Q4 2022 Tapestry Inc Earnings Call
On todays call. Please press star zero.
[music].
Good day and welcome to this tapestry conference call.
Today's call is being recorded.
Later, you'll have the opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing star and one on your telephone keypad you made the dry yourself from the queue by pressing the pound key.
This call may be recorded at.
At this time for opening remarks, and introductions I would like to turn the call over to the global head of Investor Relations Christina Cologne.
Good morning, Thank you for joining us with me.
Today to discuss our fourth quarter and year end results as well as our strategies and outlook.
Probably for a tablet based chief Executive Officer, whose background tapestries, Chief financial Officer, and Chief operating 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. This includes projections for our business in the current or future quarters or fiscal years forward.
These 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 brands and other important factors that could impact our future.
The result and performance.
non-GAAP financial measures are included in our comments today and in our presentation slide given that FY 'twenty. One included an additional week in the fourth quarter figures referenced in today's call will be on a comparable 13, and 52 week basis, unless otherwise noted.
Reconciliation to corresponding GAAP financial information. Please visit our website www dot type of Green Dot com toward class investor and in view of the earnings release and the presentation posted today no.
Now, let me outline the speakers and topics for this conference call Joanne will begin with highlights for tapestry and our brands Scott will continue with our financial results capital allocation priorities and outlook going forward. Following that hold the question answer session, where we will be joined by Todd Kahn C.
Oh 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 drove standout results this fiscal year, delivering accelerated revenue and profit growth across our portfolio a direct reflection of the vibrancy of our brands and the agility and ingenuity of our talented teams around the world.
Our performance also demonstrates both our competitive advantages as well as the success of our strategic growth agenda, which we developed nearly three years ago to radically transform our organization to compete and win in a new world of retail.
This meant changing the way we work adopting a more consumer centric mindset and utilizing our data rich platform to acquire new consumers and better connect with our existing customers.
At the same time, our ambition required a commitment to leading in digital to complement our world class store operations, recognizing the increasing importance of the Omnichannel journey.
We also embraced the need to fundamentally pivot driving efficiencies in many areas of the business to support brand building and high return investments.
Overall, we had to be more agile, while doubling down on the innovation, we bring to consumers at every touch point of our brands.
As we crystallized our vision, which we apply name the acceleration program, we could've never predicted the ways the external environment would change with the onset of the COVID-19 pandemic.
Although this profoundly altered the world around us it reaffirmed our strategic direction.
And with consistent execution, we emerged a stronger company.
Through an unwavering focus on the consumer we acquired 15 million new customers in North America alone over the last 24 months, including approximately $7 7 million new customers in fiscal 'twenty two.
Importantly, we have seen these new customers transact at higher AUR and they have returned to the brands with higher frequency.
At the same time, we've increased retention rates and continued to reactivate lapsed customers across brands all of which has led to more active customers engaging with our brands at higher average spend.
Next we fueled significant growth in digital which reached $2 billion in sales at accretive margins in fiscal 'twenty, two more than triple fiscal 19 levels.
We see runway ahead to further increase our e-commerce sales leveraging our established capabilities online.
In addition, we grew AUR highlighting the strength of our brands and the increasing traction of our product offerings through innovation and craftsmanship.
This growth was also supported by a 40% to 50% reduction in SKU counts and a significant pullback in promotions as we utilize data and analytics to enhance our go to market strategies.
Overall these accomplishments contributed to tapestry, reaching record annual revenue of $6 $7 billion in the fiscal year.
This performance underscores the power of our globally diversified business model in the face of a challenging backdrop.
In the back half of our fiscal year, while our operations in China were materially impacted by Covid related disruptions outperformance throughout the rest of the world led by North America drove strong top line growth.
Our results for the year were also fueled by gains across our portfolio with each brand delivering double digit sales increases in the fiscal year.
And we achieved accelerated growth versus fiscal 19, despite facing meaningful supply chain headwinds that required us to adapt to meet growing demand for our brands.
At the same time, we have transformed our business model, realizing $300 million in run rate expense savings, which helped to fund our growth initiatives, including a significant step up in brand marketing, which reached 8% of sales doubling from fiscal 19.
Overall, we drove earnings growth, 35% ahead of pre pandemic levels, and we utilized our robust free cash flow generation to return $1 $9 billion to shareholders in fiscal 'twenty two alone.
Importantly, we also made significant progress on many of our corporate responsibility commitments in fiscal year 'twenty two we.
We took bold action through our newly created Tapestry Foundation, becoming a founding partner of <unk>, Social Justice Center, and establishing a partnership with the World Wildlife Fund to launch a pioneering leather traceability program in Brazil.
In addition, we hired our first chief inclusion and social impact officer, and we were a signatory of the open to all mitigating racial bias in retail charter underscoring our commitment to build a company that's equitable inclusive and diverse.
Overall, we've made tremendous strides forward under our acceleration program.
I'm confident in the foundation, we've built which positions us to continue to be agile in an ever changing environment. As we remain focused on moving at the speed of the consumer to drive sustainable growth across our brands for years to come.
Now turning to the highlights across each of our brands starting with coach.
In fiscal year 'twenty, two we delivered 18% topline growth or an increase of 15% over fiscal 19 pre pandemic levels as we recruited over 4 million new customers in North America, while driving momentum with our existing customers.
Importantly, we achieved this while delivering strong operating margin of 30%.
