Q3 2025 Tapestry Inc Earnings Call
Speaker Change: Please stand by, your program is about to begin. If you need assistance on today's conference, please press star zero.
Speaker Change: Good day, and welcome to this Tapestry conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the global head of investor relations, Christina Colone.
Speaker Change: Good morning. Thank you for joining us with me today to discuss our third quarter results as well as our strategies and outlook are Joanne Crevoiserat, Tapestry's Chief Executive Officer, and Scott Roe, Tapestry's Chief Financial Officer and Chief Operating Officer.
Speaker Change: Before we begin, we must point out that this conference call will involve certain forward-looking statements within the meaning of the Private Security's litigation reform act. This includes projections for our business in the current or future quarters or fiscal years. [inaudible]
Speaker Change: Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements.
Speaker Change: Please refer to our annual report on Form 10K, the press release week of this morning, and our other filings with the Securities and Exchange Commission for a complete list of risks and other important factors that could impact our future results and performance.
Speaker Change: non-GAAP financial Measures are included in our comments today and in our presentation slides.
Speaker Change: For a full reconciliation to corresponding GAAP financial information, please visit our website www.tapestry.com forward slash investors and then view the earnings release and the presentation posted today.
Joanne will begin with highlights for Tapestry and our brand. [inaudible]
Scott Roe: Scott will continue with financial results, capital allocation priorities, and our outlook going forward.
Speaker Change: Following that, we will hold a question and answer session where we will be joined by Todd Kahn, CEO and brand president of Coach.
Speaker Change: After Q&A, Joanne will conclude with brief closing remarks. I'd now like to turn it over to Joanne Crevoiserat, Capestry CEO .
Joanne Crevoiserat: Good morning. Thank you, Christina, and welcome everyone. As noted in our press release, our record third quarter results outperformed expectations reinforcing our position of strength.
Joanne Crevoiserat: Our talented global teams drove accelerated top and bottom line growth against an increasingly complex backdrop, clearly demonstrating the power of consistent brand building and our connections with consumers around the world.
Joanne Crevoiserat: Touching on the highlights of the quarter. First, we powered global growth with total revenue gains of 8% at constant currency outpacing guidance, fueled by 15% growth at coach.
Joanne Crevoiserat: Bi-geography, international revenue rose 8%, led by an increase of 35% in Europe , where our business has strong momentum and the opportunity for continued growth is significant.
Joanne Crevoiserat: In addition, we delivered a sales increase of 4% in the total APAC region. [inaudible]
Joanne Crevoiserat: In greater China specifically, revenue growth accelerated, rising 5%, as we continue to confidently invest behind our long-term growth agenda in the region, and with this important consumer cohort.
Joanne Crevoiserat: and in North America, revenue increased 9% compared to last year, and gross and operating margin continued to expand, reinforcing our commitment to driving a healthy business.
Joanne Crevoiserat: Second, we built new and lasting relationships with consumers around the world. In North America specifically, we acquired over 1.2 million new customers in the quarter, representing strong growth versus last year. [inaudible]
Joanne Crevoiserat: And of these new customers, two-thirds were Gen Z and millennials.
Joanne Crevoiserat: We are capturing consumers who are entering the category for the first time, which is instrumental to fueling enduring relationships, customer lifetime value, and sustainable growth.
Joanne Crevoiserat: New Gen Z and Millennial Consumers continue to transact at higher AUR than the balance of our customer base, and we achieve the meaningful increase in year one retention rates among Gen Z consumers at Coach, a key indicator that these relationships are sticky.
Joanne Crevoiserat: Third, we delivered compelling omnichannel experiences, delighting consumers across all touchpoints
Joanne Crevoiserat: To this end, we maintain strength and digital, which grew at a mid-teens rate versus prior year and represented approximately 30% of revenue at a creative margins.
Joanne Crevoiserat: Our global brick-and-mortar sales rose at a mid-single digit rate in the quarter, at strong and increasing profitability.
Joanne Crevoiserat: Overall, our direct-to-consumer operating model is a clear differentiator and competitive advantage, driving real-time consumer understanding and agility.
Joanne Crevoiserat: Fourth, we fueled fashion innovation and product excellence as we continue to deliver creativity, quality, and compelling value to consumers around the world.
Joanne Crevoiserat: This is on display at Coach, where we delivered strong and broad-based growth highlighting the vibrancy of the brand and product offering.
Joanne Crevoiserat: Our commitment to discipline brand building is also reflected in our strong gross margin which continued to expand in the quarter.
Joanne Crevoiserat: Importantly, our globally scaled and diverse supply chain is a key competitive advantage, enabling us to deliver craftsmanship to consumers while navigating the shifting backdrop, which Scott will discuss in more detail shortly.
Joanne Crevoiserat: Overall, we generated record third quarter earnings per share, which exceeded our expectations and increased 27% compared to the prior year. This outperformance positioned us to increase our outlook for the fiscal year.
Joanne Crevoiserat: We're on track to deliver fiscal year 25 earnings in the area of $5 per share, consistent with the outlook we provided nearly three years ago at our investor day, despite the rapidly changing global landscape.
