Q3 2020 Earnings Call

April 30, 2020

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Good day and welcome to this topic Street conference call todays call is being recorded.

Operator: Good day and welcome to this Tapestry conference call. Today's call is being recorded. To ask a question during the Q&A session, please press star 1 on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the pound key. At this time, for opening remarks and introductions, I would like to turn the call over to Andrea Resnick, Global Head of Investor Relations and Corporate Communications.

Operator: Good day and welcome to this Tapestry Conference Call. Today's call is being recorded. To ask a question during the Q&A session, please press star one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the pound key. At this time, for opening remarks and introductions, I would like to turn the call over to Andrea Resnick, Global Head of Investor Relations and Corporate Communications.

Yes. Good question during the Q1 day session. Please press star one on your telephone keypad. If your question has been answered and you wish to remove yourself from the Q press the pound key at this time for opening remarks, and introductions I would like to turn the call over to Andrea Resnik Global had.

Investor Relations in corporate communications.

Good morning, and thank you for joining up with me today to discuss our quarterly results actually days lightly habits trees, Chairman and Chief Executive Officer, and Joanne Cobots threat Cabinetry, Chief Financial Officer before we begin we must point out that this conference call will involve certain forward looking statements within the meaning of the private security.

Andrea Resnick: Good morning, and thank you for joining us. With me today to discuss our quarterly results are Jide Zeitlin, Tapestry's Chairman and Chief Executive Officer, and Joanne Crevoiserat, Tapestry's Chief Financial 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, including 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 important factors that could impact our future performance and results. Non-GAAP financial measures are included in our comments today and in our presentation slides.

Litigation Reform act, including projections for our business in the current or future quarters or fiscal year forward looking statements are not guaranteed <unk> 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, a press release issued this morning, and there are other filings with Securities and Exchange Commission for a complete list of risks an important factors that.

Could impact our future performance and results non-GAAP financial measures are included in our comments today and in her presentation flight you may find the corresponding GAAP financial information as well as it related reconciliations on our website www dot tapestry dot com fully flash investors and then viewing the.

Andrea Resnick: You may find the corresponding GAAP financial information as well as the related reconciliations on our website, www.tapestry.com/investors, and then viewing the earnings release and the presentation slides posted today. Now, let me outline the speakers and topics for this conference call. Jide will provide a recap of our fiscal third quarter results for Tapestry, as well as a current update on our global business in light of the COVID-19 pandemic. Joanne will continue with high-level financial and operational results for the quarter, in addition to the mitigating actions we are taking, and our priorities going forward. Following that, we will hold a question-and-answer session where we will be joined by Todd Kahn, Tapestry's President and Chief Administrative Officer, who is serving in an interim role as Chief Commercial Officer of the Coach brand while the search for a permanent CEO is underway.

You may find the corresponding GAAP financial information as well as the related reconciliations on our website, www.tapestry.com/investors, and then viewing the earnings release and the presentation slides posted today. Now, let me outline the speakers and topics for this conference call. Jide will provide a recap of our fiscal third quarter results for Tapestry, as well as a current update on our global business in light of the COVID-19 pandemic. Joanne will continue with high-level financial and operational results for the quarter, in addition to the mitigating actions we are taking, and our priorities going forward. Following that, we will hold a question-and-answer session where we will be joined by Todd Kahn, Tapestry's President and Chief Administrative Officer, who is serving in an interim role as Chief Commercial Officer of the Coach brand while the search for a permanent CEO is underway.

Earnings release, and the presentation slides posted today.

Now, let me outline the speakers and topics for this conference call GE day, we'll go by a recap of our fiscal third quarter results for tapestry as well as a card update on our global business in light of the Cobot 19 pandemic Joanne will continue with high level financial enough or is it operational.

Results for the quarter. In addition to the mitigating actions, we're taking and our priorities going forward. Following that we will hold it question answer session, where we will be joined by Todd Con tapestry, President and Chief administrative officer, we serving in an interim role as Chief commercial officer of the coach brand while the church.

Permanent CEO is under way following QNX, we will conclude with some brief summary remarks I'd now like to turn it over two days Island Cabinetry, Chairman and CEO.

Andrea Resnick: Following Q&A, we will conclude with some brief summary remarks. I'd now like to turn it over to Jide Zeitlin, Tapestry's chairman and CEO.

Following Q&A, we will conclude with some brief summary remarks. I'd now like to turn it over to Jide Zeitlin, Tapestry's chairman and CEO.

Good morning.

Jide Zeitlin: Good morning. Thank you, Andrea, and thank you, everyone, for joining our call. I hope this is the first and the last earnings call I'll be taking from my home office in Brooklyn. Sadly, all of us are living through a true 100-year storm. No one is exempt from the daily realities of COVID-19. Our thanks go out to courageous individuals on the front line of the fight against this pandemic. Our hearts are with those affected by its ravages. This crisis has profoundly impacted the way we live our lives and manage our business. This morning, we reported our fiscal Q3 results. These are the first adjusted quarterly earnings loss in our nearly 20 years as a public company. We entered the calendar year with a strong underlying momentum, most notably for the Coach brand. As the novel coronavirus expanded across the globe, our results materially weakened.

Thank you Andrea and thank you everyone for joining our call.

The first and the last earnings call I'll be taking for my home office in Brooklyn.

Sadly all of us are living through a true what I heard your store.

No one is exams in the daily realities of Cobiz 19.

Right. Thanks go out to courageous individuals on the front line of the fight against it and data.

Our hearts are with those affected by its ravages.

This crisis is profoundly impacted the way, we live our lives and manage our business.

This morning, we recorded our fiscal third quarter results.

These are the first adjusted quarterly earnings loss in our nearly 20 years as a public company.

We entered the calendar year with a strong underlying momentum.

Most notably for the coach brand.

As a novel grown a virus expanded across the globe.

Our results materially weekend.

Initially we hope the Pandemics damage would be limited one country or region.

Jide Zeitlin: Initially, we hoped the pandemic's damage would be limited to one country or region, especially as Mainland China and South Korea began recovering. By mid-March, results deteriorated in North America, Europe, and numerous countries across Asia Pacific. We never before experienced a time when 90% of our store fleet was either closed or on shortened operating hours. It's clear that the crisis will have an impact lasting beyond a quarter or two. We're taking steps to mitigate the impact on a business that requires sales growth to leverage brick-and-mortar store expenses.

Initially, we hoped the pandemic's damage would be limited to one country or region, especially as Mainland China and South Korea began recovering. By mid-March, results deteriorated in North America, Europe, and numerous countries across Asia Pacific. We never before experienced a time when 90% of our store fleet was either closed or on shortened operating hours. It's clear that the crisis will have an impact lasting beyond a quarter or two. We're taking steps to mitigate the impact on a business that requires sales growth to leverage brick-and-mortar store expenses.

Especially as mainland China in South Korea began recovering.

By mid March results deteriorated in North America, Europe, and numerous countries across Asia Pacific.

We never before experienced a time when 90% of our store fleet was either closed or on shortened operating hours.

It's clear that the crisis will have an impact lasting beyond a quarter or too.

We're taking steps to mitigate the impact on a business that requires sales growth to leverage brick and mortar store expenses.

Jide Zeitlin: As we look ahead, we're focusing our efforts on four key areas: protecting the health and well-being of our people, our consumers, and our communities. Driving digital revenue and revenue in China and South Korea while preparing for store reopenings. Accelerating key elements of our multi-year growth agenda. And preserving liquidity and enhancing financial flexibility, which Joanne will take you through shortly. First, guided by our values, we have prioritized our community: our people, their families, and our customers. Nearly three months ago, we acted swiftly to close stores in Mainland China. We reopened where it was safe to do so. We've continued to provide pay and benefits to our retail associates while moving our corporate staff to a remote working environment, initially in China, today in North America and Europe.