This speaks to the heightened level of innovation, we're bringing to consumers underpinned by consistent execution and reinforcing coaches significant potential ahead.
For the fourth quarter, we achieved a sales increase of 8% compared to prior year, including 14% growth in North America by advancing our strategic initiatives.
First we delivered a focused and compelling product assortment across categories.
Our core families a cabbie willow rogue and field, which have become pillars of our assortment continue to resonate with consumers as we fuel innovation to maintain our relevance and emotional appeal.
And ROE, we added new shapes, including a classic top handle handbags as well as options in our seasonal platforms.
Her tabby the collection continues to outperform expectations, including our core women's offering and the family's recent expansion into men's with the soft messenger gaining momentum.
In addition to the tab expansion in mens we delivered outsized gains overall in the men's category as well as across our lifestyle assortment specifically footwear.
Going forward these will be important growth vehicles for coach by increasing brand heat and top line momentum to drive customer recruitment purchase frequency and overall basket size.
Touching on AUR, while we delivered an increase for the year, we saw pressure in the fourth quarter, primarily due to geographic mix headwinds in North America handbag AUR remained approximately 40% ahead of fiscal 19 pre pandemic levels consistent with the third quarter, though declined slightly versus prior year.
Importantly, we remain confident in coaches pricing power going forward and see further AUR opportunity in fiscal 'twenty three helped in part by broad ticket increases which began in August .
Second we continued to infuse data into our decision making to ensure we are meeting the needs of the consumer while driving efficiencies in our go to market strategies to this point through product and concept testing as well as predictive analytics, we delivered a more focused and compelling assortment to consumers, resulting in higher sell throughs and.
Increased SKU productivity.
Third we strengthened our consumer outreach to emotionally appeal to customers and drive engagement.
Throughout the quarter, we utilized multilayer influencer strategies to amplify our offering and enhance our marketing campaigns, including on social platforms, such as tech tuck.
Overall, we've driven stronger customer metrics, including the acquisition of approximately 1 million new customers transacting in our North America channels in fact over the course of the acceleration program coach recruited over 8 million, new customers, which included a higher penetration of millennial and Gen Z customers.
During this time frame, we've continued to engage with our existing customers, while increasing both overall spend per customer and purchase frequency.
Fourth we invested in our digital business, which led to a low double digit revenue increase in the quarter as a fiscal year end ecommerce represented nearly 30% of sales for the brand a material increase compared to the high single digit penetration pre pandemic.
Looking ahead to fiscal year 'twenty three we are capitalizing on the foundational changes we've made and are advancing our agenda to drive continued growth at the brand.
Specifically, we will focus on expanding our customer reach and increasing lifetime value by recruiting new customers with a particular focus on younger audiences, while increasing overall purchase frequency and retention rates.
We will drive growth in our core leather goods.
Continuing to build equity and iconic families.
Accelerate gains in men's and lifestyle categories, notably footwear and ready to wear where we've been delivering outsized growth.
Invest in digital in China long term high growth opportunities for the brand.
And translate an infused coaches narrative and the messaging across consumer touch points to reinforce our brand purpose.
In closing coaches, an iconic brand with significant runway ahead as we continue to create deeper connectivity with consumers through innovative product emotional storytelling and a purpose led agenda that together creates a virtuous flywheel for customer engagement.
Our success over this past fiscal year highlighted by a significant acceleration in sales at strong margins underscores our confidence in the brand and its meaningful opportunity for long term sustainable growth.
Now moving to Kate Spade.
The brand delivered record revenue of over $1 $4 billion in the fiscal year, representing growth of 22%, while expanding operating margin.
Throughout the year, our team has been laser focused on rebuilding the brands Foundation and clarifying our purpose.
We have delivered consistent results are testament to our strong team the solid execution of our strategic actions and the increasing traction and unique positioning of our brand and.
In fact over the past year in North America, we acquired over 3 million new customers reactivated nearly one 5 million lapsed customers and drove low double digit growth in average customer spend briefly touching on highlights from the fourth quarter, Kate Spade outperformed expectations on both the top and bottom line.
Line, reflecting progress against our growth strategies.
First we amplified key handbag platforms as we continued to build and innovate our product infusing newness across the assortment.
Not our core family and number one collection again fueled the quarter's performance delivering strength across the offering most notably the cross body option, which was launched last quarter.
In addition, fashion shapes, such as the Manhattan Tote and the recently introduced top handled meringue outpaced our expectations.
Novelty remains an important asset of unique and differentiating factor for the brand that plays a key role in our storytelling culture. In fact, the newest novelty collections. Once again delivered strong sell throughs at well above overall AUR importantly, the traction of our core new introductions and novelty.
Offering coupled with a pullback in promotional activity drove a low double digit increase in global handbag AUR.
Second we drove brand heat by engaging the consumer through emotional storytelling and our community driven approach.
Our cabana capsule acted as an engagement engine as well as an opportunity to test product drops and build best practices to amplify the campaign, we launched a series of pop ups in key cities, including New York, London, and Kuala Lumpur.
These locations have both the color enjoy that Kate spade is known for leading to new customer acquisition with over 50% of purchases made at the pop ups from new customers at.
At the same time, our Kate Spade, New York Cabana hashtag challenge on Tictoc, which posted a wide cast of Influencers, well outpaced expectations, garnering 8 billion views since launch.
Yeah.
