The paragraph is an introduction to a conference call discussing Tapestry's second quarter results, strategies, and outlook. Christina Colone, the Global Head of Investor Relations, introduces the session, which includes speakers Joanne Crevoiserat, Tapestry's CEO, and Scott Roe, the CFO and COO. The call will cover Tapestry's brand highlights, financial results, capital allocation, and future outlook, and it will involve forward-looking statements. It also mentions that non-GAAP financial measures will be discussed. A Q&A session will include Todd Kahn, CEO and brand president of Coach. The paragraph advises on accessing further information through Tapestry's website and relevant SEC filings.

In the second quarter, Tapestry, led by CEO Joanne Crevoiserat, exceeded expectations with strong financial results driven by innovation and craftsmanship, reporting record quarterly revenue and earnings per share. The company raised its outlook for fiscal year 2025 and made strategic investments for sustainable growth. Global revenue increased by 5%, with notable performance at Coach. International revenue grew 7%, led by a 42% increase in Europe, 1% in the APAC region, and a 2% rise in Greater China. North American revenue grew 4% with improved margins. Tapestry focused on consumer relationships, acquiring 2.7 million new customers in North America, primarily Gen Z and millennials.

The paragraph highlights several key achievements and strategies for Tapestry, emphasizing the strong performance and future potential of its brands, particularly Coach. Gen Z consumers demonstrate high retention rates and contribute to higher Average Unit Retail (AUR) than other customer groups. The company successfully reactivates lapsed North American customers while recruiting new ones, leveraging its advanced omnichannel capabilities. Digital sales experienced considerable growth, complementing modest increases in global brick-and-mortar sales. Tapestry achieved a record gross margin and earnings per share, attributed to product innovation, creativity, and an agile supply chain. Overall, Tapestry is well-positioned for sustained growth and shareholder value.

The paragraph highlights Coach's successful quarter, driven by strategic efforts that have positioned the brand to appeal to a new generation of consumers, particularly Gen Z. Key factors contributing to its growth include strong customer acquisition, success in the core leather goods category, and global performance, notably in North America, Europe, and Greater China. The brand's leather goods, especially the iconic Tabby and newly launched New York family bags, have significantly contributed to revenue gains and market performance, with the Brooklyn shoulder bag being a standout product for attracting new customers.

The paragraph highlights Coach's recent success in resonating with consumers, particularly Gen Z, through innovative products like the Empire Carryall 40 and the Coach Originals collection. Key offerings such as bag charms, especially the viral cherry charm, have contributed to the brand's growing popularity, helping Coach rise to become the fifth hottest brand globally with the Brooklyn bag as a top product. The company's handbag and accessory sales are outpacing the industry, with notable growth in North America. Coach plans to expand into the footwear market, leveraging its brand strength to attract new customers, with the successful launch of the Highline sneaker. Overall, Coach is focused on driving cultural relevance and brand growth through strategic innovation and marketing.

The paragraph discusses the success of Coach's "Unlock Your Courage Campaign" in driving consumer engagement and brand growth. The campaign relies on deeper consumer insights to deliver targeted content, enhancing storytelling and media impact. Increased top-of-funnel marketing investments have led to greater consumer engagement, especially in North America and China. Coach has attracted over 1.7 million new customers in North America, with a significant percentage being Gen Z and millennials, aligning with their strategy to attract younger customers. The "Coach Play" concept stores have also performed well, contributing to customer retention and relationship building. Overall, these brand-building efforts have strengthened Coach's position and demonstrated Tapestry's growth capabilities.

The paragraph discusses the current state and future plans for the Kate Spade brand. Despite meeting profit expectations, the brand faced a 10% decline in revenue trends. With Eva Erdman as the new CEO, the company is addressing issues and devising a plan for sustainable growth, focusing on consumer insights. The strategy involves strengthening brand identity, enhancing customer acquisition, and prioritizing growth in North America. The approach is a multi-quarter effort, focusing first on solidifying the foundation and then scaling up. The company acknowledges this journey will take time but is confident in the plan to drive growth.

