Q4 2021 Tapestry Inc Earnings Call

August 19, 2021

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Good day and welcome to the Tapestry Conference call today's call is being recorded after the Speakers' opening remarks, there will be a question and answer period have you have like that the question during that time simply press. The Star then one on your telephone keypad and you would like to withdraw your question. Please press the pound key on your telephone keypad.

At this time for opening remarks, and introductions I would like to turn the call over to global head of Investor Relations at Tapestry Kristina Cologne.

Go ahead.

Good morning, Thank you for joining us with me today to discuss our fourth quarter and full year results as well as our strategies and outlook.

Joanne per worker at tapestry, Chief Executive Officer, and Scott Rowe Tapestry, Chief Financial Officer, and head of strategy.

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.

Includes projections for our business in the current or future quarters for fiscal year <unk>.

Looking statements are not guarantees and our actual.

Along with goals for FY 'twenty to Scott will continue with our financial results and priorities going forward.

Following that we will hold a question and answer session, where we will be joined by Todd Kahn, CEO and brand president of coach.

After Q&A Joanne will conclude with brief closing remarks, I'd now like to turn it over to Joanne for voice threat tapestry B L.

Good morning, Thank you Christina and welcome everyone.

We delivered standout results in fiscal 2021, a transformational year for tapestry.

We are a fundamentally different company today than we were just one year ago.

Through our acceleration program, we reached new customers in new ways and effectively adapt to rapidly changing environment.

Our success is a testament to our powerful brands and talented teams.

We achieved many strategic milestones this year, which have strengthened our organization.

We've sharpened our focus on the consumer and clarified the unique positioning of each of our brands. This drove improvements in key customer metrics, including recruitment retention and reactivation.

We enhanced our digital capabilities highlighted by our global ecommerce channel a margin accretive business for tapestry, reaching approximately $1.6 billion in revenue nearly doubling versus prior year and over $1 billion ahead of pre pandemic levels.

This was fueled by the acquisition of nearly 4 million new customers in North America alone, including a growing number of millennial and Gen Z consumers.

And we sustained double digit e-commerce sales growth in the fourth quarter, even as we lap more difficult comparisons online.

At the same time, we drove continued sequential sales improvement for our global store fleet with operating margins that were once again above pre pandemic levels.

We further strengthened our positioning in China, which still has tremendous runway supported by the growth of the rising middle class.

In fact tapestries business in greater China reached $1.1 billion in sales this fiscal year led by over 60% growth on the mainland.

At the same time, we grew our business with Chinese consumers globally, increasing at a high single digit rate as compared to pre pandemic levels.

We successfully leverage data and analytics embedding capabilities across the company to enhance our understanding of the customer increase responsiveness and drive faster more effective decision, making this.

This has underpinned our ability to optimize the assortment planning process lower SKU count by 40% to 45% and reduced promotional activity supporting higher AUR and gross margin as well as improved inventory turn.

We also embrace new ways of working with a leaner operating model and more empowered teams. This resulted in $200 million of gross expense savings in fiscal year, 'twenty, one which funded investments in areas such as digital and marketing to fuel our continued growth as well as our purpose led initiatives to accelerate and amplify our work within our <unk>.

Social fabric to effect positive change for our industry and stakeholders.

Importantly, the traction of our strategy as clearly evidenced by our financial performance, including the achievement of record operating margin as tapestry, Inc. As well as operating income and EPS growth versus both FY 'twenty and FY 19 in each quarter of the year.

We also exceeded pre pandemic sales in the fourth quarter, representing an important financial milestone.

In addition, we generated $1.2 billion of free cash flow and ended the year in a strong cash position, while reducing our leverage through organic profit growth and the pay down of the company's revolver.

Given our strong financial position and underlying business trends our board of directors approved the reinstatement of our capital return programs with a plan to return over $750 million to shareholders through both dividend and share repurchases in fiscal year 'twenty two.

These actions underscore our conviction in <unk> ability to drive long term growth along with our commitment to enhancing value for our stakeholders.

Scott will discuss our capital allocation priorities in more detail shortly.

Now, let me touch on our results and strategies for coach Kate Spade and Stuart Weitzman.

Coach our largest brand led tapestry outperforming in each quarter of the year.

The brand fueled momentum through innovation across consumer touch points, driving engagement with new and existing customers during.

During the fourth quarter coach revenue rose, 117% versus prior year outpacing pre pandemic levels of sales by 2% a meaningful achievement given the volatile backdrop.

In addition, we delivered significant profitability enhancements during the fiscal year, resulting in operating income increases of 67% on a one year basis and 14% on a two year basis.

This outstanding performance was the result of both gross margin expansion and SG&A leverage reflecting strategic actions and structural changes we've made to sustain long term growth.

Throughout the fiscal year, we made significant progress at coach against the pillars of our multi year growth agenda.

First we deepened our engagement with consumers by leaning into our brand values of inclusivity and authenticity to drive increased recruitment and reactivation in.

In addition to the launch of our loyalty program in North America, and more targeted marketing we drove significant gains in the number of repeat transactions.

Second we created innovative unique and compelling product to meet the needs of our target consumer segment.

We are building enduring icons that create a foundation for our product pipeline and future season. This was evidenced by the recent success of newness within the <unk> family, including our pillow and many versions.

In addition, we saw continued strength in our signature platforms across an expanded assortment of refresh styles highlighting desirability for the brand.

Third we drove triple digit sales growth in our digital channels on both the one and two year basis.

Led by new customer recruitment.

During the fiscal year, we acquired nearly two 5 million new coach customers through our digital channels in North America alone a meaningful increase versus prior year.

Importantly, we sustained strong momentum in the fourth quarter, even as we comped our digital initiatives in the initial uplift in E. Comm sales that occurred during the pandemic and the prior year highlighting continued opportunity in the channel.

Fourth we accelerated growth in China by leveraging our foundation in the country, which resulted in over 60% revenue growth on the mainland in fiscal year 'twenty, one with strength across channels.

This performance reflected our integrated and comprehensive brand building strategy, including investments in marketing innovative product and a continued focus on digital channels.

Recently, we hosted our livestreams fashion show in Shanghai, which was extremely well received and highlights our commitment to the Chinese consumer.

Finally, we enhanced profitability to realize an operating margin of over 31%.

This performance was driven by higher gross margin, which reached nearly 74% through a focus on streamlining our offering sharpening our merchandising efforts in reducing SKU counts by approximately 45%.

These initiatives resulted in global handbag AUR growth in each quarter of the fiscal year.

Fact in the fourth quarter, our handbag AUR rose high single digits globally led by particular strength in North America.

In addition, we made structural changes to SG&A, including our fleet optimization efforts.

Looking ahead to fiscal year 'twenty, two our goals are to increase market share in our core handbag and small leather goods categories through a combination of AUR and <unk>.

In China with key initiatives to capitalize on market trends of the emerging middle class and.

Increased digitalization.

And grow men's by expanding lifestyle building brand awareness and increasing our presence in Asia, and keeping with our ambition to deliver over $1 billion in revenue in this category over our planning horizon.