Third we're utilizing data to maintain our consumer centric approach and gain a deeper understanding of the preferences and drivers of customer purchases. For example, we've seen our mini and micro shapes drive recruitment of new customers, while fashion shapes and novelty resonate with our existing customer base.
This knowledge comes into play as we develop our assortment architecture and targeted marketing campaigns.
Our focus on consumer Centricity is highlighted by strong customer metrics in North America, we drove an increase in the number of active customers driven by reactivating lapsed customers and re engaging our existing customer base.
At the same time, we recruited over 700000, new customers to the brand in the quarter.
Of course, we built on the strong foundation of our lifestyle positioning and delivered double digit growth across ready to wear footwear and jewelry.
We're offering innovative and distinctive product in these categories, which emotionally connects consumers to our Kate Spade stories and the brand's DNA ultimately these categories fostered deeper connections with consumers supporting higher lifetime value and global expansion.
And fifth we have continued to invest in our digital business as we test innovative ways to engage with consumers online, including an expanded use of influencers.
Overall, we've made significant progress building out this channel.
<unk> Kate Spade digital revenue represented one third of total sales well ahead of the brand's 20% penetration just three years ago.
Overall, Kate Spade is entering fiscal 'twenty three with momentum our intent for this fiscal year is to connect more deeply with our community leaning into the power of our brand to drive global growth to accomplish this we will deliver.
Stinker of leather goods offering capitalizing on the brand's unique positioning within the market and continue to drive higher AUR.
Accelerate lifestyle, focusing on jewelry footwear and ready to wear.
Drive customer lifetime value by continuing to reactivate engage existing customers, while recruiting younger more diverse customers.
And fuel the emotional power of the Kate Spade brand and community through marketing that amplifies its unique positioning and universally relevant purpose.
Our success at Kate Spade is a direct reflection of the power of customer Centricity and commitment to brand building.
Through a focus on what differentiates the brand in the eyes of the consumer including its lifestyle offering and community engagement through storytelling, we're resonating with new and existing customers driving higher AUR and increasing our traction internationally.
We are increasingly confident in the brand's opportunity to achieve $2 billion in revenue and a high teens operating margin over our planning horizon.
Turning to Stuart Weitzman.
We're out fiscal 'twenty two the brand maintained a focused strategy to drive growth improving execution, while remaining nimble to foster increasing consumer demand.
The success of these actions resulted in double digit sales gains for the fiscal year and a return to profitability, despite managing through challenging external dynamics, notably COVID-19 related pressures in China.
In the fourth quarter Stuart Weitzman continues to advance its growth strategies first we improved profitability as we leaned into the strength in North America, which helped to offset the pressures in China.
Despite headwinds in the margin accretive China region, we delivered operating margin improvement compared to the prior year and above our forecast in the quarter.
Second we maintained a consumer centric strategy as we delivered a compelling and trend right offering for our customers leveraging data and analytics.
Sandals were a key category as we capitalized on the increased consumer need for occasion, where this included a standout performance from our iconic nudist collection, which accounted for five of our top 10 styles.
At the same time, we increased product relevancy through newer introductions, which continued to see traction in.
In fact, our versatile Stewart pump, which has resonated for return to work will be featured as a new family in fiscal 'twenty three given the styles outperformance.
Our streamlined and relevant offering coupled with lower promotional activity and the benefit of price increases drove AUR growth of over 20% in North America going forward, we see continued opportunity to increase prices and drive full price selling while maintaining our positioning within the overall market.
Third our engaging messaging helped to recruit new customers, while continuing to reengage and reactivate clients.
Fourth we accelerated our wholesale partnerships and expanded the brand's footprint in key accounts across the globe.
Fifth and finally, we continued to invest in digital resulting in nearly 20% sales growth for the fiscal year digital represented over 20% of revenue, which while a significant increase from a low double digit penetration pre pandemic highlights the significant opportunity to continue to grow our ecommerce business.
<unk>.
Looking ahead to fiscal 'twenty, three Stuart Weitzman's focus as to fuel continued momentum through innovation across all customer touch points with the brand specifically, we will spark desire with high emotion product leaning into our authority on occasion wear and building on our casual foundation.
Drive brand awareness through impactful marketing campaign.
Accelerate China, while continuing to grow North America.
Increased digital revenue by continuing to improve the online experience.
And further improve profitability through a focus on high margin growth opportunities as well as increased store productivity.
Overall, we believe these are the right strategic priorities to build brand awareness grow market share and position the brand for continued profitable growth.
In closing our results underscore the power of our brands the strength of our teams and the success of our strategic actions. In addition, this performance highlights the attractive and durable nature of our categories, which have proven resilient over time, given both the emotional and functional needs they fulfill for consumers.
As we embark on a new fiscal year the environment remains challenging and continues to rapidly evolve. However, the foundation, we've built positions us to be nimble and responsive to change balancing near term headwinds with our long term ambition.
Importantly, we see significant runway ahead as we harness our unique combination of authentic brands amplified by an agile and data rich operating model.
This has supported our significant acceleration over the last three years and is key to our ongoing success as we focus on powering our iconic brands to move with the speed of the consumer.
Overall, we are confident in our ability to drive long term sustainable growth and look forward to sharing the details of our financial and strategic roadmap at our Investor Day in September .