The company is focused on enhancing brand appeal and customer acquisition through strategic marketing efforts. They adjusted their fall campaign based on consumer feedback, creating more engaging content featuring singer Madison Beer for a holiday campaign that successfully increased Gen Z purchase intent. The success has encouraged continued investment in marketing to sustain consumer engagement, leading to a comprehensive campaign planned for 2025. Additionally, they aim to refine their handbag offerings by streamlining styles and improving product relevance, anticipating a 15% reduction in handbag styles by fall to focus on key ideas and consumer needs.

The paragraph discusses Kate Spade's strategy to build strong handbag collections by understanding consumer preferences and reducing promotional activities. The company emphasizes maximizing omnichannel cohesiveness and maintaining a consistent brand message across all touchpoints. By focusing on emotional appeal and innovation over price promotions, they aim to enhance their gross margins and brand positioning for sustainable global growth. Although their strategic actions might impact short-term financial results, they are committed to investing in and resetting the brand to unlock its full potential as a beloved and purpose-driven entity.

The paragraph discusses Tapestry's strategic efforts and financial performance. Despite challenges like a 16% decrease in Stuart Weitzman's net sales due to softness in Greater China and North America, the company is optimistic about brand relevancy and customer engagement. Tapestry delivered strong holiday quarter results and raised the annual outlook, focusing on momentum at Coach and resetting Kate Spade for growth. The company is committed to a bold growth agenda for long-term value creation. Scott Roe highlights that second-quarter results exceeded expectations, with record revenue, gross margin, earnings per share, and significant free cash flow.

The paragraph details the company's revenue and growth performance for the quarter on a constant currency basis. Sales increased by 5%, surpassing guidance in all regions, with notable gains in Europe (up 42%), North America (up 4%), and APAC (up 7%). Europe saw strong growth from increased consumer spending and new customer acquisition, especially among Gen Z. In Greater China, revenue grew by 2% due to improved brick-and-mortar traffic, while other Asian regions, except Japan, also experienced growth. The direct-to-consumer business grew by 4%, driven by digital sales, while wholesale revenue aligned with strategic goals. The company achieved a record gross margin, surpassing expectations, driven by operational performance and reduced freight expenses.

The paragraph discusses the company's financial performance and strategic initiatives. They reported strong gross margins, allowing them to invest in growth and marketing, which drove a 15% increase in operating margin and exceeded profit expectations. Earnings per share rose by 23% due to operational success, share repurchases, and a favorable tax rate. The company commenced a $2 billion share repurchase program following a merger termination, aiming to return over $2 billion to shareholders, including a $1.40 per share dividend for fiscal 2025. Their capital allocation priorities focus on investing in brand growth and returning capital to shareholders.

The paragraph outlines the company's financial strategy and current financial status. They aim to increase dividends in line with earnings, targeting a payout ratio of 35% to 40%. Their strong cash flow allows for share repurchases, with $800 million left for future buybacks. They prioritize maintaining an investment-grade rating and keeping gross leverage below 2.5 times. At quarter end, the company had $1 billion in cash and $2.7 billion in total borrowings, with a gross debt to adjusted EBITDA ratio of 1.6 times. Adjusted free cash flow was $890 million, and CapEx on cloud computing was $39 million. Inventory levels were planned to be 14% higher than the previous year. The company plans to maintain higher inventory levels through the fiscal year and provides guidance for fiscal 2025 on a non-GAAP basis.

The company is raising its fiscal year 2025 financial outlook, expecting over $6.85 billion in revenue, representing 3% growth despite a currency headwind. Growth is projected to be strongest in Europe at 30%, with high single-digit gains in other parts of Asia, a slight decline in Japan, slight revenue growth in North America, and low single-digit growth in Greater China. An operating margin expansion of 100 basis points is anticipated, driven by gross margin improvements, while SG&A expenses will exceed revenue growth due to increased marketing investments, especially for Kate Spade. Net interest expense is expected to be $35 million due to new bond issuances and lower cash balances.

The company plans to repay its $303 million bonds maturing in April 2025, and projects a tax rate of 17% to 18%. Its anticipated average diluted share count for the year is approximately 223 million, down from prior guidance due to share repurchases. As a result, the company is raising its EPS guidance to $4.85 to $4.90, reflecting a growth of 13% to 14%. This increase is largely due to Q2 operational gains, share repurchases, and favorable tax rates, despite anticipated currency headwinds. An additional 10% tariff on Chinese imports is expected to have minimal impact on fiscal 2025 results. The company predicts an adjusted free cash flow of $1.2 billion and CapEx and cloud computing costs around $170 million, focusing primarily on store expansion and digital investments. Revenue is expected to rise by about 4% in the latter half of the year on a constant currency basis.