In summary coach as both a remarkable 80 year history and a bright future. We are confident that the deliberate actions we've taken to improve the foundation of the brand, including the realization of higher AUR and stronger margins are sustainable over the long term as revenue continues to inflect.

We're continuing to improve on the momentum we've built to drive market share gains at sustainably high margins in fiscal 'twenty, two and beyond.

Now moving to Kate Spade.

Throughout the year the brand delivered consistent improvement on the topline, resulting in fiscal year 'twenty, one sales growth of 3% compared to prior year or a 13% decline compared to pre pandemic revenue levels.

And the most recent quarter sales increased 95% versus prior year and were 4% below fiscal year 19.

Direct sales in the fourth quarter, excluding wholesale increased on a two year basis in.

In addition for both the quarter and fiscal year operating income rose meaningfully with margin expansion compared to prior year on both a stronger gross margin and SG&A leverage.

We were pleased with Kate spade progress across its growth strategies, which highlight the traction we are making to build stronger connections with consumers.

In fiscal 'twenty, one we crystallize the brand's purpose returning to its roots of unique and best in class storytelling in fulfilling its promise as a lifestyle brand representing joy optimism in color.

During the most recent quarter, we continued to reengage lapsed customers and an increasing rate as we reactivated 550000 customers through our north American digital channels, an increase of nearly 35% compared to prior year, demonstrating our focus on building lasting relationships with our customers.

Second.

We embedded a laser focus on the customer by harnessing the power of the broad and loyal Kate Spade community to engage consumers in new and exciting ways. This was evidenced by our viral happy dance campaign on Tictoc, which has over 11 billion views and counting.

Third we reenergized, our core handbag offering by introducing innovative and universal brand element.

We're seeing traction in leather with the introduction of the not which has already grown to approximately 20% of our retail assortment proving its position as a key family and the assortment going forward.

In addition, our new signature branding the spade flower continues to perform while the re imagine Sam and nylon has outpaced expectations.

These platforms represent strong foundations for future growth.

Fourth we leaned into our digital strength, delivering approximately 35% growth compared to prior year across our e-commerce channels, reaching 35% of sales for the fiscal year.

This growth was driven by both the acquisition of nearly one 4 million new customers through our North America digital channels as well as the engagement of existing customers.

Fifth we improved profitability by focusing on acquiring re engaging and retaining customers to drive top and bottom line growth through the use of data, we adjusted our assortment and pricing strategies, which resulted in approximately 40% lower SKU count and disciplined promotional activity. This ultimately drove overall.

Handbag AUR growth, which increased mid single digits in both the fourth quarter and for the fiscal year.

Finally, we've continued to focus on talent and culture. This year, we reorganized our creative structure with the formation of the cross functional ideation studio spanning across our brand creative design merchandising and marketing teams. This is increased collaboration and cohesion to drive more impactful and consistent storytelling.

As we head into fiscal 'twenty. Two we are building on the strong foundation, we've established with a goal to deliver profitable and sustainable global growth to.

To achieve this we will maintain a consumer centric approach across all aspects of the business.

Amplify recent product introductions, while continuing to build out our core handbag platforms.

<unk> engaged newly acquired reactivated in existing customers to drive higher lifetime value.

Drive brand heat through marketing focused on our Kate Spade community, particularly in social channels.

Maximize lifestyle positioning by strengthening the foundation of ready to wear jewelry and footwear.

And improve the global Omnichannel experience and drive continued growth in digital.

Overall, we are pleased with Kate spade execution and the traction we gained with consumers in fiscal 'twenty, one, including AUR improvement and strong customer engagement.

This progress is reflected in Kate spade to outperformance versus internal expectations reinforcing our confidence in the brand's potential.

Kate Spade has a unique yet universal brand and our teams are galvanized around driving our clear strategy. We continue to believe in a significant runway ahead, and our ability to achieve $2 billion in revenue and enhanced profitability in the future.

Turning now to Stuart Weitzman.

Throughout the fiscal year the brand progressed on its growth strategies, specifically, we continued to renew the brand's reputation for fit comfort and quality by listening and responding to customer needs. During the fourth quarter. We were pleased to see a significant increase in demand for dress styles as much of the world began to reopen and events and in person socialization.

Returns.

Second we grew our key categories by building strength in boots, booties and sandals through fashion innovation highlighted by the continued success of our iconic 50, 50 land and nudist families, which brought a new and younger customers.

We also expanded the casual assortment, including a broader sneaker offering and the recently introduced on trend jelly style.

At the same time, we dramatically simplified the product assortment with SKU counts declining approximately 45%.

Third we focused our distribution on markets and channels of greatest opportunity to create a foundation to return to profitability as revenues inflect.

This included the exit of unprofitable markets across the globe and right sizing of the fleet in North America.

At the same time momentum continued for our China business in fiscal 'twenty, one with revenue on the mainland increasing over 35% compared to prior year or nearly 50% on a two year basis.

We kept the Chinese consumer at the forefront of our strategy highlighted by our tailored product offerings featuring capsule collections.

<unk> marketing with key opinion leaders and continued outperformance across digital channels.

China remains an important area of long term opportunity for Stuart Weitzman and structurally higher margins.

Fourth we strengthened our relationship with wholesale partners by providing relevant products and faster and more consistent execution. As previously shared we reenter 90, Nordstrom doors in the year fueling North America wholesale revenue ahead of pre pandemic levels in the fourth quarter.

With a focus on must have launches featuring icons key items and capsule collection as well as Brian.

Okay.

Differentiated platform.

Although the environment remains volatile, we see a strong consumer who is ready to shop and continuing to engage with our brand.

We entered fiscal year 'twenty, two with a solid foundation improved capabilities and increasing momentum from this position of strength. We are confident in our ability to win with consumers and capture market share accelerating growth and profitability across our portfolio long term enhancing value for all stakeholders.

With that I'm pleased to welcome Scott Rowe, who many of you know to discuss our financial results capital allocation priorities in fiscal 'twenty two outlook Scott.

Thanks, Joanne and good morning, everyone I'm thrilled to be with you today after joining tapestry just a few months ago.

I'm still relatively new I can already see that this is a truly unique company with strong and engage talent great brands that are well positioned in attractive market spaces and a distribution model that allows us to directly owned our consumer relationships, coupled with advanced digital and analytics capabilities.

As we move forward my focus is to work alongside our management team to align business and financial strategies to drive sustainable long term growth, which profit shareholders and all stakeholders alike.

Looking back at fiscal year 'twenty, one it was a transformational year for the organization as Joanne mentioned, we effectively executed our acceleration program against a difficult backdrop created a foundation for sustainable growth specifically, we increased the penetration of our margin accretive digital and China businesses, which.

Led overall growth in the fiscal year.

We expanded gross margins primarily through higher AUR is driven by lower levels of promotional activity.

We grew operating margin by 300 basis points versus FY 19, reaching peak levels. This tapestry. This despite significant investments in talent digital capabilities, and marketing, which were more than funded by gross profit gains and $200 million in gross SG&A savings delivered through the acceleration program.

And we further strengthened our financial position through tight inventory management and a reduction in debt levels, while achieving $1.2 billion in free cash flow, resulting in an ending cash position of approximately $2 billion.