With that I'll turn it over to Scott, who will discuss our financial results capital priorities in fiscal 'twenty three outlook Scott. Thanks, Joanne and good morning, everyone looking back at fiscal year 'twenty. Two we delivered strong results in the face of a volatile backdrop as we focused on the factors within our control.
We have fundamentally transformed the company, creating a solid foundation that enables investment in high return initiatives to fuel sustainable top and bottom line growth. This year, we delivered a record $6 $7 billion in revenue.
Grew earnings per share, 20% against last year, and 35% versus pre pandemic levels, and we returned $1 9 billion to shareholders, demonstrating our strong cash flow generation confidence in the future and our commitment to enhancing value for all stakeholders.
Turning to the fourth quarter, our results capped a strong year revenue rose, 9% in constant currency or 7% on a reported basis.
By region, North America again drove the results in the quarter delivering a sales increase of 12%.
Revenue in greater China was pressured as anticipated due to headwinds associated with the pandemic, including Lockdowns in major cities as such sales declined 32% versus last year due entirely to the pullback in store traffic as digital trends in the region rose, 10% compared to the prior year.
Importantly, overall trends in greater China improved modestly throughout the quarter and into fiscal 'twenty three.
In Japan on a year over year basis sales trends accelerated meaningfully compared to the prior quarter, increasing over 25% on a constant currency basis or approximately 10% on a nominal basis for Europe sales rose approximately 65% against last year with strength in both.
Doors and online.
While one year trends in Japan, and Europe have improved significantly due to the anniversary of last year's pandemic related headwinds as well as strong traction with domestic consumers revenue in both regions remained below fiscal 19 pre pandemic levels.
Across the balance of Asia trends again accelerated sequentially on a one year basis, rising nearly 60% driven by Malaysia and Singapore.
By channel sales and the margin accretive digital channel Rose high single digits in the quarter, while stores and wholesale saw continued growth.
Moving down the P&L as expected gross margin declined in the quarter, given the incremental freight expense of $36 million.
Representing approximately 215 basis points of pressure as well as unfavorable geographic mix from the lower penetration of high margin China business.
Performance of our underlying business remains strong and we continue to utilize data to better understand and meet the needs of our consumers while simultaneously lowering overall promotional activity.
SG&A was slightly above the prior year and better than our expectations, even excluding the anniversary of the $25 million contribution towards the and download the tapestry Foundation last year, we improved our SG&A rate, reflecting leverage across the expense base.
Taken together operating income was largely in line with our expectations and 7% above last year.
Earnings per diluted share for the quarter was 78.
20% ahead of last year, and nearly 30% above FY 19 pre pandemic levels.
So now turning to our balance sheet and cash flows we ended the quarter in a strong position with $953 million in cash and investments and total borrowings of $1 69 billion. There were no borrowings outstanding under our $1 25 billion revolver.
Free cash flow for this fiscal year was an inflow of $759 million, including Capex and nimble implementation costs related to cloud computing of $162 million.
Capex for the year came in favorable to our expectations and included a timing shift of approximately $35 million into FY 'twenty three due to shifts in projects mostly in Asia.
Inventory was up 35% at year end, including an increase in transits of over 50% impacted by longer lead times. Overall, we are pleased with the makeup of our current inventory, which is highly penetrated in core styles. We expect inventory to end fiscal 'twenty three up single digits versus the prior year.
Moving to our capital allocation priorities in fiscal 'twenty, two we returned approximately $1 $9 billion to shareholders.
That was led by $1 6 billion and share repurchases, which is over $1 billion ahead of our original guidance for $500 million.
The incremental buyback was supported by our significant free cash flow generation as well as our strong liquidity position as we emerge from the acute pressures of the COVID-19 pandemic in fiscal 'twenty, one with a more conservative cash position. Therefore, the momentum we drove in our business and our confidence in the future allowed us to return.
To more normalized cash balances by the end of fiscal 'twenty two.
Addition, we returned $264 million to shareholders through our dividend program.
Now looking forward our capital allocation priorities remain unchanged first we're investing in the business to drive long term profitable growth and second we're returning capital to shareholders through dividends and share repurchases.
Therefore in fiscal 2023, we're planning approximately $1 billion in shareholder returns.
Primarily through share repurchases of $700 million under our existing $1 $5 billion authorization.
In addition, our board of directors approved a 20% increase in our quarterly dividend, bringing our anticipated annual dividend rate to $1 20 per share.
We remain committed to increasing our dividend over time at a rate faster than earnings growth.
Now moving to our outlook for fiscal 2023.
Entering 2003 with a number of tailwind we operate in a high margin categories, which have proven to be durable and resilient.
We have strength and pricing power in each of our brands underscored by the gains we have made throughout the acceleration program.
Margins will benefit from a reduction in the incremental levels of air freight versus the prior year.
That said our eyes are wide open and we're not immune to the headwinds that exist in our space. The appreciation of the US dollar ongoing COVID-19 related disruption in China soft consumer sentiment compared to historical averages in the U S and ongoing cost inflation and supply chain disruptions in times like.
These were leveraging our established capabilities and leaning into our competitive advantages, while investing in our brands to drive growth over the long term.
For the fiscal year, we expect constant currency revenue growth of 6% to 7% on a reported basis, we anticipate revenue in the area of $6 9 billion.
Which represents growth of 3% to 4% and includes roughly 300 basis points of FX headwinds from the significant appreciation of the U S. Dollar our guidance assumes balanced growth with all brands and channels contributing to constant currency topline gains for the year by region at constant currency. This contemplates low to.