The company reports an expected 3% revenue growth for the second half, considering FX headwinds, with balanced growth across quarters. Operating margin is projected to expand due to gross margin improvements, despite SG&A growing slightly above sales. A lower tax rate is expected in Q3, forecasting Q3 EPS to reach $0.85. Following a record-breaking quarter driven by the Coach brand, the company raised its year outlook, emphasizing disciplined brand building, focusing on growth opportunities, and returning over $2 billion to shareholders. They express confidence in their brands, strategy, and future growth, aiming to improve shareholder value in fiscal 2025 and beyond. The paragraph concludes with the operator opening the floor to questions, with Bob Drbul asking about the recent success of Coach and future plans for Kate Spade.

The paragraph discusses the strong and sustainable growth of Coach, attributed to four key strategies: a transformative company culture that encourages creativity and innovation, deep consumer insights to guide business and marketing strategies, successful customer acquisition targeting Gen Z, and a focus on providing high-quality handbags and leather goods. These strategies have led to increased brand engagement and revenue, demonstrating Coach's ability to resonate with modern consumers while maintaining its storied legacy.

In the paragraph, Joanne Crevoiserat discusses Tapestry's strategic focus on understanding the consumer, nurturing creativity, and managing finances to drive growth. At Kate Spade, they are implementing changes by appointing a new CEO, Eva Erdman, and focusing on customer insights, reducing style counts, and marketing to acquire new customers. It's a multi-quarter journey towards long-term growth, and Tapestry is allocating resources to fuel both Coach and Kate Spade. The paragraph concludes with acknowledgment of a strong financial quarter and raised outlook, and the next person to speak is Ike Boruchow from Wells Fargo, who congratulates them and inquires about Coach's growth.

The paragraph discusses Coach's strong business foundations, highlighting that no single product platform accounts for more than 10% of sales, which includes popular lines like Tabby and New York. These platforms are attracting younger consumers across different price ranges, which is beneficial for the brand. Coach recently achieved over 77% gross margin, the highest for the second quarter in its history, even during a typically promotional period. The company sees potential for continued gross margin expansion by creating desirable products, adjusting price points, and leveraging Tapestry's supply chain to both raise prices and reduce costs.

In the paragraph, Scott Roe discusses the management team's focus on improving both gross and operating margins by using AI to understand consumer price elasticity and emphasizing brand strength and consumer engagement. They aim to enhance marketing effectiveness and balance long-term investments with short-term shareholder commitments, resulting in record earnings and a strong financial outlook. Ike Boruchow congratulates the team, followed by Adrienne Yih from Barclays, who asks about target market changes for Kate Spade and inquiries about the Average Unit Retail (AUR) lift for Coach.

The paragraph discusses Tapestry's focus on brand building, particularly for Kate Spade, by refining their execution strategies. They aim to attract new and younger consumers, as they are expected to dominate consumption by 2030. By listening to consumer feedback, Tapestry is working to enhance brand relevance through product innovation, experiences, and storytelling. They've taken steps to streamline their offerings by reducing style counts and promotional activities to eliminate barriers and focus on impactful ideas, as innovation rather than price is the key to winning over consumers.

The paragraph discusses a company's strategy to strengthen its brand by making targeted investments in marketing and brand-building efforts. The focus is on reaching the target consumer through the right platforms and relevant messaging to build brand desirability. The company is optimistic about its financial performance, exceeding estimates, and raising its outlook, despite a projected 10% decline in the quarter. It emphasizes a phased approach to brand development: starting with brand awareness, followed by customer acquisition and growth, using successful strategies from the Coach brand as a model. The company is committed to making long-term investments while also delivering short-term shareholder value. Additionally, there's enthusiasm around partnering with a strong brand builder, Ava, to accelerate these efforts.