Turning to the details of the fourth quarter total sales rose, 126% versus prior year on a 14 week basis or 113% on a 13 week basis outpacing pre pandemic levels and important milestone.

These results were led by strength at coach, while Kate Spade and Stuart Weitzman delivered material sequential improvements in trends by.

By region, North America led the overall growth rising approximately 150% versus FY 'twenty and a high single digit percentage versus FY 19, fueled by digital and a continued improvement in our brick and mortar businesses.

In mainland China, our strong momentum continued as revenue increased approximately 60% on a one year basis.

Over 40% compared to pre pandemic levels.

Across the balance of Asia sales rose materially compared to the prior year, but remained below pre pandemic levels with notable pressure in Japan, given the continued state of emergency and lack of tourist sales.

Europe, while a small portion of our total sales experienced a sequential improvement in trends on both a one and two year basis as lockdown measures are lifted.

And while revenue remained well below fiscal 19, given the lack of tourists travel our local demand did rise in the quarter.

By channel, we maintained strength in digital which grew more than 35% compared to prior year, reaching 30% penetration that's three times 2019 levels.

While our stores remain pressured slightly better traffic drove a sequential improvement for the channel.

And in wholesale while revenue remained below FY 19 trends improved with particular strength in duty free growth in China.

Moving down the P&L, we realized another quarter of overall gross margin expansion compared to prior year and FY 19, with all brands exceeding expectations.

We continued to successfully execute our strategy to maintain price discipline reduce SKU counts and leverage data analytics to more effectively tailor our product assortment and marketing messaging to the consumer.

As anticipated SG&A rose significantly given the prior year's atypical comparison due to the impact of COVID-19.

Two year basis, the increase in SG&A was attributable to higher marketing spend over almost $100 million compared to Q4, 19, and an increase in our annual incentive plan given our outperformance. This year. In addition, our expenses for the quarter included the $25 million contribution towards the endowment of the newly established <unk>.

If the Street Foundation.

Taken together, we achieved our fourth consecutive quarter of operating income growth and margin expansion compared to pre pandemic levels.

Earnings per diluted share for the quarter was 74 cents on a 14 week basis or 65 cents on a 13 week basis, a significant increase compared to a loss in the prior year and 7% ahead of pre pandemic EPS levels.

Now moving to distribution.

We continued to optimize our global fleet to prioritize profitability for.

For tapestry, we closed a net of 59 locations globally in FY 'twenty, one, including 10 net closures in the fourth quarter as.

As compared to fiscal 19 year end, we have closed a net of 19 locations across our brand.

Turning to a discussion of our balance sheet and cash flows we ended the quarter in a strong position with $2 billion in cash and equivalents and total borrowings of $1.6 billion.

Inventory at quarter end was approximately in line with last year, and 6% below FY 19, reflecting in part deliberate actions to reduce SKU counts and prioritize inventory turn.

And we generated $1.2 billion and free cash flow in FY 'twenty, one versus $202 million in the prior year and $518 million in fiscal 19. This included capex of $116 million, a decline of 44% versus prior year as we prioritized.

Investments in high return projects, notably in digital while tightly controlling overall spend and reducing our outlay for new stores.

Now touching on our capital allocation priorities first we continue to prioritize investments in the business to support strong returns and long term profitable growth.

We're committed to returning capital to shareholders through both dividends and share repurchases in keeping with this strategy. We're pleased to announce today a plan to return over $750 million to shareholders.

Specifically the board declared a quarterly cash dividend of <unk> 25.

With an anticipated annual dividend rate of one dollar per share.

Over time, our intent is to increase the dividend at a faster rate than earnings growth.

We also expect to repurchase approximately $500 million worth of stock in fiscal 'twenty to under our current authorization.

<unk> once we have more visibility into a normalization in the external environment, we expect overtime to more aggressively returning cash to shareholders.

And finally in keeping with our objective to reduce leverage we expect to repay our July 2022 bonds totaling $400 million at the end of this fiscal year.

So when considered together the dividend share repurchase and debt repayment are intended to approximately equal our projected free cash flow in the fiscal year.

And as Julian mentioned these actions demonstrate our confidence in the underlying strength of our business as well as our commitment to driving total shareholder returns.

Now moving to our fiscal 'twenty two outlook.

Before touching on the specific details it's important to note the paradigm shift compared to just a year ago entering COVID-19. There was a macro demand concern and we took bold actions to adjust supply in order to preserve liquidity as you can see in our just reported results. We were very successful in achieving our goals, while continuing to accelerate inverse.

<unk> to drive increasing momentum in our brand.

Day, we find ourselves in a dynamic where the consumer demand backdrop is strong while supply chain remains challenging so I want to emphasize the underlying strength in trend of our business and separate that from the uncertainty in the macro environment, primarily due to COVID-19 related impacts, which are largely out of our control.

Therefore, the outlook, we're giving you is a reflection of what we know as of today.

Point in time, while we have visibility into the risks that we see on the horizon, we're not trying to predict that which's unknowable, we have taken the position that we'll be aggressive on protecting the momentum of the business by securing significant expedited deliveries at an additional cost in order to mitigate the impact of supply chain disruption.

At least through the holiday period.

Further we will continue to increase AUR is priced as a lever to counter some of the additional cost pressures of course, we will continue to monitor the impact of the new developments on our outlook over time.

Now turning to the details of our FY 'twenty two outlook. Please note that all growth rates as compared to prior year are on a comparable 52 week basis.

We expect revenue to increase at a mid teens rate versus FY 'twenty, one, resulting in approximately $6.4 billion in sales, which would mark a record for the company. This includes the expectation for a continuation of strong growth in digital and greater China as well as improving global trends in stores while.

We expect stores to show improvement revenue is currently planned to remains below pre pandemic levels.

Turning to gross margin, we expect to sustain the company's strong margins through continue they are AUR improvement and lower promotional activity.

Our outlook also incorporates the expectation for Gsp's renewal for the retroactive benefit in the second fiscal quarter, which is currently planned to partially mitigate the negative impact associated with higher freight costs currently embedded in our plan.

Touching on SG&A, we expect expenses to grow relatively in line with sales for the year. We continue to estimate that we will realize approximately $300 million in structural gross run rate expense savings, including $100 million of incremental savings from the prior year. We are utilizing these savings to fund investor.

That's in the business, including $50 million of planned higher marketing spend which is expected to represent approximately 7% of sales in fiscal 'twenty two.

Roughly 75% or three four percentage points compared to FY 19.

We're also investing in our teams, adding talent to growing areas of the business such as digital and we're focused on continuing to retain and develop the strong teams as evidenced by our recently announced commitment that all U S. Tapestry employees will earn at least $15 per hour.

Operating income is expected to increase at a mid teens rate, resulting in operating margin modestly ahead of prior year and an increase of over 300 basis points versus 2019.

Net interest expense for the year is expected to be $65 million and the tax rate is estimated at 18, 5% assuming a continuation of current tax laws.

Weighted average diluted share count is forecasted to be in the area of 283 million shares approximately even with last year with share repurchase activity expected to offset dilution.

We anticipate EPS to be in the range of $3.30 to $3.35.