As we look ahead, we're focusing our efforts on four key areas: protecting the health and well-being of our people, our consumers, and our communities. Driving digital revenue and revenue in China and South Korea while preparing for store reopenings. Accelerating key elements of our multi-year growth agenda. And preserving liquidity and enhancing financial flexibility, which Joanne will take you through shortly. First, guided by our values, we have prioritized our community: our people, their families, and our customers. Nearly three months ago, we acted swiftly to close stores in Mainland China. We reopened where it was safe to do so. We've continued to provide pay and benefits to our retail associates while moving our corporate staff to a remote working environment, initially in China, today in North America and Europe.

As we look ahead, we're focusing our efforts on four key areas.

Checking the health and wellbeing of our people are can.

Tumors and our communities.

Driving digital revenue and revenue in China, and South Korea, while preparing for store reopening.

Accelerating key elements of our multiyear growth agenda.

And preserving liquidity enhancing financial flexibility, which Joanne will take you through shortly.

First guided by our values, we have prioritize our community or people their families and our customers.

You are only three months ago, we acted swiftly to close stores in mainland China.

We reopened where it was safe to do so.

We've continued to provide pay and benefits to our retail associates, while moving our corporate staff to our remote working environment.

Initially in China today in North America and Europe.

While our distribution centers remain operational we've instituted enhance health and safety precautions.

Jide Zeitlin: While our distribution centers remained operational, we've instituted enhanced health and safety precautions, and we're supporting our local communities through philanthropic donations from our brand foundations and specific initiatives around PPE. I am incredibly proud of our teams around the world and want to express my gratitude for the spirit and dedication they show every day. Second, here are the actions we've taken to drive revenues and reopen stores. We've seen green shoots and are confident we will weather the storm and emerge strong. During our last earnings call, I noted that the vast majority of our Mainland China stores were closed. By mid-March, 95% of our stores on the mainland were open, although traffic lagged year-ago levels. Over the last six weeks, we've opened all remaining stores and we've seen brick-and-mortar sales build, led by retail.

While our distribution centers remained operational, we've instituted enhanced health and safety precautions, and we're supporting our local communities through philanthropic donations from our brand foundations and specific initiatives around PPE. I am incredibly proud of our teams around the world and want to express my gratitude for the spirit and dedication they show every day. Second, here are the actions we've taken to drive revenues and reopen stores. We've seen green shoots and are confident we will weather the storm and emerge strong. During our last earnings call, I noted that the vast majority of our Mainland China stores were closed. By mid-March, 95% of our stores on the mainland were open, although traffic lagged year-ago levels. Over the last six weeks, we've opened all remaining stores and we've seen brick-and-mortar sales build, led by retail.

And we're supporting our local communities through philanthropic donations from our brand foundations and specific.

Big initiatives around PB.

I'm incredibly proud of our teams around the world I want to express my gratitude for the spirit and dedication they show every day.

Second here are the actions, we've taken to drive revenues and Riocan stores.

We've seen green shoots and are confident we will weathered the storm and emerge strong.

During our last earnings call I notice that the vast majority of our mainland China stores were closed.

By mid March 95% of our stores on the mainland we're open although traffic lag a year ago levels.

Over the last six weeks, we've opened all remaining stores and we've seen brick and mortar sale build led by retail.

Jide Zeitlin: We've also seen significant disparities within the country, impacted in part by domestic travel restrictions. Unlike some of our European counterparts, the preponderance of our sales to the Chinese consumer globally have historically occurred in China. While our sales are encouraging, we're not experiencing outsized domestic growth driven by the repatriation of tourist spending. In addition to these dynamics in China, revenues in South Korea are recovering. All our stores in South Korea are operating under normal hours. We learned important lessons from our Chinese business, which are informing our actions globally as we start to turn the lights back on in Europe, North America, and the rest of the world. Maximum customer densities, the use of masks and gloves where appropriate, offering sanitizers and wipes at cash wraps, and the availability of contactless payment and other measures.

We've also seen significant disparities within the country, impacted in part by domestic travel restrictions. Unlike some of our European counterparts, the preponderance of our sales to the Chinese consumer globally have historically occurred in China. While our sales are encouraging, we're not experiencing outsized domestic growth driven by the repatriation of tourist spending. In addition to these dynamics in China, revenues in South Korea are recovering. All our stores in South Korea are operating under normal hours. We learned important lessons from our Chinese business, which are informing our actions globally as we start to turn the lights back on in Europe, North America, and the rest of the world. Maximum customer densities, the use of masks and gloves where appropriate, offering sanitizers and wipes at cash wraps, and the availability of contactless payment and other measures.

We've also seen significant disparities within the country impacted in part by domestic travel restrictions.

Unlike some of our European counterparts.

Ponderous of our sales to the Chinese consumer globally have historically occurred in China right.

While our sales are encouraging we're not experiencing outsized domestic growth driven by the repatriation of tourist spending.

In addition to these dynamics in China revenues in South Korea are recovering.

All our stores in South Korea, or operating under normal hours.

We learned important left.

Essence from our Chinese business, which are informing our actions globally as we start to turn the lights back on in Europe North America.

Okay and the rest of the.

Maximum customer death densities.

The use of masks and gloves where appropriate.

Offering sanitizers in waves a cash wraps.

And the availability of contactless payment and other measures.

In accordance with these guidelines I'm pleased to announce the tomorrow, we will reopen approximately 40 stores in North America with only costs Atlas Curbside, we're storefront pickup service customers will have the ability to place orders over the phone and for some retail stores online as well and have orders brought to them curbside.

Jide Zeitlin: In accordance with these guidelines, I'm pleased to announce that tomorrow we will reopen approximately 40 stores in North America with only contactless curbside or storefront pickup service. Customers will have the ability to place orders over the phone and, for some retail stores, online as well, and have orders brought to them curbside or at the storefront, depending on mall configurations. We plan to offer this service in additional stores in the future. As of today, we've reopened 5 locations in Germany and Austria, as well as 12 in Australia. Moving from brick-and-mortar to digital. Not surprisingly, e-commerce was a bright spot this quarter, and we leaned into it. We shifted our marketing investment and focus to strengthen our presence in consumer channels where our consumer shops today. Responding digitally is particularly important in a world where the majority of our physical stores are closed.

In accordance with these guidelines, I'm pleased to announce that tomorrow we will reopen approximately 40 stores in North America with only contactless curbside or storefront pickup service. Customers will have the ability to place orders over the phone and, for some retail stores, online as well, and have orders brought to them curbside or at the storefront, depending on mall configurations. We plan to offer this service in additional stores in the future. As of today, we've reopened 5 locations in Germany and Austria, as well as 12 in Australia. Moving from brick-and-mortar to digital. Not surprisingly, e-commerce was a bright spot this quarter, and we leaned into it. We shifted our marketing investment and focus to strengthen our presence in consumer channels where our consumer shops today. Responding digitally is particularly important in a world where the majority of our physical stores are closed.

Whereas the storefront depending on mail on mall configurations. We planned offers this service in additional stores in the future.

As of today, we reopened five locations in Germany, and Austria, as well as a dozen in Australia.

Moving from brick and mortar to digital.

Not surprisingly ecommerce was a bright spots this quarter and we leaned into it.

We shifted our marketing investment and focus to strengthen our president and consumer channels, where our consumer shops today.

Responding digitally is particularly important in a world where the majority of our physical stores are close.

Roughly 10% of tapestries pre cobot sales regenerated online.

Jide Zeitlin: Roughly 10% of Tapestry's pre-COVID sales were generated online. Leaning into digital as this secular trend accelerates is a significant opportunity and a critical element of our customer-centric growth agenda. Our global distribution centers are operating with little interruption. This is key to servicing increasing e-commerce demand. We had no material China-related supply chain issues. We manufacture limited product in China and have a geographically diversified manufacturing and sourcing base. Subsequent to quarter-end, there were more disruptions across Asia and Europe. However, we successfully worked with our raw material and service providers to actively balance changing levels of supply and demand. We're pleased that most of our partners in Europe have reopened, including tanneries in Italy and footwear makers in Spain. Our distribution and logistics operations, including shipping, trucking, and air freight, are in good order.