In the paragraph, Todd Kahn addresses a question about Average Unit Retail (AUR), highlighting consistent growth since FY19, particularly with double-digit growth in handbags and in the North American market. He attributes this to the company's value proposition in comparison to traditional European luxury brands and emphasizes the importance of having compelling products. Kahn discusses focusing on enduring designs and maintaining strong brand storytelling, which helps avoid the need for discounts and promotions. The overarching strategy involves targeting the Gen Z demographic and creating deep, iconic product stories. Adrienne Yih and Scott Roe commend him on the successful quarter, and the conversation moves to a question from Matthew Boss of JPMorgan.

Joanne Crevoiserat discusses Coach's brand-building success, highlighting their focus on understanding and engaging their target consumers, particularly Gen Z and millennials, through relevant products and storytelling. This strategy has led to increased customer acquisition, with 60% of new Coach consumers being from younger generations. These new customers are seen to transact at higher average unit retail (AUR) and exhibit increased purchase frequency, indicating strong potential for building lifetime value. The company continues to leverage its innovation and creativity to maintain this momentum and drive growth in North America and Greater China.

The paragraph discusses the company's focus on brand building through understanding consumers and maintaining a learning mindset to drive growth, particularly highlighting opportunities in their portfolio and with Coach. Scott Roe expresses confidence in the sustainability of the company’s growth due to strong gross margin growth, investments based on strategic indicators, and balancing short- and long-term goals. The company has raised its free cash flow projection to $1.2 billion and maintains a strong balance sheet with options for increasing shareholder value, like buybacks. Lorraine Hutchinson from Bank of America inquires about balancing the success of new handbag franchises with ensuring a consistent pipeline of new products, to which Joanne Crevoiserat and Todd express confidence in their innovation pipeline.

In the article paragraph, Todd Kahn discusses a shift in their product strategy, using the example of the Tabby handbag. Traditionally, when a product like Tabby slowed down, it would be phased out and replaced by a similar new product, starting the cycle anew. However, they changed this approach by innovating within the existing Tabby platform, launching the Pillow Tabby, which created fresh opportunities and enhanced the original. This approach of continual innovation on an existing platform is yielding strong results, as seen with the New York family of products, which achieved significant success in less than a year. Tabby, in particular, still has strong potential due to its unique and desirable design, especially the sculpted 'C' hardware. The discussion then shifts to Brooke Roach of Goldman Sachs, who inquires about the company's momentum and optimistic outlook in the Chinese market.

In the paragraph, Joanne Crevoiserat discusses the growth and strategy for Coach in Greater China, noting that the brand has achieved low single-digit growth in the region, outperforming the industry. The brand's global strategies are effective and have resulted in strong performance across different channels and tiers in China. Coach is investing in marketing and innovation to appeal to consumers, particularly targeting Gen Z. Todd Kahn adds that Coach has a long-standing presence in China, with significant local knowledge and resources, such as stores and staff, which drive their operations. The expansion potential is highlighted using Wuxi as an example, where they see opportunities for store growth due to the rise of the middle class. Both executives express confidence in the long-term opportunities for Coach in China.

The paragraph discusses a positive outlook for Coach's growth in China, emphasizing the brand's appeal to young consumers purchasing their first luxury bags. Michael Binetti from Evercore congratulates the team on their North American success and poses questions about future growth strategies, focusing on Average Unit Retail (AUR) and potential unit growth versus relying on AUR increases. He also inquires about managing Sales, General, and Administrative expenses (SG&A) if revenue continues to rise. Joanne Crevoiserat's response to these concerns is anticipated.

The paragraph discusses the company's positive outlook and growth strategy, focusing on AUR (average unit retail) and the potential for unit growth through market expansion and customer acquisition. Scott Roe highlights investment opportunities, particularly with the Cape campaign featuring Madison Beer, which is expected to yield a 7% profit within the range of $85-$90 million. While acknowledging the possibility of higher immediate profits, the company prioritizes long-term investment. Joanne Crevoiserat concludes by expressing confidence in the brand's holiday performance and fiscal 2025 outlook, emphasizing Coach's success with a new generation of consumers and the effectiveness of their brand-building strategies.

The paragraph discusses Tapestry's strategic focus on enhancing the Kate Spade brand by leveraging new leadership and insights from Coach for long-term growth. The company expresses confidence in its ability to achieve organic growth and create value for stakeholders. Gratitude is extended to global teams and participants in the earnings conference call, which is concluded by the operator.

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