Reflecting leverage to the bottom line.

Capex for the year is projected to be about $220 million we.

Approximately 40% of the spend to be related to store development, primarily in China with the balance dedicated to our digital and it initiatives, including the initial investments related to build out our new distribution center.

Specifically as our digital business continues to grow we've recognized the opportunity to sharpen our focus on the consumer by expanding our distribution capabilities. We recently signed a lease for a new distribution facility based in Las Vegas, which we believe will allow us to better serve our customers in the western part of the United States.

Finally, we expect inventory levels to be up meaningfully through throughout the year as we pull forward receipts to match strong demand and face elongated lead times from supply chain pressures due to COVID-19 disruptions.

Given the dynamic environment and last year's atypical comparisons, we again expect significant variability by quarter.

Revenue growth versus prior year is expected to be front half weighted given relatively easier compares due to lapping COVID-19 impacts with the first quarter forecasted to increase more than 20%.

Earnings growth in the first half is expected to be somewhat pressured due to incremental SG&A investments along with last year's unusual compare including lower expenses due to compensation reductions lease abatements and the timing of government assistance that said, we still expect EPS growth in the first half versus prior year.

Particularly in Q1.

So in closing we drove strong results in FY 'twenty, one our significant progress is a testament to the successful execution by our passionate teams the power of our brand and our competitive advantages, including our differentiated platform.

Bold and deliberate actions, we've made under tapestries acceleration program a transformed our organization. These changes are foundational and will continue to be a meaningful point of difference for our brand.

As we look ahead with regard to those things we can control, we're continuing to build momentum and we are confident in our ability to leverage the solid foundation to drive sustainable top and bottom line growth across our portfolio of brands and with respect to those things we can't control, we've taken aggressive actions to protect our strong momentum.

And mitigate those macro challenges we see today our.

Our conviction is underscored by our capital allocation actions, highlighting our optimism for the future and commitment to enhancing value for all stakeholders.

Now like to open it up for Q&A.

And at this time, if you would like to ask a question. Please press. The Star then one on your Touchtone phone.

You may withdraw your question at any time by pressing the bogey once again to ask a question that is star one.

And we will take our first question from Bob <unk> with Guggenheim. Please go ahead. Your line is open.

Good morning, and Scott welcome and congratulations.

My question I have generally I think Joanne you mentioned, improving consumer demand and continued momentum into FY 'twenty two.

What signs give you confidence in the strong trajectory that you guys do have plans.

Okay.

Levered.

Yes.

Joanne start again, I think your mic was off.

I'm sorry can you hear me.

Yes, I can.

Okay, sorry about that Bob you would think we get the mute button down by now.

Good morning, I would say that our confidence begins with the standout results we delivered this fiscal year.

Fiscal 'twenty, one was a year of successful transformation for the company and it was capped by a strong fourth quarter. We saw sales trends improve every quarter of the year and exceeded pre pandemic levels in the fourth quarter.

For the year, we delivered a record operating income and record operating margin as a multi brand company. Despite the challenging backdrop and we see momentum building as we enter fiscal 'twenty two and you can see that in the outlook. We shared we expect to reach a record level of revenue for fiscal 'twenty two at $6.4 billion on mid teens growth and we see.

Further untapped potential longer term, particularly in digital in China, and those represent sustainable top and bottom line growth vehicles going forward I think importantly, we're investing in long term growth drivers were investing in marketing and we're investing in digital and our people.

And while we've made significant progress this past year, where we're just getting started.

As Scott said, where we're operating from a position of strength as a fundamentally different company today, we're reaching.

Through our acceleration program you know, we took bold actions and were now reaching new customers in new ways as a more agile organization and the actions we took not only delivered a strong year, but positioned us to thrive on the other side of the pandemic and we're better equipped to the company I would say to pull these levers growth levers going forward, we have new.

Abilities to engage consumers and drive higher lifetime value and we have 4 million new consumers that we acquired in the last year alone who are increasingly younger.

We have strong we're delivering really strong gross margins at increasing AUR showing pricing power in our brand and we have a direct to consumer model building strength in digital in China with significant runway ahead and Scott also mentioned, we have a strong team and we continue to invest in our team to secure that competitive advantage.

I would say overall, we're operating from a position of strength, we're building momentum and we see significant runway ahead for all of our brand.

Great. Thank you very much good luck.

Thanks, Bob.

And we'll take our next question from Ike <unk> with Wells Fargo. Please go ahead. Your line is open.

Hey, Thank you good.

Good morning, and congrats everyone.

I guess Scott welcome.

Two questions for you one quick one and then one more higher level just on the second quarter, you talked about the retroactive GSP.

Benefit can you quantify that for us. So we know what to expect on the gross margin line and then again bigger picture, having enjoying CPR clearly we all know your background for BFS portfolio optimization I'm kind of curious when you look at TCR Dcs. Some offer some of the same opportunities do you have at your prior company do you see opportunities.

<unk> four <unk>.

A more efficient portfolio.

Central divestitures, and then again when you think about the M&A platform here versus your prior company do you see some similarities.

Over the next couple of years that you can capitalize on thank you.

Okay.

Good to hear from you why that was quite a question man.

First of all tactically GFS this GSD.

It's about 50 basis points from a margin standpoint, so and Youre right. We I said in my prepared remarks second quarter, so that means.

A little bit of a drag in the first quarter as you're not seeing that take effect in our thought is that and hope is that it'll be reestablished I think 10 out of the last 14 times. This has come up it's been approved so.

We have solid basis for making that assumption, but it's not done until it's done. So we wanted to give you all visibility into that.

Observations.

About tapestry I'm going to take it a little higher level like I think.

First of all.

What a great team and I've been so impressed by the people and the capabilities. This is a this is a team that is taking bold action over the last.

We haven't wasted the pandemic and the focus around building those foundational platform capabilities is impressive.

And in the numbers.

You see evidence of that and we've got three great brands that are that are.

<unk> focused on attractive market spaces, and we've got a lot of work to do so.

Over time, I see I laid out capital allocation priorities, which are investing in our great brands, that's our highest return today.

Number two the dividend, where you saw we reinstated that and returning cash to shareholders, that's where our focus is right now.

Longer term, who knows what the future brings but we've got really exciting opportunities with high returns right in front of us and that's where we're going to be focused.

Great Good luck.

Thanks, Mike.

Okay.

Hi.

And I guess you answered all the questions.

[laughter] Yeah. After I did just went dead we may be lives.

Yes.

Operator, we'll take the next question.

Okay.

Yes.

Okay.

Yes.

But we appear to be having technical difficulties everyone hanging there.

Hang in there well.

Hopefully, we'll be able to take all your questions and even if we have to spend a little more time on the other side of the hour.

Yeah.

Okay.

Yes.

Please standby as we are experiencing technical difficulties.

We will take our next question from Erinn Murphy with Piper Sandler Your line is open.

Great Awesome nice to be back in the Q&A. So welcome Scott and I can't wait to hear or see that ma'am backfill you'll be according next time, we all travel together.

Yes.

Yeah.

It's going to be an upgrade and so I guess my question.

Hi, Kate Spade margin.