Roughly 10% of Tapestry's pre-COVID sales were generated online. Leaning into digital as this secular trend accelerates is a significant opportunity and a critical element of our customer-centric growth agenda. Our global distribution centers are operating with little interruption. This is key to servicing increasing e-commerce demand. We had no material China-related supply chain issues. We manufacture limited product in China and have a geographically diversified manufacturing and sourcing base. Subsequent to quarter-end, there were more disruptions across Asia and Europe. However, we successfully worked with our raw material and service providers to actively balance changing levels of supply and demand. We're pleased that most of our partners in Europe have reopened, including tanneries in Italy and footwear makers in Spain. Our distribution and logistics operations, including shipping, trucking, and air freight, are in good order.

Leaning into digital as this secular trend accelerates is a significant opportunity.

And a critical element of our customer centric growth agenda.

Our global distribution centers are operating was little interruption.

This is key to servicing increasing ecommerce demand.

We had no material China related supply chain issues, we manufacture limited product in China and have a geographically diversified manufacturing and sourcing base subsequent to quarter end, there were more disruptions across Asia and Europe.

However, we successfully worked with our raw material in service providers to actively balance changing levels of supply and demand.

We're pleased the most of our partners in Europe have reopened including Tanneries in Italy, and footwear makers in Spain.

Our distribution and logistics operations, including shipping trucking and airfreight are in good order.

Importantly, we're acting.

Jide Zeitlin: Importantly, we're acting decisively to fast-track work already underway prior to the onset of COVID-19, work focused on driving outsized growth in digital and creating a more streamlined and data-driven organization. We do not know how long this pandemic will impact us, but the world will be different on the other side. Consumer behaviors are changing, and secular trends are accelerating. As mentioned earlier, one of the most important consumer trends is digital, with increasing online consumer exploration, engagement, and purchasing. We're advancing our understanding of consumers' digital experiences to respond to their needs and desires. We must be better able to meet consumers where they are traveling. The shift from brick-and-mortar to digital shopping is accelerating. Physical stores will always play a vital role in a consumer's experience with our brands, but we expect their share versus digital will move towards greater parity.

Importantly, we're acting decisively to fast-track work already underway prior to the onset of COVID-19, work focused on driving outsized growth in digital and creating a more streamlined and data-driven organization. We do not know how long this pandemic will impact us, but the world will be different on the other side. Consumer behaviors are changing, and secular trends are accelerating. As mentioned earlier, one of the most important consumer trends is digital, with increasing online consumer exploration, engagement, and purchasing. We're advancing our understanding of consumers' digital experiences to respond to their needs and desires. We must be better able to meet consumers where they are traveling. The shift from brick-and-mortar to digital shopping is accelerating. Physical stores will always play a vital role in a consumer's experience with our brands, but we expect their share versus digital will move towards greater parity.

Decisively to fast track work already underway prior to the onset of covert 19.

Work focused on driving outsized growth in digital and creating a more streamlined the data driven organization.

We do not know how long this endemic will impact us, but the world will be different on the others on the other side.

Tumor behaviors are changing and secular trends are accelerating.

As mentioned earlier, one of the most important consumer trends as digital with increasing online consumer exploration engagement and purchasing.

We're advancing our understanding of consumers digital experiences to respond to their needs and desires, we must be better able to meet consumers where they are traveling.

The shift from brick and mortar digital shopping is accelerating.

Physical stores will always live a vital role in consumers experience with our brands, but we expect their share versus digital will move towards greater parity.

Growth in digital represents a consumer expressing whereas they prefer to shop and we have to acknowledge the shift.

Jide Zeitlin: Growth in digital represents a consumer expressing where they prefer to shop, and we have to acknowledge this shift. For example, this means extending our partnership with Tmall in China. This also means carefully scrutinizing our distribution network as stores reopen and traffic levels normalize at what could be lower post-COVID-ian brick-and-mortar levels. Successful business models for the future will make substantial investments in enabling platforms. We are also reimagining our operating model and culture. Being rigorous about leveraging data proactively to make forward decisions is critical. Listening to the consumer is job one. Before turning to Joanne, I'll briefly describe strategies specific to each of our brands. Starting with Coach, our focus is on three areas: digital engagement, accelerating growth in China, and operational excellence achieved through right-sizing our SG&A cost structure and improved balance sheet management. Digital, which, as we've discussed, is more than a shopping platform.

Growth in digital represents a consumer expressing where they prefer to shop, and we have to acknowledge this shift. For example, this means extending our partnership with Tmall in China. This also means carefully scrutinizing our distribution network as stores reopen and traffic levels normalize at what could be lower post-COVID-ian brick-and-mortar levels. Successful business models for the future will make substantial investments in enabling platforms. We are also reimagining our operating model and culture. Being rigorous about leveraging data proactively to make forward decisions is critical. Listening to the consumer is job one. Before turning to Joanne, I'll briefly describe strategies specific to each of our brands. Starting with Coach, our focus is on three areas: digital engagement, accelerating growth in China, and operational excellence achieved through right-sizing our SG&A cost structure and improved balance sheet management. Digital, which, as we've discussed, is more than a shopping platform.

For example, this means extending our partnership with T Mall in China. This also means carefully scrutinizing, our distribution network and stores reopened and traffic levels normalized and what could be lower post covidien brick and mortar levels.

Successful business model for the future will make substantial investments in enabling platforms. We are also re imagining our operating model and culture.

Being rigorous about leveraging data proactively to make forward.

Decision is critical listening to the consumer is job one.

Before turning to Joanne I'll briefly described strategies specific to each of our brands.

Starting with coach.

Our focus is on three areas digital engagement accelerating growth in China, and operational excellence achieved through Rightsizing, our SGN, a cost structure and improved balance sheet management.

Digital which as we've discussed is more than a shopping platform, it's about meeting with engaging and empowering the consumer and connecting with their values.

Jide Zeitlin: It's about meeting with, engaging, and empowering the consumer in connecting with their values. China represents Coach's largest geographic growth opportunity. Chinese customers are proving resilience in their continued appetite for fashion and luxury. Our strong brand momentum and positioning will enable us to benefit from the rapid growth of the Chinese middle class. Already highly digitally engaged, Chinese consumers have increased their digital interaction with Coach through official social media sites, as well as by engaging store associates on social media platforms such as WeChat. Coach conducted hundreds of live stream sessions that proved an important way to drive business. Finally, we're focused on improving operational efficiencies in both the near and long term. First, we're assessing our global store fleet and holding individual stores to a higher productivity threshold. Second, we're materially reducing our SKU assortment with the objective of significantly improving supply chain efficiencies and inventory turns.

It's about meeting with, engaging, and empowering the consumer in connecting with their values. China represents Coach's largest geographic growth opportunity. Chinese customers are proving resilience in their continued appetite for fashion and luxury. Our strong brand momentum and positioning will enable us to benefit from the rapid growth of the Chinese middle class. Already highly digitally engaged, Chinese consumers have increased their digital interaction with Coach through official social media sites, as well as by engaging store associates on social media platforms such as WeChat. Coach conducted hundreds of live stream sessions that proved an important way to drive business. Finally, we're focused on improving operational efficiencies in both the near and long term. First, we're assessing our global store fleet and holding individual stores to a higher productivity threshold. Second, we're materially reducing our SKU assortment with the objective of significantly improving supply chain efficiencies and inventory turns.

China represents coaches largest geographic growth opportunity.

Chinese customers are proving resilience in their continued appetite for fashion in luxury.

Our strong brand momentum and positioning will enable us to benefit from the rapid.

The growth of the Chinese Middle class.

Already highly digitally engaged Chinese consumers have increased their digital interaction with coach through official social media sites as well as by engaging store associates on social media platforms, such as we chat.