Mid single digit growth throughout the year in North America, and a gradual recovery in greater China, resulting in growth for the fiscal year as well as double digit gains in Japan and Europe . In addition, we anticipate a year over year operating margin decline in the area of 50 basis points due entirely to FX headwinds of roughly one <unk>.
Basis points. This contemplates gross margin relatively in line with the prior year, reflecting the benefit of moderating freight costs as well as AUR increases across all brands. We expect these <unk> to be partially offset by the previously anticipated rising input cost for materials as well as the <unk>.
Ergative impact of FX.
On SG&A, we anticipate modest deleverage for the year, reflecting continued investments in growth drivers, including digital and the planned 2023 opening of our new fulfillment center in Las Vegas.
Yeah.
Moving to below the line items net interest expense for the year is anticipated to be approximately $35 million.
Second decline versus fiscal 'twenty, two reflecting the benefit of our recently executed cross currency swap arrangements.
Tax rate is expected to be approximately 21%. This represents an increase against last year, primarily due to the anticipated geographic mix of earnings.
Weighted average diluted share count is expected to be in the area of 242 million shares. This reflects approximately $700 million in share repurchases expected through the fiscal year has noted.
So taken together, we expect EPS of $3 80 to $3 90, representing double digit growth compared to the prior year.
Finally, capex in cloud computing costs are forecasted to be in the area of $325 million, including the previously mentioned $35 million shift from fiscal 'twenty two.
We anticipate approximately half of the spend to be related to new stores and renovations primarily in China with the balance dedicated to our ongoing digital and it initiatives and investments related to our new fulfillment center in Las Vegas.
Given the volatile environment and last year's atypical comparisons, we again expect significant variability by quarter, specifically, we expect revenue and earnings growth versus prior year to be back half weighted helped by the sequential improvement planned in China as we move throughout the year. In addition, we will anniversary.
The substantial incremental headwinds from freight beginning in the second fiscal quarter of the year, providing a tailwind the margin for.
For the first quarter, we expect revenue to increase mid single digits in constant currency, which includes a decline of approximately 15% projected in greater China on a reported basis, we anticipate global sales to increase slightly including a negative impact of approximately 350 basis points from FX with <unk>.
EPS in the area of 75.
In closing we delivered strong results in fiscal 'twenty, two with 18% top line growth driving record annual sales.
EPS increased 20% versus prior year and 35% over pre pandemic levels at the same time, we returned $1 $9 billion to shareholders.
This is a testament to the resilience of the categories, where we play the strength of our brands the benefits of our transformed globally diversified business model and our talented teams around the world who continue to drive our strong performance as.
As we look forward, we remain confident in our trajectory and disciplined in our approach to driving long term sustainable growth and total shareholder return.
And now I'll open it up for your questions.
At this time, if you would like to ask a question. Please press star one on your telephone keypad.
Draw yourself from the queue you May press the pound key.
Our first question from Bob durable of Guggenheim Securities.
Hi, good morning.
Joanne I was wondering when you look at the last couple of years as you guys think about FY 'twenty three the environment is clearly challenging can you just talk about the confidence that you guys have that can deliver another strong year for shareholders.
Well good morning, Bob.
I would say that we're confident in our ability to connect with the consumer.
Over the last two years, we've gained 15 million new customers in North America alone and we just as you pointed out we just delivered a great year, we posted record revenue levels double digit growth at each of our brands and those results last year and over the past two years had been delivered and are in a very <unk>.
<unk> retirement.
We saw top and bottom line growth over that period and were up double digits to pre pandemic levels and that really speaks to the success of our acceleration program. We've built a very strong foundation and we see significant runway ahead, given the macro backdrop as you mentioned, we believe that our outlook is.
Is both prudent and realistic.
We expect constant currency, 6% to 7% growth for the year and some of the drivers of our confidence.
Starts with our team I believe we have the best team in the business and our team has proven to have agility and we've been risk.
Our responsive to all of the changes that we've seen in the backdrop.
Our brands are strong and getting stronger and over the last three years, we've really pivoted the company to have a real focus on brand building and brand building capabilities and we're investing behind that and then the future of our brands.
We play in attractive categories. The categories that we serve our customers have proven to be resilient over time, and durable and I think that the success of our transformation is really underpinned by our laser focus on the customer, we're staying closer and closer to our customers and executing behind that and not only.
Are we calling for growth in this fiscal year, but we see a tremendous amount of runway ahead across each of our brands and we're looking forward to sharing more of those details at our Investor day coming up next month.
Thank you.
And once again to ask a question that is star one on your Touchtone phone due to time of interest callers. Please limit yourself to one question, we'll move next to Mike Baur Chow of Wells Fargo.
Hey, Good morning, everyone. Scott you gave some some additional color to the fiscal year guide, but just wanted to follow up is there more you can provide us on the shape of the year. There's a lot of variability first half back half with freight in China et cetera. So any other help on the shape. It would be helpful and then on GSP.
I would say that Thats not included in the guide, but if that does go through could you just remind us the EPS benefit.
You guys would see.
Sure.
And thanks for the question so on the <unk>.
Bart.
And maybe a little more unpacking on the shape of the year by quarter.
So first of all in North America.
Ryan's comments, we do see some moderation in our growth we talked about low to mid single digit growth.
But importantly, that's off a base.
Drawing last year.
8% almost 30% in on it.