You know really good to see some of the green shoots that you have there now and the expansion relative to 2019, but they still trail the coach brand by 20 percentage points. So just curious I guess, maybe Joanne and Scott for you how you see that evolving over time really what's the potential with the Kate Spade margin profile over time, and then if I can just have a clarification.

From tied.

The AUR for coach I believe you said was up high single digit how did that compare outlet versus full price in the quarter. Thank you.

Thanks, Erinn. This is Joanne I'll jump right into the Kate Spade question. We are really pleased with our execution in fiscal 'twenty, one and we made important progress you noted the progress on margin, but we made important progress across the foundations of the brand.

I'll just call out a few highlights Kate is.

Highly digitally penetrated we showed continued strength in the digital channel. It now represents nearly 35% of sales for the brand we're acquiring new customers.

One 4 million new customers during the year.

And we're reactivating customers.

Customers that are at a more frequent rates of 550000 customers reactivated a 35% increase from last year and some of those customers are deeply lapsed customers. So when we think about the Kate spade brand and engaging consumers and really building rebuilding the brand.

We made really important progress and I would say that partly is due to the fact that we've reenergized our core handbag offering.

Liz and team have worked really quickly to build a stronger more solid platform, we're seeing traction across our leather platform with the knot our signature platform, we've talked about with the spade flower and our nylon platform with the re imagine sandbag and what we're seeing is.

The customer reacting to those those changes in our in our assortment with increased global handbag AUR.

So with handbag AUR is.

Moving higher that's another sign of brand health so longer term, we continue to have.

And see a path for Kate Spade to build to a 2 billion dollar brand and to your point at significantly higher margins, we see a path to high teens margin.

Opportunity and you know as you compared versus coach Kate Spade is a is a you know as.

A true full lifestyle brand and there are some differences to the coach business today.

Kate Spade has as I said more lifestyle style categories and right now as a brand is centered more in North America, and and Japan doesn't have has developed an international business, but we see those as opportunities moving forward.

And and just picking up on coach we were really pleased with a continued AUR growth. We saw in handbags. This quarter in fact, it was the ninth quarter in a row that we.

Increased our AUR and it really was led by North America.

And we don't disaggregate AUR by channel, but I would can tell you both channels.

Had increases in AUR, and we feel really pleased with.

What we're accomplishing and what we can accomplish in front of us.

Thank you Beth.

And we will go next to Mark <unk> with Baird. Your line is open.

Yes.

Great. Good morning, Thanks for taking my questions and congrats on the solid results here.

So to start off just with the topline guide for the year. The mid teen sales growth can you give us a bit more color and mono outlook looks like by brand there any big differences in terms of the contribution of units versus AUR as you look across the portfolio.

Yeah, you know, we don't we don't break down the guidance, specifically by brand, but <unk>.

Obviously with with by the way record earnings.

Our record top line estimate is $6.4 billion in West coast being roughly three quarters of the total you can assume that.

Very strong.

Strong topline growth and coach and really sequential across all the brands right. We're seeing the strong.

The improvement that we saw last year continuing into this year. So show growth in all and I'll. Just note you talked about top line, but we're also.

Returning to profitability on Stuart next year is our expectation so really really strong continued.

Momentum across all but of course coach just lob mathematics is driving the lion's share of that.

That makes sense. Thanks, and then Scott just following up on SG&A sounds like you plan to keep pace.

With SG&A spend to revenue this year as you reinvest can you just speak to the level of flexibility in those plans I guess asked another way should we expect EBIT growth at least in line with sales regardless of how the operating environment evolves through the year. Thank you.

Yeah sure Mark we've talked about next year that.

We're consolidating these record margins and even expect slight improvement next year and as it relates to SG&A. So that's the overall picture as it relates to SG&A remember, what Joanne said, where we're.

Saying, it's about flat or in the neighborhood of last year as a percentage of sales, but underneath that there's a lot going on we continue to invest in those platforms and growth drivers for the long term.

Joanne mentioned marketing I had it in my prepared remarks.

<unk>, our digital capabilities analytics et cetera, but underneath that.

The acceleration program.

And those savings are according or attendant to that have given us the ability to see leverage elsewhere. So some of these things are certainly variable right I mean weekend, we flexion, we do based on the data and analytics and the insights that we see where you lean into marketing, where we see that we have a return.

<unk>.

Certainly those are choices that we can make and we do have some optionality and variability in the model, but I got to tell you.

Where we're seeing results from continuing to invest creating that flywheel effect in and based on our confidence of reinvesting back in our business. It's our intent to continue to do so and as evidenced by the strong trend, leaving the fourth quarter and leading into the guidance. We just talked about for next year.

That's great best of luck.

Thanks Mark.

And we'll take our next question from Oliver Chen with Cowen. Please go ahead.

Hi, Thank you.

Marriage unit retail momentum has been impressive what do you see ahead as you anniversary increases and as you.

Seek to continue to offer value to the customer.

Would also love your thoughts on the evolution of the coach brand.

As a lifestyle brand as you think about footwear and men's and other category.

There will be some priorities and how are you thinking about.

The handbag families such as tabby and others.

Relative to how you thought about handbag family groups in the past. Thank you.

Good morning Oliver.

Let me jump on that and then I'll toss it to Todd to get into the details of coach but you know as it relates to AUR, we've been really pleased.

With the AUR growth that we've seen across our brands.

In the past year and we've been.

Focus on implementing and embedding the structural changes in our organization to help us do that we're getting closer to our consumers certainly which is helping us deliver great product that our consumers value and embedding data and insights into our processes more but we're also leveraging data to better manage our.

And you've seen that in the SKU count reductions we've made.

And in the way, we've managed inventory across across the world are in a in an environment that has a lot of choppiness to it. So those are structural changes that we've made and they have proven.

Benefits on AUR and gross margin expansion over the sheer and we expect that to continue on your specific questions on coach I'll, Let Todd talk about the success of T. SEC.

Yes. Thank you we are really pleased with.

How we changed the brand very materially over the last.

Year, plus partly partly because of the acceleration program and partly because we really changed.

The conversation with our customer from leaning in and call to action being around price and promotion to move to value and values and this has really fundamentally changed often it has really increased our AUR.

Our approach to how we merchandise is fundamentally different.

We have reduced our skus, but we've leaned into icon and Stuart Beavers and the creative team have been getting data from the customer and really leaning in so you'd mentioned tabby tabby as a brand is a is a collection we launched in June of 19 by February of <unk>.

'twenty one it would normally have been out of the mix instead, we doubled down we relaunched it with pillow tabby. It became the number one bag you saw this month, we've launched soft tabby and then we're going to see pillow tabby reemerge. So having these iconic style that.

That are not so.

Pressured by Stuart's selling windows really materially changes are.

Our outlook and then regarding lifestyle one of the opportunities I think we have is why we call. It in men's men's product is it all all gender product often and one of the things. We recognize is we can do better not necessarily merchandising at exactly the same way we merchandised hit.

Stork, the women's product, so youll see us mixed in more outerwear more cut and sew opportunities and it is really resonating are resonating with our customer and then finally I'm a big believer and have been for many years and the opportunities that we have with footwear and you're seeing us win in the <unk>.