Coach conducted hundreds of livestream sessions approved an important way to drive business.

Finally, we are focused on improving operational efficiencies in both.

Near and long term.

First we're assessing our global store fleet and holding individual stores to a higher productivity threshold.

Second we are materially reducing our SK you assortment with the objective of significantly improving supply chain efficiencies and inventory turns.

Third we're substantially reducing our corporate payroll, while maintaining best in class brand experience and service levels.

Jide Zeitlin: Third, we're substantially reducing our corporate payroll while maintaining best-in-class brand experience and service levels. At Kate Spade, Liz Fraser is fully engaged in every aspect of the business, with a great emphasis on community and customer, understanding the consumer more thoroughly in order to better serve and engage her. As a result, in recent weeks, the effectiveness of digital marketing has driven major increases in the e-commerce business as well as in social media engagement. And though stores largely remain closed, the team is finding new approaches. Some retail customers have personally reached out, and so the brand has begun testing Zoom shopping parties with notable success. Turning to Stuart Weitzman, while we are disappointed in the brand's recent performance and the related impairment charge, we remain confident in the brand's long-term potential and are focused on returning it to sustainable, profitable growth.

Third, we're substantially reducing our corporate payroll while maintaining best-in-class brand experience and service levels. At Kate Spade, Liz Fraser is fully engaged in every aspect of the business, with a great emphasis on community and customer, understanding the consumer more thoroughly in order to better serve and engage her. As a result, in recent weeks, the effectiveness of digital marketing has driven major increases in the e-commerce business as well as in social media engagement. And though stores largely remain closed, the team is finding new approaches. Some retail customers have personally reached out, and so the brand has begun testing Zoom shopping parties with notable success. Turning to Stuart Weitzman, while we are disappointed in the brand's recent performance and the related impairment charge, we remain confident in the brand's long-term potential and are focused on returning it to sustainable, profitable growth.

At Kate Spade lives Frazier is fully engaged in every aspect of the business with them.

Great emphasis on community and customer understanding the consumer more thoroughly in order to better serve and Engager.

As a result in recent weeks the effectiveness of digital marketing has driven major increases in the E commerce business as well as in social media engagement.

And those stores largely remain close.

The team is finding new approaches.

Some retail customers of personally reached out and so the brand has begun testing zoom shopping parties with notable success.

Turning to see.

So were weitzman, while we are disappointed in the brands recent performance and the related impairment charge, we remain confident in the brands long term potential and are focused on returning it to some.

Seasonable profitable growth.

Our teams led by Giorgio Saar Nay are executing a number of key initiatives, including.

Jide Zeitlin: Our teams, led by Giorgio Sarné, are executing a number of key initiatives, including: first, creating a focused assortment that speaks to the brand's fashion sensibility and leadership position in the boot, espadrille, and sandal categories. As an example, we just recently launched our new espadrille family, once a key platform for the brand and a nod to our Spanish ties. We're pleased with the early online performance. Second, driving growth in China through strategic store openings and marketing investment. And third, expanding the brand's digital capabilities. Examples include: buy online and pick up in store, a key omnichannel functionality, an innovative browsing experience to increase discovery and conversion, and more efficient customer segmenting and targeting capabilities that will enable us to increase customer personalization. In summary, no one is immune to the effects of this 100-year storm.

Our teams, led by Giorgio Sarné, are executing a number of key initiatives, including: first, creating a focused assortment that speaks to the brand's fashion sensibility and leadership position in the boot, espadrille, and sandal categories. As an example, we just recently launched our new espadrille family, once a key platform for the brand and a nod to our Spanish ties. We're pleased with the early online performance. Second, driving growth in China through strategic store openings and marketing investment. And third, expanding the brand's digital capabilities. Examples include: buy online and pick up in store, a key omnichannel functionality, an innovative browsing experience to increase discovery and conversion, and more efficient customer segmenting and targeting capabilities that will enable us to increase customer personalization. In summary, no one is immune to the effects of this 100-year storm.

First creating a focus assortment that speaks to the brands fashion sensibility and leadership position in the boot as for drill and sandals categories. As an example, we just recently launch our new Espadrilles badly wants to keep platform the brand and a nod to our Spanish highs.

We're pleased with the early online performance.

Second driving growth in China through strategic store openings and marketing investment.

And third expanding the brands digital capabilities. Examples include body online and pick up in store a key omnichannel functionality.

And innovative browsing experiencing increased discovery and conversion.

And more efficient customer segmenting and.

Targeting capabilities that will enable us to increase customer personalization.

In summary, no one is immune to the effects of this 100 years storm.

We're taking aggressive actions to assure the tapestry emerges a strong company when conditions normalize.

Jide Zeitlin: We're taking aggressive actions to assure that Tapestry emerges as a strong company when conditions normalize. We have a strong balance sheet. We benefit from actions taken to mitigate the impact of the COVID-19 crisis. Joanne?

We're taking aggressive actions to assure that Tapestry emerges as a strong company when conditions normalize. We have a strong balance sheet. We benefit from actions taken to mitigate the impact of the COVID-19 crisis. Joanne?

We have a strong balance sheet.

We benefit.

Taken to mitigate the impact of the coated 19 crisis Joanne.

Thanks, Jay and good morning, everyone I hope the signed you all safe and well.

Andrea Resnick: Thanks, Jide, and good morning, everyone. I hope this finds you all safe and well. Before I begin, please keep in mind that my comments are based on non-GAAP results. Corresponding GAAP results and the related reconciliation can be found in the earnings release posted on our website today. Turning to our Q3 financial results, which reflect the significant negative impact of the coronavirus. Total sales declined 19% on both a reported and constant currency basis for the quarter. We entered the quarter with strong momentum. However, as we moved into February, trends in Greater China deteriorated sharply due to the coronavirus outbreak, declining over 80% versus prior year for the month, while top-line trends elsewhere remained positive. To this end, on a quarter-to-date basis through February, total sales increased double digits in Europe, mid-single digits in North America, and low single digits in Japan.

Joanne Crevoiserat: Thanks, Jide, and good morning, everyone. I hope this finds you all safe and well. Before I begin, please keep in mind that my comments are based on non-GAAP results. Corresponding GAAP results and the related reconciliation can be found in the earnings release posted on our website today. Turning to our Q3 financial results, which reflect the significant negative impact of the coronavirus. Total sales declined 19% on both a reported and constant currency basis for the quarter. We entered the quarter with strong momentum. However, as we moved into February, trends in Greater China deteriorated sharply due to the coronavirus outbreak, declining over 80% versus prior year for the month, while top-line trends elsewhere remained positive. To this end, on a quarter-to-date basis through February, total sales increased double digits in Europe, mid-single digits in North America, and low single digits in Japan.

Before I begin please keep in mind that my comments are based on non-GAAP results corresponding GAAP results in the related reconciliation can be found it.

And the earnings release posted on our website today.

Turning to our third quarter financial results, which reflects the significant negative impact of the carotid virus.

Total sales declined 19% on both the reported and constant currency basis for the quarter.

We entered the quarter with strong momentum however, as we moved into February trends in greater China deteriorated sharply due to the carotid virus outbreak declining over 80% versus prior year for the month, while top line trends elsewhere remains positive.

To this end on a quarter to date basis through February total sales increased double digits in Europe mid single digits in North America, and a low single digits in Japan.

In March although revenue trends began to gradually and steadily improve in certain areas first impacted notably in China, we experienced widespread global disruption.

Andrea Resnick: In March, although revenue trends began to gradually and steadily improve in certain areas first impacted, notably in China, we experienced widespread global disruption. Accordingly, Tapestry's global sales fell over 40% in March from the prior year, reflecting the added pressure from store closures in North America and Europe, which began mid-month. Importantly, throughout the quarter, we experienced strong double-digit growth in our global e-commerce business. However, this was not enough to offset the loss of business due to our store closures. Gross margin decreased 210 basis points compared to prior year in the third quarter, primarily due to the lower penetration of higher-margin international businesses. SG&A declined 3% year-over-year, driven by variable savings on the lower revenue base as well as the realization of fixed cost savings in light of the current environment. I will touch on some of these actions momentarily.