Pre pandemic stack more than 22% so our business in North America is strong it remains strong and we expect that to be consistent throughout each of the quarters.
As we go through the four quarters of the year.
Next I will address the rest.
The world, excluding China, and again very strong year on year growth.
Not quite as we're recovering they're not quite as strong on a two year stack, but versus last year, where we saw severe COVID-19.
Pax, Japan rest of Asia, we are seeing very strong double digit growth more than 20% in most regions and we expect that to continue throughout the year. The one that's a little different is China.
Mentioned in the prepared remarks, just some perspective, there last quarter.
We were down about 32%.
That's a little better than we had guided we guided down 35% and importantly, as we exited the year and entered this year, we see the trends improving and continue to improve so we've really just taken the trend line that we see in projected out through the balance of the year. So by Q3, we had selected the gross.
For the full year, we see a single digit growth in China, So that regional difference by year really accounts for a lot of.
Progression, that's really a consistency in the trends that we see it's not a big change in trend is just the mathematics of how those different regions come together.
One one.
Addition to the revenue.
Cadence by quarter, we should also talk about some of the profitability drivers.
The biggest one is freight so you may recall, we've talked about freight last year being elevated for two reasons ocean rates up as well.
As well as air freight and we're essentially out of the airfreight business, but it takes a while for that rebate to work through the snake as that inventory.
Tori.
The freight is attached to that inventory, we're going to see still some negative impact.
Year on year in Q1, because we don't start anniversarying, the big Airfreight in Q2 and beyond.
And putting some numbers on that in Q1, we still expect a headwind from freight somewhere around 150 basis points on the negative that and flex and Q2 and beyond and for the year, we see about 80 basis points of favorability in freight.
And importantly from Q2 through Q4, so Qs two three and four that's going to be about 140 basis points favorability to last year and that gets you to that ongoing rate of about half of what we saw last year coming back to us as a tailwind and then the last point.
Great just a little noise as FX. So FX, we mentioned in the prepared remarks about 300 basis points impact on top line about 100 basis points on bottom line, that's a little more acute in the first quarter about 350 basis points as we start to lap some of the movements in the <unk>.
USD.
Move through the balance of the year. So hopefully that gives you a little bit of context on the shape.
Second part of your question was GST as you noted we did not reflect any assumption changes in the law around GSP. It's.
It's about $40 million and the annual duties paid.
Because we don't have the GST regime in place and if it should be a retroactive which in all recent past. It always has been that would be about another $50 million so $90 million in total.
Assuming that it's passed and assuming that it's retroactive significant impact, it's 30 30 plus cents or so.
Our next question comes from Lorraine Hutchinson of Bank of America.
Thank you good morning.
Can you give us your thoughts on the health of the store fleet and how you think about the footprint for each brand now that E. Commerce is such a bigger part of the business.
Yes.
Yeah, Hi, good morning Lorraine.
We feel really good about our store fleet and the health of our store fleet we have.
Ed.
Over the last three years had a focus on improving the productivity and profitability of our of our store fleet and also understanding and making sure that we're delivering the right experience for our consumers in that physical touch point and we believe stores are still important.
To the consumer and it represents as I said, an important touch point, but with our focus on the profitability, even as we've come through the pandemic and <unk>.
Traffic pressures our store fleet is more profitable than it was pre pandemic level today, even today. So we feel good about where we're positioned.
And we see opportunities to continue to work to improve the experience, we're delivering to consumers in that.
And that physical touch point as a as really an important part of the the consumer shopping journey.
<unk> to your point, we've driven an incredible growth in our digital business, we've reached $2 billion.
And that business more than triple where we were pre pandemic and it's important because we've taken a focus.
<unk> from a specifically channel focus to focusing on the consumer and we want to be where the consumer is.
In terms of how to engage the consumer with our brands and we've again lots of traction in digital it's $2 billion business. It comes with accretive margins versus the brick and mortar channels. So for US seeing that continued growth is a good is a good thing and a good outcome, but at the same time, we're improving profitability of our store fleet.
And all together, we are acquiring new customers across these channels, which is really healthy for our brands, including an increasing number of younger consumers. So.
That's how we're thinking about our stores will continue to test and learn into omnichannel capabilities for our store and make sure we're delivering the right experience for our consumers there.
Our next question comes from Michael Binetti of Credit Suisse.
Hey, guys. Thanks for all the detail here.
I think you're right.
On the AUR comment Joe did I hear you correctly that North American handbag, AUR was negative year over year in the quarter and as a global I'm, assuming a lot of that was from from China makes I'm curious on North America, I think you referenced and ticket increases in August maybe the size there.
And in what.
Whether once you plan based on a return to positive AUR for the coach brand in North America.
Yeah, I'll kick it off by saying and then I'll pass it to Todd for some color on coach.
It continues to be we continue to see pricing power across our brands and for the quarter overall, we saw AUR growth.
The coach brand in the in the fourth quarter. So if we parse it out coach has been successful driving AUR growth for three years.
And in a lot of that is due to our focus on the consumer and delivering value.
And really leveraging data and analytics from our in our platform, but also delivering the innovation that customers value.
And again three years of strong track record in the fourth quarter.
The coach brand in North America was down slightly but still 40% of pre pandemic levels. So that gives you.