Category, both in our own stores retail and outlet, but even in wholesale which is obviously a very competitive environment, but is the most democratic environment and what we're winning there we know where we actually are winning in the category.

Thank you.

Our new customer acquisition Joanne you called it out.

Great to see that what's your hypothesis for what might be really important to retain the new customers.

That relates to you know likely to innovation and what you need to do to to engage those new.

As well as maintain existing thank you best regards.

Thanks Oliver.

Driving engagement requires.

Consistent and innovation innovation in product, we're learning a lot about those new customers and we're also engaging them in different ways.

We're meeting our customers, where they are and we're better capable.

To meet those customers and engage them with our data and analytics capabilities with our increasing.

You know presence on social media and the innovations, we're bringing to life there and at the end of the day, it's about delivering great products. So taking those insights and really understanding our consumer and a deeper level and thats a lot of the foundation that we built this past year is how do we really truly understand our customer our consumer and embed that consumer in those.

His insights and the product development process, where our creative teams bring their terrific product and creativity to bear against things that consumers value and our focus moving ahead is with all this new customer acquisition driving higher lifetime value with our consumers going forward.

Thank you.

And we will take our next question from Lorraine Hutchinson with Bank of America. Please go ahead.

Thanks, Good morning Hugh.

Talked about the expectation that store sales will remain below pre pandemic levels have you been able to right size the store based cost structure and how should we think about profitability of the fleet. If this trend persists.

Yeah, I'll start and maybe still olive Scotts vendor here, but you know that.

That has been we think stores matter.

And you know as we as we focus on the consumer it's about providing a seamless.

Experience for our consumer regardless of where they choose to shop and we've been incredibly successful at building a digital business and meeting our consumer on digital platforms, but the store platform in that physical touch point is still important and if you go back a year, what we said is or more than a year. Now. We said you know while stores are still important we have high.

Here profitability expectations for our fleet and productivity thresholds and.

And we've taken bold actions to to structure, our fleet and in that way, but we're also investing to make sure that that represents the right experience and the right physical touch point, we're adding omnichannel capabilities for our consumers and that's paying off its paying off on the top line, but it's also because we've seen incremental growth in our in our brick and.

Mortar fleet.

As the world sort of recovers from the pandemic, but what we've also seen importantly in that here's where I'm stealing a little bit of Scott Thunder is is we've seen operating margins of our store fleet actually above pre pandemic levels, even right now on depressed volume in a depressed traffic. So Scott I don't know if theres anything you want to add but.

I'll throw it to you.

Oh, it's pretty comprehensive.

Ali.

Really impressive I just asked.

Complement the team and at the same time rationalizing and average top line.

It being down a little bit the quality of the underlying.

Remaining fleet and the profitability serious pandemic is it's pretty impressive the other thing I would just say is as we think about the omnichannel.

Journey that we're on and remember Joanne this comment of $1 billion more in digital.

At the same time, we're rationalizing getting more profitable on brick and mortar we're reinforcing the omni experience and added.

One $6 billion of sand, that's up a $1 billion in two years. So it's not just one channel and increasingly it's how we meet that consumer where where she is in and it's pretty impressive.

From my perspective, Sheehan Abilene manage both of these channels increasing profitability and at the same time finding.

Our foundation for future growth.

Okay.

One thing.

The risk of piling on.

What we've seen in North America, which really bodes well for our store fleet is with all of this digital growth as we see a return to traffic in stores in those areas. We have not seen our digital penetration our digital sales in those areas shrink so the wonderful thing.

And it really brings home the point it is an omni world, it's an and not an or we see our ability to continue to grow digital while being very profitable.

Interaction in our stores.

As traffic returns.

Okay.

Well take our next question from Michael Binetti with Credit Suisse. Please go ahead.

Guys, Let me add my congrats Scott Mitch here, you and another with another great team here.

Okay.

I wanted to I guess, Scott I'll ask you on the on slide 17 here in the deck you mentioned.

Improving visibility Kate.

Got you more aggressively return cash to shareholders I'm, just curious maybe a thought there early on here's how you think about leverage in the business, giving given what we know about the very very strong cash flows of this business pre pandemic and that it's improving now I wonder how you think what the appropriate level is.

Early on and then.

I'd also I'd also be curious on the SG&A guidance as a follow up with Mark's question earlier. This will be the first year in a more normal environment more normal after you do a big reset in the structure of SG&A last year. So I know, there's a lot more variability in there.

After you took some corporate cost out and you are generating really good ROI on the marketing investments you've made it sounds like you still have good growth from high margin drivers like AUR Kate margin targets.

Teams over time versus the 10% exit rate. This year. So I'm just wondering it seems like a lot of good margin drivers in there to the extent that we do see revenues coming in above plan, how should we think about what flows through to earnings this year in an upside scenario for revenues.

Okay.

Yeah, well first of all Michael good to talk to you again as usual very thorough and comprehensive.

On your insight sure so let's start with capital allocation and how we're thinking about it I think a little context first is an important one.

First of all don't lose don't lose the message here that the.

The reinstatement of the dividend the reinstatement of the repurchase program $750 million intended return of cash is really a testament to our underlying confidence in the business. So that I think that's the important message here and if you think about the journey over the last year.

Early on in Covid, given the massive uncertainty and demand issues.

Yes.

It took a lot of actions to protect liquidity to protect the enterprise with our rating agencies bankers bondholders etcetera. There is a commitment on deleveraging.

And our glide path that we laid out so the great news here is we're able to not only advance on that glide path and even be a little ahead of it.

You heard us mentioned paying off the $400 million of data at the end of this fiscal year, which is our intent.

And reinstate the dividend.

And we still have a strong balance sheet and we still have <unk>.

Ample cash where we're in between.

These two periods right, where we see much more confidence and that's why we've stated the.

Aggressive.

Return to shareholder cash.

Or returning cash to shareholders, but at the same time, we think it's prudent to take.

To keep a little elevated cash position given the uncertainty of the environment.

My comment was really intended to signal that well, we're definitely in a more confident position, where we're engaging in and repurchases and dividends.

Phil maintaining an elevated buffer until we get better line of sight on what.

Delta variant et cetera, the uncertainty how that evolves, but once we have that confidence theres no reason that we wouldn't be.

Go back to kind of normal levels, and we have opportunities to be even a little more aggressive from a return of cash to shareholders. So that was the intent right to say, we're not going to ditch to ditch here we've made progress.

Progress but.

We want to watch the uncertainty as it relates to.

Margin flows again I'd point you back.

SG&A the picture there is the tale of two things we have the benefits around acceleration, which are providing leverage throughout the P&L to allow us to reinvest obviously in a very in AR and AR and AR, we have variability and we're making choices. Those choices are based on the insights and data that we have and we've seen it.

Right Joe.

That's why we've given guidance that says we do expect to expand margins next year should we get more.

More upside with some of that flow through.

It depends yes, likely but we're also going to look at where we can lean in in advance.

Advance our platforms and capabilities for the future, but but we expect expanding margins and you should you should expect that some of that would flow through as we see upside.

Take care guys.

Sure.

And we'll take our next question from Brooke Roach with Goldman Sachs. Please go ahead. Your line is open.