In March, although revenue trends began to gradually and steadily improve in certain areas first impacted, notably in China, we experienced widespread global disruption. Accordingly, Tapestry's global sales fell over 40% in March from the prior year, reflecting the added pressure from store closures in North America and Europe, which began mid-month. Importantly, throughout the quarter, we experienced strong double-digit growth in our global e-commerce business. However, this was not enough to offset the loss of business due to our store closures. Gross margin decreased 210 basis points compared to prior year in the third quarter, primarily due to the lower penetration of higher-margin international businesses. SG&A declined 3% year-over-year, driven by variable savings on the lower revenue base as well as the realization of fixed cost savings in light of the current environment. I will touch on some of these actions momentarily.

Accordingly, tapestries global sales fell over 40% in March from the prior year, reflecting the added pressure from store closures in North America, and Europe, which began mid month.

Importantly throughout the quarter, we experienced strong double digit growth in our global ecommerce business. However, this was not enough to offset the lots of business due to our store closures.

Gross margin decreased 210 basis points compared to prior year in the third quarter, primarily due to the lower penetration of higher margin international businesses.

SGN aid declined 3% year over year, driven by variable savings and the lower revenue base as well as the realization of fixed cost savings in light of the current environment I will touch on some of these actions momentarily.

The operating loss for the quarter totaled $32 million and earnings per diluted share was a loss of 27 cents.

Andrea Resnick: The operating loss for the quarter totaled $32 million, and earnings per diluted share was a loss of $0.27. The EPS result included a negative impact of approximately $0.10 from an unfavorable tax rate as compared to our original projections. Due to the lack of visibility and potential variability in results through the end of our fiscal year, the Q3 tax rate was determined based on year-to-date actual results only, which included geographic mix headwinds in the quarter. This is in contrast to our historical method of calculation based on full annual forecasted results. On the balance sheet, we ended the quarter in a strong liquidity position with just under $900 million in cash and cash equivalents and $900 million available on our revolver. Total borrowings outstanding at the end of the quarter were $1.6 billion.

The operating loss for the quarter totaled $32 million, and earnings per diluted share was a loss of $0.27. The EPS result included a negative impact of approximately $0.10 from an unfavorable tax rate as compared to our original projections. Due to the lack of visibility and potential variability in results through the end of our fiscal year, the Q3 tax rate was determined based on year-to-date actual results only, which included geographic mix headwinds in the quarter. This is in contrast to our historical method of calculation based on full annual forecasted results. On the balance sheet, we ended the quarter in a strong liquidity position with just under $900 million in cash and cash equivalents and $900 million available on our revolver. Total borrowings outstanding at the end of the quarter were $1.6 billion.

He asked result included a negative impact of approximately 10 cents from an unfavorable tax rate as compared to our original projections.

Due to the lack of visibility in potential variability in results through the end of our fiscal year. The Q3 tax rate was determined based on year to date actual results only which included geographic mix headwinds in the quarter.

This is in contrast to our historical method of calculation based on full annual forecasted results.

On the balance sheet, we ended the quarter and a strong liquidity position with just under $900 million in cash and cash equivalents and $900 million available on our revolver.

Total borrowings outstanding at the ended the quarter were $1.6 billion.

Total inventory ended the quarter up 5%, reflecting actions taken in the quarter and the recognition of incremental obsolescence reserves in light of the current environment.

Andrea Resnick: Total inventory ended the quarter up 5%, reflecting actions taken in the quarter and the recognition of incremental obsolescence reserves in light of the current environment. As you saw today in our press release, we took a number of charges in the quarter, in part related to the COVID-19 crisis. First, we recorded $478 million in brand intangible and goodwill impairment charges associated with Stuart Weitzman. These charges were a result of a decline in both current and future expected cash flows, which was exacerbated by the COVID-19 pandemic. Clearly, we have been disappointed with the brand's performance and recognize the need to get back to its core proposition, as Giorgio mentioned. We have done a substantial amount of work to understand the consumer and believe there is a significant opportunity given its unique fusion of fashion and fit.

Total inventory ended the quarter up 5%, reflecting actions taken in the quarter and the recognition of incremental obsolescence reserves in light of the current environment. As you saw today in our press release, we took a number of charges in the quarter, in part related to the COVID-19 crisis. First, we recorded $478 million in brand intangible and goodwill impairment charges associated with Stuart Weitzman. These charges were a result of a decline in both current and future expected cash flows, which was exacerbated by the COVID-19 pandemic. Clearly, we have been disappointed with the brand's performance and recognize the need to get back to its core proposition, as Giorgio mentioned. We have done a substantial amount of work to understand the consumer and believe there is a significant opportunity given its unique fusion of fashion and fit.

As you start today in our press release, we took a number of charges in the quarter in part related to the covert 19 crisis.

First we recorded $478 million in brand intangible and goodwill impairment charges associated with Stuart Weitzman.

These charges were a result of a decline in both current and future expected cash flows which was exacerbated by the coded 19 pandemic.

Clearly we have been disappointed with the brand performance and recognize the need to get back to its core proposition as Jay mentioned.

We have done a substantial amount of work to understand the consumer and believe there is it's.

Significant opportunity given its unique fusion of fashion and set.

Andrea Resnick: We are also committed to improving profitability at Stuart Weitzman, which will be an element of Tapestry's multi-year growth agenda. In addition, as mentioned, we recorded $104 million in charges related to an increase in inventory reserves, and we incurred $66 million in store impairment charges due to COVID-19. Now, moving to mitigating actions that we have and will be taking to effectively navigate the COVID-19 pandemic and reinforce our financial flexibility while positioning the company for long-term growth. We've identified or implemented over $1.3 billion in cash preservation actions. First, we are tightly managing inventories by reflowing late spring and early summer product introductions. These are goods that were in production at the start of the coronavirus outbreak. We are also canceling delivery scheduled for late summer and early fall 2020.

We are also committed to improving profitability at Stuart Weitzman, which will be an element of Tapestry's multi-year growth agenda. In addition, as mentioned, we recorded $104 million in charges related to an increase in inventory reserves, and we incurred $66 million in store impairment charges due to COVID-19. Now, moving to mitigating actions that we have and will be taking to effectively navigate the COVID-19 pandemic and reinforce our financial flexibility while positioning the company for long-term growth. We've identified or implemented over $1.3 billion in cash preservation actions. First, we are tightly managing inventories by reflowing late spring and early summer product introductions. These are goods that were in production at the start of the coronavirus outbreak. We are also canceling delivery scheduled for late summer and early fall 2020.

We're also committed to improving profitability, it's Stuart Weitzman, which will be an element of tapestries multiyear growth agenda.

In addition, as mentioned we recorded $104 million in charges related to an increase in inventory reserves and we incurred $66 million in store impairment charges due to covert night team.

Now moving to mitigating actions that we have and will be taking to effectively navigate the cobot 19 pandemic and reinforce our financial flexibility while positioning the company for long term growth.

We've identified are implemented over $1.3 billion in cash preservation actions.

First we are tightly managing inventories by re flowing late spring and early summer product introductions.

These are goods that were in production at the start of the current a virus outbreak.

We're also canceling delivery scheduled for late summer and early fall 2020.

Taken together. These actions are expected to result in over $500 million of working capital savings beginning in Q4 and continuing through the first half of fiscal year 21.

