects operating margin expansion and gross margin expansion, with higher interest yield and a tax rate of 20%. They anticipate EPS growth of 8-9%, and free cash flow of $1.1 billion. The fourth quarter specifically is expected to see similar trends.

The company expects a slight decline in sales and operating margin for the fourth quarter, but remains committed to investing in brands and businesses, paying off debt, and returning capital to shareholders. They plan to achieve a leverage target within two years and increase dividends in the future. The acquisition of Capri is expected to bring double-digit EPS accretion, cost synergies, and benefits for all stakeholders.

In the third quarter, the company showed operational excellence and outperformed expectations despite a challenging demand environment. They also generated strong free cash flow and remain confident in their long-term growth initiatives. The company is committed to driving sustainable, profitable growth and shareholder returns. They are confident in their ability to reach their fiscal 2025 EPS target of $5, citing their strong brand and disciplined execution.

Joanne and Scott are pleased with the execution and discipline of the company, which has allowed them to grow profit even in a challenging environment. They have a sense of urgency to drive stronger top line growth and are focused on initiatives and investments that will fuel long-term growth. Despite a more modest top line, they are on track to deliver their Investor Day EPS targets through driving gross margin outperformance and controlling expenses. They have already delivered double-digit EPS CAGR over the past three years and are on track for high single-digit earnings growth this year. They will continue to focus on factors within their control, such as operational gross margin drivers and tightly managing SG&A, and have remade their P&L to be more variable, allowing them to invest and flex in challenging market conditions.

The speaker discusses the factors that reinforce their confidence in achieving their adjusted $5 commitment in Investor Day. They also mention the expected accretion of the deal and clarify that it is a first-year number. They also address the guidance for China and Coach in North America, explaining the impact of COVID on their growth.

In the fourth quarter, the company is facing challenges in China, resulting in a double-digit decline in the region. However, for the full year, the company has managed to maintain low single-digit growth despite the challenges. The Coach brand is performing well, with a focus on sustainable long-term growth, targeting young consumers. In North America, the consumer is being selective despite positive factors such as a strong labor market. The company is confident in its bottom line, with a 200 basis points gross margin expansion in the fourth quarter and potential for further growth in the future.

The company acknowledges that consumer confidence is low in North America, but they are still seeing success due to their innovative approach and disciplined management. They have been able to drive higher gross margins and attract new consumers who are willing to spend more on their products. In the fourth quarter, they expect to see a 200 basis point growth in gross margin, and for the full year, they have seen a 230 basis point increase despite the impact of freight costs. Going forward, they remain confident in their ability to maintain these positive trends through investments in marketing and cost management.

The speaker discusses the company's focus on brand building and creating emotional connections with consumers, as well as their strong growth in the durable and resilient category. They emphasize the importance of maintaining their current strategy and investments in marketing and digital to reach consumers. They also mention the virtuous flywheel they have developed, which is working well for the company.

Tapestry is focused on delivering innovative products and experiences to appeal to changing consumer preferences. They have a strong direct-to-consumer platform, data and analytics capabilities, and consumer insights to help fuel this innovation. Todd Kahn, the CEO of Coach, is excited about the innovation he sees in their showrooms and believes they are innovating across all price points. They are planning to bring their popular Tabby product to 100 outlet stores in North America in June to capitalize on their strong marketing efforts.

The speaker discusses the difference between outlet and retail stores and the success of their brand, Coach. They mention the importance of delivering newness and emotion to customers and how they have seen no decline in consumer spending. The speaker also addresses their revenue guidance for the fourth quarter and potential scenarios for the future. They express confidence in their ability to continue driving AURs (average unit retail) for handbags and discuss potential concerns about luxury brands taking too much pricing on handbags.

The company has consistently delivered on AUR and margin growth by understanding and delivering value to customers through innovation. They expect to continue this trend due to their deep understanding of consumers and their ability to deliver value. The company is not providing guidance for 2025 but has shown agility in their model and ability to deliver earnings in difficult conditions.

The speaker discusses the company's investments in their brands and marketing, as well as their decision to spend more on the top of the funnel and less on the bottom. This may affect sales in the short term, but they are confident in their ability to grow both top and bottom line in the future. They also mention the impressive Coach gross margin and their thoughts on long-term sustainability, as well as their success with pricing and Tabby momentum. They then address the China market and their confidence in the US customer base.

The speaker discusses the company's strong performance in the last quarter and emphasizes that this level of success should not be expected every quarter. They also mention their investments in product quality and marketing, with a shift towards top-of-funnel marketing. The speaker believes that emotional connection and differentiation from traditional European luxury brands will sustain AUR growth for the Coach brand. They also mention the company's discipline in inventory and focus on sustainable and emotional product families. The speaker then hands over to Joanne to discuss the company's performance in China.

Oliver, related to the consumer in China, like many others, we're seeing macro headwinds and there is lots of noise in the numbers. However, the company's outlook for the year remains positive with expected low single-digit growth in China. The teams on the ground are doing an excellent job building the brands and connecting with consumers in the dynamic environment. The company continues to invest in the market and brand building activities to support long-term potential. Coach has been able to drive stable results despite the choppier macro, but Kate is facing challenges, potentially in the wholesale sector.

The speaker, Joanne Crevoiserat, is discussing the success of the brand Kate and its potential for growth. They are focused on building a stronger and more profitable brand by strengthening their core handbag foundation, delivering newness and innovation, and improving the omnichannel experience. They are also shifting their investments towards top of funnel marketing. This approach has already led to increased profitability and they see potential for further growth in the future.

The speaker expresses confidence in the brand's future and mentions their focus on profitability and executing plans to achieve long-term goals. They also mention the need for sales growth and the company's ability to deliver profitability even with no growth. They touch on the efficiency of the company's model and its potential for higher profits and cash flow. In response to a question about SG&A, they mention pulling levers to control costs and discuss the balance between controlling expenses and making necessary investments.

The company is investing in its people, capability, and marketing. This investment is reflected in the variable component of their rents and a 9% spending on marketing. The company remains consistent in their approach and is confident in their future growth and shareholder returns.

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