Good morning, Thanks, so much and thanks for taking the question and Scott welcome.

I want to get.

To set.

Yes.

To ask two quick questions first one.

John can you talk to the planned step up in marketing investments this year, where those investments will be most focused it and.

And your excitement on brand building into FY 'twenty, two and then for Scott I wanted to get your thoughts on industry wide supply chain and freight costs. How is tapestry managing through some of these challenges and can you provide any additional color on the impact of these <unk>.

Industry wide challenges that are embedded into your margin outlook for the fiscal year. Thank you.

Thanks Brook, I'll I'll start with our marketing spend and I would say that we it's part of our transformation, we have fundamentally restructured our P&L with a focus on and we did that really with a focus on how we were going to engage consumers and needed to engage consumers and sort of are in the new world of retailing in it.

<unk> pandemic era, and we've made significant changes within the P&L and as Scott called it out in his prepared remarks, but you know, 3% higher investment in marketing and we've done that with confidence because.

With our new data and analytics capabilities, where we're better able to measure the return on our marketing investments and our intention is to structure. Our business. So that we can continue to engage consumers across all of our brand and create that and continue to create and tap into growth.

And we have seen tremendous traction over the past year based on these capabilities the investments that we're making in marketing are across the funnel and I think that's important to know too because as we get better at measuring our returns were getting.

Better at measuring returns across the full funnel. So it's not only performance marketing, but it is about brand building and measuring our returns on that on those brand building investments, we're making and of course digital is a priority, where we're better able to engage consumers on many digital platforms and we're driving innovation there we've called out.

The the work we've done on live streaming and in tick tock with even organic and viral videos on tick tock. So you know we're continuing to innovate we're investing across the funnel and we think that is an important enabler as we look to unlock future growth.

Okay.

And Brook as it relates to elevated costs that we're seeing we are seeing some elevated costs, primarily due to expedited freight.

Our freight essentially.

As we.

Absorb and deal with the supply chain disruptions that we see.

And in our outlook reflects.

Additional air freight really through the holiday period, which is as far as we can see.

In terms of getting the deliveries and trying to maintain the strong momentum. We have you heard Joanne said right. We have the great news here is demand for our brand is strong and while we see some disruption where we're taking bold actions and we got out ahead of this a little bit in terms of securing as much supply as we can to keep.

That strong momentum going we.

<unk> talked about gross margins being roughly equal to this year and then that means we're consolidating on record high gross margins up 300 basis points.

Versus a couple of years years ago.

And underneath that we have some elevated costs related to expedited freight freight we also see the continuing build in AUR pricing leverage less discounts and the general trend of the business, which is helping us offset that so those are the puts and takes I would say, though by quarter.

It's not necessarily going to be a straight line, we're going to see is some of this a freight cost turns into the P&L. It may not come exactly matched with some of the price increases but over time for the year. That's the picture that we see.

Thank you.

And we will take our final question from Matthew Boss with JP Morgan. Please go ahead.

Hi, Good morning. This is Kevin Heenan on for Matt boss, Congrats on a strong quarter.

I wanted to ask about your inventory positioning.

Bob flat relative to the prior year.

That's a significant improvement versus the third quarter.

How do you feel about your ability to chase demand for Wearables are expected to be a pretty robust back to school and holiday season falling sales given some of the disruption that we're seeing in the spots on claw backs.

Yes, Kevin maybe I'll I'll take that one or at least start so first of all yes, we had a great performance from an inventory standpoint for all the reasons that are that have already been set and down versus last couple of years. This is part of a very focused effort and simplify and reducing skus.

And seen real progress there and it's one of the factors for cash flow, but as we as we look to next year, we are going to see elevated inventory positions starting in the first quarter and the reason for that is twofold number one just growth supporting the growth of the business number two we're expediting as I said what we.

We can to bring in inventory, whether it be even even by by air or by IC, We're getting inventory in as fast as we can reasonably do in order to keep the momentum of the business and those factors together again.

B, a slightly elevated increase in inventory, but I have no concerns about this at all this is inventory that is.

Supporting the trend of the business and frankly.

If we could get more we probably would Joe youre going to see that dynamic play out it's not significant but.

I understand what's really driving it and you asked about our ability to chase.

And we're doing what we can I just told you expedited airfreight, where we're looking to.

I think we were quick to get in front of our suppliers and we've secured what we can to the best of our ability we will chase, it's going to be a difficult environment to chase frankly, given the dynamic in the short term, but we feel good about all the levers that are in our control to set us up as well as we can.

Yes, Scott.

Took the words out of my mouth I would be happy.

We can.

We feel really really good about our holiday offering and again going back to what we said before.

Our iconic style.

Really diminishes that sort of markdown risk that you would think about it in our in our space and we feel exceptionally good about what we have coming and our ability to respond because again the demand is there we're seeing the demand.

And that is the most important thing in our industry.

And now satisfying that demand in the ways that our customer wants with B S. Whether that's brick and mortar digital is how we're going to go about capturing it.

Thanks very much.

Thank you and that concludes our Q&A I will now turn the call over to Jillian cream why Surat for some concluding remarks.

Yes. Thank you everyone for joining us this morning, and and hanging in there through our technical difficulties.

Fiscal 'twenty, one with the transformational year for tapestry and I and I want to extend a huge thanks to our teams around the world.

For their unwavering passion and dedication to our business you know as we just talked about the dynamic environment continues but we're in a position of strength with a proven track record of success and we have increasing conviction in our ability to accelerate top and bottom line growth with a focus on delivering for all our stakeholders our customers our teams our community and our shareholders.

I appreciate your interest in tapestry have a great day.

Thank you and this concludes today's program. Thank you for your participation you may disconnect at anytime.

[music].

Good day and welcome to the Tapestry Conference call today's call is being recorded.

The Speakers' opening remarks, there will be a question and answer period and you have I got the question during that time simply press. The Star then one on your telephone keypad.

Like to withdraw your question. Please press the pound key on your telephone keypad.

Time for opening remarks, and introductions I would like to turn the call over to global head of Investor Relations at Tapestry Christina Hwang. Please go ahead.

Yeah.

Good morning, Thank you for joining us with me today to discuss our fourth quarter and full year results as well as our strategies and outlook.

I'm provoked that tapestry, Chief Executive Officer, and Scott Rowe Tapestry, Chief Financial Officer, and head of strategy.

Before we begin we must point out that this conference call one Paul certain forward looking statements within the meaning of the private Securities Litigation Reform Act.

Projections for our business in the current or future quarter four fiscal year.

Forward looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward looking statements. Please refer to our annual report on Form 10-K. The press release, we issued this morning and our other filings with the Securities and Exchange Commission for a complete list of risks and other.

There are important factors that could impact our future results and performance.

Non-GAAP financial measure are included in our comments today and in our presentation slide separately given FY 'twenty. One included an additional week in the fourth quarter figures referenced in today's comments will be on a comparable 13, and 52 week basis, unless otherwise noted.

In addition, as we continue to anniversary the onset of the COVID-19 pandemic last year, we will be providing financial information compared to FY 19, our pre pandemic and FY 'twenty, where applicable for a full reconciliation of corresponding GAAP financial information. Please visit.