Andrea Resnick: Taken together, these actions are expected to result in over $500 million of working capital savings beginning in Q4 and continuing through the first half of fiscal year 2021. We are also targeting a CapEx reduction of at least $100 million in fiscal 2021 as compared to our run-rate spend of approximately $275 million as we delay or cancel new store openings while prioritizing investment in high-return projects, notably in digital. In addition, we have canceled or deferred projects previously scheduled for our fiscal fourth quarter and now expect CapEx of approximately $225 million for fiscal year 2020, $75 million lower than our original plan for the year. Subsequent to quarter-end, we drew down $700 million of our $900 million revolving credit facility to enhance our cash balances, bringing our total borrowings outstanding to $2.3 billion. In addition to these measures, we are also aggressively controlling our SG&A spend.

Taken together, these actions are expected to result in over $500 million of working capital savings beginning in Q4 and continuing through the first half of fiscal year 2021. We are also targeting a CapEx reduction of at least $100 million in fiscal 2021 as compared to our run-rate spend of approximately $275 million as we delay or cancel new store openings while prioritizing investment in high-return projects, notably in digital. In addition, we have canceled or deferred projects previously scheduled for our fiscal fourth quarter and now expect CapEx of approximately $225 million for fiscal year 2020, $75 million lower than our original plan for the year. Subsequent to quarter-end, we drew down $700 million of our $900 million revolving credit facility to enhance our cash balances, bringing our total borrowings outstanding to $2.3 billion. In addition to these measures, we are also aggressively controlling our SG&A spend.

We're also targeting a capex reduction of at least $100 million in fiscal 21 as compared to our run rate spend of approximately $275 million as we delay or cancel new store openings, while prioritizing investment in high return projects, notably in digital.

In addition, we have canceled or deferred projects previously scheduled for our fiscal fourth quarter and now expect capex of approximately $225 million for fiscal year 20, $75 million lower than our original plan for the year.

Subsequent to quarter end, we drew down $700 million of our 900 million dollar revolving credit facility to enhance our cash balances, bringing our total borrowings outstanding to $2.3 billion.

In addition to these measures we're also aggressively controlling our S. CNH then.

We are rightsizing marketing expenses, reducing fixed cost such as rent in driving procurement savings, including reducing external third party services.

Andrea Resnick: We are right-sizing marketing expenses, reducing fixed costs such as rent, and driving procurement savings, including reducing external third-party services. We've also announced steps to minimize corporate costs, including temporary compensation reductions for our board, management team, and employees. And while we are pleased that we were in a position to extend salary and benefits to the vast majority of our North America retail team through 30 May despite store closures, we will furlough most assistant store managers and sales associates should stores not reopen at that time. Beyond these near-term defensive actions, we've also accelerated part of our multi-year growth agenda to create a more streamlined organization, as Jide previously mentioned. We began these actions in Q4 and expect to be complete by the end of fiscal year 2021.

We are right-sizing marketing expenses, reducing fixed costs such as rent, and driving procurement savings, including reducing external third-party services. We've also announced steps to minimize corporate costs, including temporary compensation reductions for our board, management team, and employees. And while we are pleased that we were in a position to extend salary and benefits to the vast majority of our North America retail team through 30 May despite store closures, we will furlough most assistant store managers and sales associates should stores not reopen at that time. Beyond these near-term defensive actions, we've also accelerated part of our multi-year growth agenda to create a more streamlined organization, as Jide previously mentioned. We began these actions in Q4 and expect to be complete by the end of fiscal year 2021.

We've also announced steps to minimize corporate costs, including temporary compensation reductions for our board management team and employees.

And while we're pleased that we were in a position to extend salary and benefits to the vast majority of our North America retail team through May Thirtyth. Despite store closures, we will furlough most assistant store managers in sales associates should stores not reopen at that time.

Beyond these near term defensive actions. We've also accelerated part of our multiyear growth agenda to create a more streamlined organization SG. They previously mentioned.

We began these actions in Q4 and expect to be complete by the end of fiscal year 21.

We believe these steps will allow tapestry to emerge as a global consumer centric company with a more agile organizational structure that will be more responsive to the rapidly changing retail environment.

Andrea Resnick: We believe these steps will allow Tapestry to emerge as a global, consumer-centric company with a more agile organizational structure that will be more responsive to the rapidly changing retail environment. And finally, we made the decision to suspend our quarterly cash dividend and share repurchase programs, saving approximately $700 million on an annualized basis as compared to fiscal 2020. In the near term, our priority is to preserve our cash on hand in light of the environment. Longer term, our strategic intent is to return to sustainable top and bottom-line growth and strong free cash flow generation, which we intend to utilize for debt paydown as well as capital return to shareholders through dividends and share repurchases.

We believe these steps will allow Tapestry to emerge as a global, consumer-centric company with a more agile organizational structure that will be more responsive to the rapidly changing retail environment. And finally, we made the decision to suspend our quarterly cash dividend and share repurchase programs, saving approximately $700 million on an annualized basis as compared to fiscal 2020. In the near term, our priority is to preserve our cash on hand in light of the environment. Longer term, our strategic intent is to return to sustainable top and bottom-line growth and strong free cash flow generation, which we intend to utilize for debt paydown as well as capital return to shareholders through dividends and share repurchases.

And finally, we made the decision to suspend our quarterly cash dividend and share repurchase programs saving approximately $700 million on an annualized basis as compared to fiscal 2020.

In the near term our priority is to preserve our cash on hand in light of the environment.

Longer term, our strategic intent is to return to sustainable top and Bottomline growth and strong free cash flow generation, which we intend to utilize for debt pay down as well as capital return to shareholders through dividends and share repurchases.

In closing as noted in our release, while we're not providing guidance at this time due to the lack of visibility we do still intend to hold an analyst and Investor day. This summer to discuss our long term strategies.

Andrea Resnick: In closing, as noted in our release, while we are not providing guidance at this time due to the lack of visibility, we do still intend to hold an analyst and investor day this summer to discuss our long-term strategies. We believe in the benefits of Tapestry's multi-brand model and the power of each of our brands. This is particularly true during challenging times when the advantages of scale, as well as shared best practices and systems, come to bear. Our objective is to successfully navigate this crisis through the identification and execution of mitigating actions that ensure we emerge a stronger, more agile company. This will require us to make both bold and difficult decisions. It has also created the opportunity and the need to accelerate key elements of our multi-year growth agenda.

In closing, as noted in our release, while we are not providing guidance at this time due to the lack of visibility, we do still intend to hold an analyst and investor day this summer to discuss our long-term strategies. We believe in the benefits of Tapestry's multi-brand model and the power of each of our brands. This is particularly true during challenging times when the advantages of scale, as well as shared best practices and systems, come to bear. Our objective is to successfully navigate this crisis through the identification and execution of mitigating actions that ensure we emerge a stronger, more agile company. This will require us to make both bold and difficult decisions. It has also created the opportunity and the need to accelerate key elements of our multi-year growth agenda.

We believe in the benefits of tapestries multi brand model and the power of each of our brands. This is particularly true during challenging times.

When the advantages of scale as well as shared best practices and systems come to bear.

Our objective is to successfully navigate this crisis through the identification and execution of mitigating actions that ensure we emerge a stronger more agile company. This will require us to make both old and difficult decisions.

It has also created the opportunity and the need to accelerate key elements of our multiyear growth agenda.

Importantly, our view of the long term opportunities for our brands is unchanged and our strategic intent to drive organic growth and profitability is unwavering.

Andrea Resnick: Importantly, our view of the long-term opportunities for our brands is unchanged, and our strategic intent to drive organic growth and profitability is unwavering. And now I'd like to open it up to Q&A.

Importantly, our view of the long-term opportunities for our brands is unchanged, and our strategic intent to drive organic growth and profitability is unwavering. And now I'd like to open it up to Q&A.

And now I'd like to open it up to QNX.

[music].

Thank you at this time I would like to remind everyone in order to ask your question. Please press Star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the Q press. The pound key. Your first question comes from the line of Bob durable of Guggenheim Securities.

Jide Zeitlin: Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the pound key. Your first question comes from the line of Bob Drbul of Guggenheim Securities.