I think an understanding of the pace of change that we've made in the coach brand, but that we still see continued opportunity for growth ahead, and I'll, let Todd touch on that and our other brands at Kate and Stuart we're much earlier on that journey and continue to drive strong AUR growth and see runway ahead in those <unk>.
As well.
So, bringing the power of our data rich platform and our consumer Centricity is forward. It has had traction and we see that going forward, but Todd I'll, let you provide some color on coach specifically.
Thank you Joanne.
Joanne indicated we're coming off some amazing numbers, 40% above pre pandemic in North America.
And what we had said to you before was we had always planned on ticket increases.
This August and throughout the year and generally speaking.
6%.
Time's, a little higher in that range and we feel very good about that we feel good about that because we've not seen any resistance from our consumer and they really appreciate.
The codes.
Coach offers that are unique the value and the innovation and we anticipate seeing a return to AUR growth even in North America handbags in the first quarter and throughout the year.
Yeah.
Our next question is from Adrienne <unk> of Barclays.
Good morning, nice slip into a fantastic year.
Joanne I wanted to go back to the comments on the 40% to 50% SKU reduction.
What.
<unk> or did you just kind of tighten up.
You are the target AUR, if you take out certain category. So any more color on that piece of it and then Todd.
How much of the product the vets and flash design process is based on predictive analytics and how do you balance sort of your creative force.
Team versus the more analytical nature of our time.
Data analytics, thanks, so much.
Yeah, Thanks, Adrian I'll kick it off with our AUR and some of the.
The data and analytics approach to how we thought about SKU reduction.
And.
Your point on understanding the assortment, we leverage data and analytics to really help drive our SKU reduction efforts.
We wanted to make sure that we did have the right assortment architecture.
And we cut a lot of the tail of the unproductive skus, but importantly, we leveraged analytics and market research to understand the consumer across the landscape and make sure that we had the right products to deliver against and understanding a deeper understanding of the customers. So as we developed our assortment architecture.
Understanding who the consumer is who the target consumer is and where we wanted to put in place our bets and it's been an important and a huge win for us as we've come through a pretty volatile environment to have that focus assortment that hasnt. Each each SKU has a purpose and we're evaluating which.
Skus are attracting new customers what are the entry points for our brands, where are we seeing customers move up in AUR and delivering that value that they recognize.
It's been a tremendous help to have more focused assortment as we navigate a lot of the supply and demand changes around the world.
And it's been a tremendous help in terms of communicating to the consumer what's important so with all of the changes that have happened over the last two years, we're better at identifying the skus, we're better at allocating those those items that assortment across the world we're better at.
Allocating our inventory behind those and we're better at messaging our consumers behind the reduced SKU count. So so a lot of wins on that score.
What I can add is.
Our designers are not going to be replaced by AI anytime soon so.
What we've said often in the past as we are at our best when we bled in magic in logic and today, what that means is all of the things that Joanne mentioned, but in addition.
For me the creative process, it's informing design, we are having much better feedback loops earlier and again I want to make sure. We continue to be innovative and creative and that is not going to be something that we are outsourcing to computers Stewart fevers and his team.
<unk> really come up with incredible.
And focus and their their goals their Muse is this younger consumer base.
Global consumer that cares about values.
We infused in the brand. So again, it's an inform creative process. We're at our best when we do this we're using the tapestry platform and the data to help us do that in a really authentic way and youre seeing it in the product.
Yeah.
Our next question is from Mark <unk> of Baird.
Good morning, Thanks for taking my question.
Great to see the continued progress at Kate.
Can you give us some updated perspective on the path to 2 billion. How are you thinking about growth by geography, and at what point as China become a bigger part of the story again.
Well, we see Mark.
The opportunity to achieve 2 billion were increasingly confident that it's the team is really.
You know delivered and the brand is really performing both on top and bottom line.
And we see that traction with our existing customers that has been our focus right to get the brand steady and growing in our core markets of North America and Japan.
We see tremendous runway and opportunity ahead to get to that $2 billion.
With growth in our core markets. We also though to your point see opportunity to expand internationally, we've driven strong growth our business is small in both China and Europe Europe has been performing quite well, we see opportunities to expand there and over time.
Also impact that China market. So that that is an opportunity the $2 billion is not contingent upon you know.
A big step into China, we see runway in our core markets. In addition to.
China, which is you know right now it represents a lot of white space for the brand to continue to grow beyond $2 billion.
Our next question is from Oliver Chen of Cowen.
Hi, Joanna Scott.
Our survey data, telling us showing some pressure on the higher end.
<unk> customer as well just would love your thoughts on the strategy for the average unit retail increases that the coach brands in the fourth year of doing this is just the nature of what's achievable, yet still offering clear value and innovation and Joanne you mentioned younger customer in your prepared remarks.
As well as opportunity for continued brand building could you be more specific about what you mean, there and where you see the evolution of the innovation going thank you.
Yeah, why don't I pass it to Todd to talk about the coach brand and then I'll I'll follow it up with our young consumer.
Thank you good morning, we feel really good about where we are in.
AUR and particularly the place you focused on which is the higher Ed.
Two quick data points first of all in in retail we saw AUR handbag growth.
Even in the fourth quarter.
And what that shows is the dramatic white space that exists today between coach and the traditional European luxury brands and I think what you see with rogue in some of our more elevated product of the consumers recognizing the value there and theres a lot of opportunity to continue to grow.
There and so I see us further increase our arris throughout the year, both in North America and globally.
And we're going to see that in Japan in China.