At our website www dot tapestry dotcom forward Slash Investor and then your earnings release and the presentation posted today.

Now, let me outline the speakers and topics for this conference call Joanne will begin with highlights from the first four year for tapestry in each of our brand. She will also provide an overview of the progress we've made on our acceleration program along with goals for FY 'twenty to Scott will continue with our final.

Interim results and priorities going forward.

Knowing that we will hold a question and answer session, where we will be joined by Todd Kahn, CEO and brand President of coach after Q&A Joanne will conclude with brief closing remarks, I'd now like to turn it over to Joanne for voice at tapestry CEO.

Good morning, Thank you Christina and welcome everyone.

We delivered standout results in fiscal 2021, a transformational year for tapestry.

We are a fundamentally different company today than we were just one year ago.

Through our acceleration program, we reached new customers in new ways and effectively adapted to a rapidly changing environment.

Our success is a testament to our powerful brands and talented team.

We achieved many strategic milestones this year, which have strengthened our organization.

This was fueled by the acquisition of nearly 4 million new customers in North America alone, including a growing number of millennial and Gen Z consumers.

And we sustained double digit e-commerce sales growth in the fourth quarter, even as we lap more difficult comparisons online.

At the same time, we drove continued sequential sales improvement for our global store fleet with operating margins that were once again above pre pandemic levels.

We further strengthened our positioning in China, which still has tremendous runway supported by the growth of the rising middle class.

In fact tapestry business in greater China reached $1.1 billion in sales this fiscal year led by over 60% growth on the mainland.

At the same time, we grew our business with Chinese consumers globally, increasing at a high single digit rate as compared to pre pandemic levels.

Social fabric to effect positive change for our industry and stakeholders.

We also exceeded pre pandemic sales in the fourth quarter, representing an important financial milestone.

Given our strong financial position and underlying business trends our board of directors approved the reinstatement of our capital return program with a plan to return over $750 million to shareholders through both dividend and share repurchases in fiscal year 'twenty two.

These actions underscore our conviction in <unk> ability to drive long term growth along with our commitment to enhancing value for our stakeholders.

Scott will discuss our capital allocation priorities in more detail shortly.

Now, let me touch on our results and strategy for coach Kate Spade and Stuart Weitzman.

Coach our largest brand led tapestry outperforming in each quarter of the year.

Brand fueled momentum through innovation across consumer touch points, driving engagement with new and existing customers.

During the fourth quarter coach revenue rose, 117% versus prior year outpacing pre pandemic levels of sales by 2% a meaningful achievement given the volatile backdrop.

In addition, we delivered significant profitability enhancements during the fiscal year, resulting in operating income increases of 67% on a one year basis and 14% on a two year basis.

This outstanding performance was the result of both gross margin expansion and SG&A leverage reflecting strategic actions and structural changes we've made to sustain long term growth.

Throughout the fiscal year, we've made significant progress at coach against the pillars of our multi year growth agenda.

First we deepened our engagement with consumers by leaning into our brand values of inclusivity and authenticity to drive increased recruitment and reactivation in.

In addition to the launch of our loyalty program in North America, and more targeted marketing we drove significant gains in the number of repeat transactions.

Second we created innovative unique and compelling product to meet the needs of our target consumer segment.

In addition, we saw continued strength in our signature platforms across an expanded assortment of refresh styles highlighting desirability for the brand.

Third we drove triple digit sales growth in our digital channels on both the one and two year basis.

Led by new customer recruitment.

During the fiscal year, we acquired nearly two 5 million new coach customers through our digital channels in North America alone a meaningful increase versus prior year.

Importantly, we sustained strong momentum in the fourth quarter, even as we comped, our digital initiatives and the initial uplift in E. Comm sales that occurred during the pandemic and the prior year highlighting continued opportunity in the channel.

Fourth we accelerated growth in China by leveraging our foundation in the country, which resulted in over 60% revenue growth on the mainland in fiscal year 'twenty, one with strength across channels.

This performance reflected our integrated and comprehensive brand building strategies, including investments in marketing innovative product and a continued focus on digital channels.

Recently, we hosted our livestreams fashion show in Shanghai, which was extremely well received and highlights our commitment to the Chinese consumer.

Finally, we enhanced profitability to realize an operating margin of over 31%.

These initiatives resulted in global handbag AUR growth in each quarter of the fiscal year.

Fact in the fourth quarter, our handbag AUR rose high single digits globally led by particular strength in North America.

In addition, we made structural changes to SG&A, including our fleet optimization efforts.

Looking ahead to fiscal year 'twenty, two our goals are to increase market share in our core handbag and small leather goods categories through a combination of AUR and unit growth by continuing to develop the brand's iconic families approachable and inclusive messaging and consistent global positioning.

Invest and grow in digital while delivering differentiated and compelling omnichannel experiences.

Continue to drive growth in China with key initiatives to capitalize on market trends of the emerging middle class and increased digitalization.

We're continuing to improve on the momentum we've built to drive market share gains, it's sustainably high margins in fiscal 'twenty, two and beyond.

Now moving to Kate Spade.

And the most recent quarter sales increased 95% versus prior year and were 4% below fiscal year 19.

Direct sales in the fourth quarter, excluding wholesale increased on a two year basis.

In addition for both the quarter and fiscal year operating income rose meaningfully with margin expansion compared to prior year on both a stronger gross margin and SG&A leverage.

We are pleased with Kate spade progress across its growth strategies, which highlight the traction we are making to build stronger connections with consumers.

Second.

Third we reenergized, our core handbag offering by introducing innovative and universal brand element we're.

In addition, our new signature branding the spade flower continues to perform while the re imagine Sam and nylon has outpaced expectations.

These platforms represent strong foundations for future growth.

Fourth we leaned into our digital strength, delivering approximately 35% growth compared to prior year across our e-commerce channels, reaching 35% of sales for the fiscal year.

This growth was driven by both the acquisition of nearly one 4 million new customers through our North America digital channels as well as the engagement of existing customers.

Handbag AUR growth, which increased mid single digits in both the fourth quarter and for the fiscal year.

As we head into fiscal 'twenty. Two we are building on the strong foundation, we've established with a goal to deliver profitable and sustainable global growth to achieve this we will maintain a consumer centric approach across all aspects of the business.

Amplify recent product introductions, while continuing to build out our core handbag platforms.

Continue to engage newly acquired reactivated and existing customers to drive higher lifetime value.

Drive brand heat through marketing focused on our Kate Spade community, particularly in social channels.

<unk> lifestyle positioning by strengthening the foundation of ready to wear jewelry and footwear.

And improve the global Omnichannel experience and drive continued growth in digital.

Overall, we are pleased with Kate Spade is execution and the traction we gained with consumers in fiscal 'twenty, one, including AUR improvement and strong customer engagement.

This progress is reflected in Kate spade to outperformance versus internal expectations reinforcing our confidence in the brand potential.

Kate Spade has a unique yet universal brand and our teams are galvanized around driving our clear strategy. We continue to believe in the significant runway ahead, and our ability to achieve $2 billion in revenue and enhanced profitability in the future.