Operator: Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the pound key. Your first question comes from the line of Bob Drbul of Guggenheim Securities.

Hi, good morning.

Bob Drbul: Hi. Good morning. Hope you guys are doing well. I guess, Bob, I have two questions. I think the first one is just more category. Do you think the market for handbags and accessories will be disproportionately impacted in the economic downturn? Do you think consumers are going to be shopping for handbags? Can you talk about that maybe generally? And then I think the second part of it would be, can you just talk about your confidence level in maybe Kate Spade and Stuart Weitzman? Can these brands weather the storm that we're in right now? Thanks very much.

Well the gardening Barnwell.

I guess about it I have two good morning.

Two questions I think the first one just more category do you think the market you know for handbags and accessories.

We'll be just disproportionately impacted in the economic downturn do you think consumers are going to be shopping for handbags. <unk> can you talk about that maybe generally and then the second part of it would be.

Can you just talk about your confidence level in maybe Kate Spade and Stuart Weitzman can these brands weather the storm that we're in right now thanks very much.

Absolutely. Thank you, Bob and I hope you're while also.

Jide Zeitlin: Absolutely. Thank you, Bob. And I hope you're well also. With respect to the category, we're confident in terms of our ability to both weather the storm but, as importantly, to come out the other end strong. If you look at kind of previous downturns, whether those are macroeconomic or whether those are natural disasters around the world, in our experience, coming out of those periods, we've seen continued strong demand for our product and have no reason to believe that this will be any different, particularly when we look at the real-world experience that we're getting in parallel today. We clearly have seen what is happening to our business in China and in South Korea. And we, on an everyday basis globally, are seeing the demand for our product digitally.

With respect to the category.

We're we're confident in terms of our ability to both weather the storm, but as and as importantly to come out the others other end strong.

If you look at kind of previous downturns, whether those are a macroeconomic or whether those are natural disasters around the world in our experience coming out of those periods. We've seen continued.

Continued strong demand for our product and have no reason to believe that this will be any different.

Particularly when we look at up the real world experience that we're getting in parallel today, we clearly have seen for what is happening to our business in China and in South Korea.

And we are on an everyday basis globally are seeing the demand for our product digitally and so there's nothing we've seen that would suggest to us that.

Jide Zeitlin: And so there's nothing we've seen that would suggest to us that we're not going to come out of this period with genuine, authentic, real demand for our products. With respect to your question on Stuart Weitzman, I guess the way I think about it is that it is actually, one, in times such as this, that the power of a well-capitalized portfolio company is most evident. Smaller brands in our world, that's Kate Spade, Stuart Weitzman, benefit from having greater leverage with landlords and supply catalysts, emotional connections to customers.

And so there's nothing we've seen that would suggest to us that we're not going to come out of this period with genuine, authentic, real demand for our products. With respect to your question on Stuart Weitzman, I guess the way I think about it is that it is actually, one, in times such as this, that the power of a well-capitalized portfolio company is most evident. Smaller brands in our world, that's Kate Spade, Stuart Weitzman, benefit from having greater leverage with landlords and supply catalysts, emotional connections to customers.

We're not going to come out of this period with genuine authentic real demand for our products Yeah with respect to your question on.

Stuart Weitzman, I guess aware I think about it is that it is actually.

One in.

Times, such as this the power above well capitalized portfolio company as most evident.

Oh.

Yes, smaller branson enough in our in our world that skate Sweden.

For weitzman benefit from having greater leverage with landlords and supply.

Hello.

Additional connections for customers and one of the.

Jide Zeitlin: And one of the benefits we draw out of 8 or so months is that our brand work has shown significant opportunities for both these brands, particularly at Kate Spade, where if there's ever a moment in terms of where consumer behavior is and is evolving and where we believe it's going to evolve coming through this COVID-19 period, where there's a brand that connects with where consumer behavior is going, the Kate Spade core culture and unique spirit is tailor-made for that. And then particularly as we continue to reposition the important role of color and novelty in that brand, as we continue to work with the balance between playfulness and pragmatism at that brand, we think that there is real upside there. And so we believe as deeply in Kate Spade and Kate Spade coming through this period as ever.

And one of the benefits we draw out of 8 or so months is that our brand work has shown significant opportunities for both these brands, particularly at Kate Spade, where if there's ever a moment in terms of where consumer behavior is and is evolving and where we believe it's going to evolve coming through this COVID-19 period, where there's a brand that connects with where consumer behavior is going, the Kate Spade core culture and unique spirit is tailor-made for that. And then particularly as we continue to reposition the important role of color and novelty in that brand, as we continue to work with the balance between playfulness and pragmatism at that brand, we think that there is real upside there. And so we believe as deeply in Kate Spade and Kate Spade coming through this period as ever.

But.

The four so months is that.

You know our brand work has shown significant opportunities for both these brands Oh.

Particularly a Kate spade, where.

If there's ever a moment in terms of where the consumer behavior is is and is evolving and where we believe it's going to evolve coming through this cobot 19 period.

Where there's a brand that connects with where it gives them connects with where consumer behavior is going to Kate spade core culture and unique spirits tailor made for that.

And then I'm, particularly as we continue to reposition the important role of color a novelty and that brand as we continue to work with the balance between playfulness and pragmatism at that brand.

We think that there is real upside there.

And and so we're we're.

We believe it's deeply and Kate spade and it's great coming through this period as says as ever.

Stuart Weitzman differently, but similarly, it's clearly a unique brand it's got to balance as we've talked about between fashion sensibility.

Jide Zeitlin: Stuart Weitzman, differently but similarly, it's clearly a unique brand. It's got that balance, as we've talked about, between fashion sensibility with a remarkable fit. We're taking, as I mentioned or alluded to in my opening comments, very disciplined steps to narrow its assortment, to focus much more clearly on boots, on espadrilles, and on sandals, and to focus geographically very much on China, North America, and digitally from a channel perspective. Stuart Weitzman is going to be a survivor, and particularly in a category that's quite fragmented, where others who are smaller and who don't have the benefit of being on a broader platform are not going to survive. We think that there's going to be a real market share opportunity for Stuart Weitzman. Then I guess lastly, I'd just say that I couldn't be more pleased.

Stuart Weitzman, differently but similarly, it's clearly a unique brand. It's got that balance, as we've talked about, between fashion sensibility with a remarkable fit. We're taking, as I mentioned or alluded to in my opening comments, very disciplined steps to narrow its assortment, to focus much more clearly on boots, on espadrilles, and on sandals, and to focus geographically very much on China, North America, and digitally from a channel perspective. Stuart Weitzman is going to be a survivor, and particularly in a category that's quite fragmented, where others who are smaller and who don't have the benefit of being on a broader platform are not going to survive. We think that there's going to be a real market share opportunity for Stuart Weitzman. Then I guess lastly, I'd just say that I couldn't be more pleased.

With a remarkable fit.

We're taking as I mentioned or the alluded to in my opening comments.

Very disciplined steps to narrow it's assortment.

Focus much more clearly on boots on EPS for drills and on sandals and to focus geographically very very much on China, North America and digitally from a from a from a channel perspective.

Stuart Weitzman, it's going to be a survivor and particularly in the category, that's quite fragmented where others, who are smaller and we don't have the benefit out of B.

Moving on on a broader platform are not going to survive and so we think that there that is going to be real market share opportunity.

For for Stuart Weitzman, and then I guess.

Lastly, I'd, just say that with I couldn't be more please our executive committee could be more pleased with lives in Giorgio who have hit the ground running that are having a huge impact in each of their businesses.

Jide Zeitlin: Our executive committee couldn't be more pleased with Liz and Giorgio, who have hit the ground running and are having a huge impact in each of their businesses. And as odd as it may sound to say, this moment has really proven catalytic.

Our executive committee couldn't be more pleased with Liz and Giorgio, who have hit the ground running and are having a huge impact in each of their businesses. And as odd as it may sound to say, this moment has really proven catalytic.