With innovation.
Feel very good, particularly about capturing more of that white space.
And.
Ill let.
Let me, let me just follow up with it quite easy to answer the second part of your question Oliver on brand building. We have spent the last three years really pivoting the company to get focused on how we continue to invest in our brands.
And as we've done that we've we've focused on acquiring new customers reactivating the customers lapsed customers and continuing to drive higher customer lifetime value and that focus on the customer it's part of our brand building story.
You know we are you know trying to acquire more customers and succeeding.
You know 15 million new customers in the last two years alone and we are seeing an increasing number of younger consumers and we're doing that with capabilities that we've developed and marketing and also with data and how were positioning our assortment, so understanding that consumer getting closer to that consumer and delivering product.
And experiences that they value and again, we're seeing traction we're showing up in the places where they are.
Particularly on digital channels.
Showing up not only for the transaction, but engaging consumers at their on their on their journey that customer journey and discovery. So part of our investments and we talked about how we've significantly changed our investments to be behind that brand building and in digital moving our marketing spend from 4%.
A sales to 8% of sales was meaningful and we have the capabilities to continue to measure the effectiveness of the investments, we're making and ensuring that we're getting the outcomes that we want and you can see those results again in the end the customer acquisition over the last two years and we expect that to continue.
Our next question is from Brooke Roach of Goldman Sachs.
Good morning, Thank you for taking our question.
Sure I'd love to hear your outlook for growth for the accessories and handbags category into fiscal 'twenty three for both units and AUR, where do you see the largest opportunity for coach brand to take share in the North American handbag and accessories market. This year. Thank you.
Yeah. We we are fortunate to play in a category that has historically had very proven very resilient and had durable growth over the years we've seen.
Pre pandemic the category grow in the mid to high single digit range very consistently and even.
Through the pandemic, we saw consumers engaging with the category and you know coming out.
Strong as we've recovered from the pandemic.
But going forward, we expect the category to continue to grow in that mid to high single digit level and from.
The coach brand I gave Todd and the team at coach tremendous credit they have really infuse life and energy into that brand. We are acquiring new customers, we are driving innovation and really managing the business quite well.
And you can see that in that and the customer acquisition that we're seeing at the coach brand. We still have tremendous runway ahead for coach the category, we see growing and we think coach is very well positioned to continue to grow with the category and at very strong margins.
Yes, I think the only thing I can point you to is.
It was a very interesting recently the business the fashion did a very deep dive in the handbag category and.
With unaided awareness they were at consumers, who are engaged in the category and anticipated barring a brand what brand would they buy and we were very pleased to see that coach was the number one brand in the U S.
Unaided awareness by.
Consumers, who have the intention to buy.
Even.
What was also very interesting was on high net worth individuals individuals who have over one and a half million investable.
Festival asset coaches number five in the U S.
So that bodes very well and shows that we are cutting through in our messaging on values.
And I think youre going to see us and you're going to hear us talk quite a bit about it at the upcoming Investor day, how we're going to chart our future.
And take us into the <unk>.
<unk> made meaningful growth period for coach.
Our next question is from Dana Telsey of Telsey Advisory group.
Hi, Good morning, everyone can you talk a little bit for each of the brands, where you are on the journey of price increases and does it all does it at all differ in terms of how you're pricing for some of your exclusive or limited edition products. Thank you.
Good morning Dana.
First I'll start by saying you know we occupy.
An incredible position in the market and we represent tremendous value for the quality and the and.
And the innovation that we're delivering to consumers and consumers are recognizing that we have been.
We have been seeing AUR growth consistently at coach for three years.
And consumers are recognizing the value that we're delivering in the marketplace.
Where we are in the journey, we still see runway ahead across all three brands to drive AUR, we see pricing power across our brands again with customers recognizing that value while coaches further along on this journey again and as Todd just mentioned, we see runway ahead to to drive them.
More price increases more than offsetting inflationary input cost pressures as we move forward.
And as we deliver continue to deliver great value in the market and in the context of the market. We've seen the pinnacle luxury players move price up pretty substantially over the last three years and that creates that white space for all of our brands.
Vision are and continue to position AUR hired again.
At at Kate Spade and at Stuart Weitzman, continuing to see strong AUR growth in the last quarter over the last year earlier on the journey. So much more runway ahead in those brands as well.
Thank you that concludes our question and answer session. This morning.
Now I'll turn the call over to Joanne for some concluding remarks.
Well, thanks, operator, I want to close by thanking our teams around the world for their passion and commitment. They drove these standout results that we delivered we delivered record record annual revenue this year with double digit growth at each brand and our digital business, reaching $2 billion along with Ernie.
<unk>, 20% above last year, so it standout performance.
Really are clearly demonstrating the strength of our brands and the power of our transformation, which positions us well for the future.
Have significant long term runway and through a continued focus on the customer and commitment to brand building I'm confident in our ability to drive sustainable growth going forward I'm looking forward to sharing more details on our long term roadmap at our Investor Day next month and I hope to see you all there. Thank you.
This does conclude the tapestry earnings call. We thank you for your participation you may now disconnect your lines and everyone have a great day.
Oh.
[music].
Yes.
[music].
Yeah.
Yeah.
[music].
Yeah.
Hum.
Today's tapestry call has concluded you may now disconnect your lines.
Yeah.
Uh huh.
[music].
Yeah.
Yes.
Okay.