And.

As our this may sound to say this moment has has really proven catalytic.

Good luck.

[Analyst]: Good luck.

Bob Drbul: Good luck.

Oh.

Thank you, ladies and gentlemen, as a reminder, we ask that you please limit yourself to one.

Jide Zeitlin: Thank you, ladies and gentlemen. As a reminder, we ask that you please limit yourself to one question only. Your next question comes from the line of Ike Boruchow of Wells Fargo.

Operator: Thank you, ladies and gentlemen. As a reminder, we ask that you please limit yourself to one question only. Your next question comes from the line of Ike Boruchow of Wells Fargo.

Question only your next question comes from the line of Ike Boruchow Wells Fargo.

Hello, how are you.

Ike Boruchow: Hey.

Jide Zeitlin: Hey.

Jide Zeitlin: Hello, Ike. How are you?

Hello, Ike. How are you?

Hey, Jude I hope everyone has a as I get on that.

Ike Boruchow: Hey, Jide. I hope everyone is hanging in there. So I actually have two, but they're very quick. Just the comment, Joanne, I think you gave from March was global sales down 40, I believe. I understand visibility is really, really low right now, but is there any chance you could help us out with April just on how global sales have trended? And then just very quickly follow up on the cost side. I understand the pandemic hit late quarter. It was very sudden, so you couldn't really adjust the cost structure for Q3. But can you maybe give some color on OpEx expectations for Q4, maybe just to help give us some perspective on what all these initiatives you're talking about on the cost side should mean to the P&L? Just anything would be helpful as we're trying to think about flow-through rates. Thanks so much.

So I have two to two but they're very quick I'm just the comment Joe and I think you gave for March was global sales down 40, I believe I understand visibility is really really low right now but is there any chance you could you could help us out with April I just on a global sales have trended and then just very quickly follow up on this on the cost side.

I understand dependent accurately quarter was very sudden secret really just the cost structure for Threeq you.

Can you maybe give some color in opex expectations for Fourq, you, maybe just to help give us some perspective on what all these initiatives you're talking about on the call side should mean to the PML just just anything that would would be helpful. As we're trying to think about.

Click through rates. Thanks, so much.

Yeah, Hi, Thanks for your question you know we have.

Joanne Crevoiserat: Yeah, Ike, thanks for your question. We have seen, as we move through March, more widespread store closures with the spread of the pandemic globally, which contributed to the March results. Given lack of visibility to store reopenings, traffic trends, and consumer behavior post-COVID-19, it's really hard. As you can imagine, difficult to provide guidance. To give you a false sense of precision or give us a false sense of precision on that number, we have seen, with the stores reopening in China, very nice, steady progress in terms of those traffic trends and consumer demand coming back into the market. As we think about Q4, while we're not providing guidance, I guess I could provide some data points as you think about how Q4 can shape up. In Q3, as you noted, our sales were down about $260 million versus last year.

Seen as we move through March more widespread store closures with the with the spread of the pandemic globally, which contributed to the March results and given the lack of visibility the store reopenings and traffic trends and consumer behavior post the 13, it it's really hard.

You can imagine difficult to provide guidance.

And to give you a false sense of precision on give us a false sense of purpose precision on that on that number.

We have seen with the stores reopening in China very nice.

Steady progress in terms of.

Those traffic trends in consumer demand coming back into the market.

As we think about Q4, while we're not providing guidance I guess I can provide some data points.

As you think about.

Out how Q4 can can shape up in Q3 as you noted our sales were down about $260 million versus last year.

And that was only with two and a half weeks of store closures in North America in Europe during the quarter.

Joanne Crevoiserat: That was only with two and a half weeks of store closures in North America and Europe during the quarter. So, extrapolating from that data point and given the widespread global closures and expected slower pace of recovery, we expect the Q4 impact could be three to four times those levels. And just to make a fulsome, as we think about gross margin, as you saw in Q3, gross margin was lower, impacted by SG&A, very aggressive and significant actions to reduce spending. Not as much of that impacted Q3 based on timing. We do expect more to impact Q4. And we've talked about a number of those actions, mitigating actions that we're taking. However, those actions won't be enough to offset the top line decline. So we would still expect significant deleverage on the lower sales in Q4.

That was only with two and a half weeks of store closures in North America and Europe during the quarter. So, extrapolating from that data point and given the widespread global closures and expected slower pace of recovery, we expect the Q4 impact could be three to four times those levels. And just to make a fulsome, as we think about gross margin, as you saw in Q3, gross margin was lower, impacted by SG&A, very aggressive and significant actions to reduce spending. Not as much of that impacted Q3 based on timing. We do expect more to impact Q4. And we've talked about a number of those actions, mitigating actions that we're taking. However, those actions won't be enough to offset the top line decline. So we would still expect significant deleverage on the lower sales in Q4.

So it is ethics extrapolating from that data points.

And given the widespread global closures and expected slower pace of recovery, we expect the Q4 impact could be three to four times those levels.

And.

You know just the makeup Folsom you know as we think about gross margin.

As you saw in Q3 gross margin was lower impacted by mix.

Hey, aggressive and significant actions to reduce spending.

You know not as much of that impacted Q3, but.

Based on timing, we do expect more to impacts Q4.

And Weve you know we've talked about a number of those.

Actions mitigating actions that were more that we're taking.

However, those actions won't be enough to offset the top.

Line decline so we would still expect significant de leverage on the lower sales in Q4. So that's how we're thinking about or how you can think about our Q4, how that shaping up.

Joanne Crevoiserat: So that's how we're thinking about or how you can think about our Q4, how that's shaping up. Overall, we are planning conservatively and taking aggressive actions to drive mitigating actions and position us to not only weather the storm but come out stronger at the end.

So that's how we're thinking about or how you can think about our Q4, how that's shaping up. Overall, we are planning conservatively and taking aggressive actions to drive mitigating actions and position us to not only weather the storm but come out stronger at the end.

Overall, we are planning conservatively.

And.

And taking aggressive actions.

To drive mitigating actions and position us.

To not only.

Weathered the storm, but come out stronger at the end.

Like showing very helpful.

Ike Boruchow: Thanks, Joanne. Very helpful.

Your next question comes from the line of Erinn Murphy of Piper Sandler.

Jide Zeitlin: Your next question comes from the line of Erinn Murphy of Piper Sandler.

Operator: Your next question comes from the line of Erinn Murphy of Piper Sandler.

Great. Thanks, Good morning, and I Hope you all are well my question is around inventory I was hoping if you can speak to where you see at least of it in export quarters inventory potentially peaking and then as you think about the planned promotional activity can you just talk about me or strategies around liquidating product and then particularly with an outlet I'm just curious.

Erinn Murphy: Great. Thanks. Good morning. And I hope you all are well. My question is around inventory. I was hoping if you could speak to where you see, at least over the next four quarters, inventory potentially peaking. And then as you think about the planned promotional activity, can you just talk about some of your strategies around liquidating products and then particularly within outlets? I'm just curious if you're rethinking, maybe at least the near term, how you think about made summer production. These were goods that were in production at the beginning of the crisis. And we've canceled all of our late summer and early fall deliveries, which allows us. Our inventory is less seasonal by nature, and it provides us with tremendous flexibility to reflow our product as we see demand change across the next few quarters. So by reflowing product

If you are rethinking maybe at least a near term how you think about made.

Joanne Crevoiserat: summer production. These were goods that were in production at the beginning of the crisis. And we've canceled all of our late summer and early fall deliveries, which allows us. Our inventory is less seasonal by nature, and it provides us with tremendous flexibility to reflow our product as we see demand change across the next few quarters. So by reflowing product

Please summer production. These were goods that were in production at the beginning of the crisis.

And we cancelled all of our late summer in early fall deliveries.

Which allows us our inventory is less seasonal by nature and it provides us with tremendous flexibility to reflow, our product as we see demand change across the across the next few quarters.

So by re flowing product.

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