Joanne Crevoiserat: This is a testament to the power of our strategies, the agility of our operating model, and the resilience and focus of our teams. These advantages are driving our success today, and I'm confident that they will continue to underpin our growth long-term.
Joanne Crevoiserat: Now moving to our results and strategies by brand. Coach delivered another standout performance with accelerated growth in the third quarter, driving 15% top-line gains as the brand's expressive luxury position continues to resonate with consumers.
Joanne Crevoiserat: We believe that the momentum we have unlocked is enduring, and that coaches success is compounding.
Joanne Crevoiserat: We continue to build on our strong brand and cultural relevance, driven by product innovation in the creativity of our talented global teams, who are operating with excellence, focus, and intention.
Joanne Crevoiserat: The coach vision is clear to be the world's most inclusive genuine and loved fashion brand, and it is this vision that guides our strategies and fosters a brand purpose that cuts through with consumers.
Joanne Crevoiserat: In our success as evident in our results, we are driving meaningful new Gen Z customer acquisition through our outstanding product offerings, authentic brand values and deep understanding of our target consumer.
Joanne Crevoiserat: We are winning in our core leather goods category, where we're outpacing the industry, and we're doing this on a global scale, with strong top-line momentum and exceptional loan margins, which increase nearly 100 basis points versus prior year.
Joanne Crevoiserat: Now, touching on the highlights of the third quarter in more detail. [inaudible]
Joanne Crevoiserat: First, we drove double-digit gains in leather goods, where we have multiple platforms for growth. The iconic tabby family once again led, overindexing with new and younger consumers, building strengths on strength.
Joanne Crevoiserat: The tabby shoulder bag 26 continued to anchor the offering, while the new chain tabby was a global success.
Joanne Crevoiserat: Additionally, our New York family significantly outpaced expectations, cementing itself as a new growth driver for the brand.
Joanne Crevoiserat: with styles ranging from the Viral Brooklyn Shoulder Bag 28 at $295 to the Soft Empire Carry-Off 40 at $695.
Joanne Crevoiserat: Further, we grew our archival-inspired Coach Originals collection with the introduction of the large Kitzlock bag at $695, which sold out within minutes of launching online and within a day at stores.
Joanne Crevoiserat: And finally, our bag charms and straps added to our success, providing consumers with further opportunities for self-expression, with the cherry bag charm remaining a Gen Z favorite.
Joanne Crevoiserat: Overall, coaches growth in handbags and accessories continue to outpace the industry, a testament to the brand's heat, innovation pipeline and the compelling value and craftsmanship we offer in the luxury market.
Joanne Crevoiserat: With these advantages, we drove mid-teens handbag AUR growth, led by North America. Looking ahead, we are confident in the potential for further sustainable AUR increases.
Next.
Joanne Crevoiserat: We remain focused on fueling footwear, which drives lifetime value with our target Gen Z consumer.
Joanne Crevoiserat: In the quarter, footwear grew mid-single digits, bringing new and younger consumers to the brand. Growth in the category was led by the successful launch of the Soho sneaker and the continued momentum of the Highline sneaker.
Joanne Crevoiserat: Building on our one-coach learning agenda, both sneakers are offered at consistent price points between retail and outlet channels, enabling us to amplify our innovation and big ideas with consumers.
Joanne Crevoiserat: Turning to marketing, we continue to drive cultural relevance through emotional storytelling that highlights our brand purpose and product offering.
Speaker Change: During the quarter, coach launched on your own time, a campaign introducing coaches Spring 2025 collection and starring global ambassadors, L-Fanning, Naja, Koki, and Young Ji Lee.
Speaker Change: This campaign was inspired by our ongoing discussions with Gen Z consumers across the world and shares a powerful message about having the courage to set the pace of your own life. This campaign is continuing to deliver strong up lists and consideration and purchase intent across markets.
Speaker Change: And as we deepen our learnings with each campaign, we are strengthening both our bold storytelling and our media execution.
Speaker Change: This strategy is driving the acceleration of sustainable customer acquisition and brand growth, and it's working globally at scale.
Speaker Change: In addition, we also cultivated enthusiasm for the brand through unique and immersive retail experiences.
Speaker Change: Our coach play concept stores continue to outperform with higher Gen Z traffic, longer dwell times, and higher return frequency.
Speaker Change: Overall, our holistic brand building activities helped to drive increases in new customer acquisition, as we welcome nearly 900,000 new customers to coach in North America, of which nearly 70% were Gen Z and millennials.
Speaker Change: And at the same time, a retention rate with the Gen Z cohort also meeting fully increased, reinforcing that we're building lasting relationships with our consumers in support of durable growth.
Speaker Change: Inclosing, coaches strong and delivering differentiated results by fostering emotional connections and delivering exceptional value to consumers.
Speaker Change: Powered by Tapestry's growth engine, we will continue to invest in brand building and innovation to drive long-term sustainable growth, bringing this iconic brand to new generations of consumers.
Now moving to Kate Spade.
Speaker Change: In the third quarter, revenue was pressured, declining 12% at constant currency, while profit met our expectations driven by continued gross margin expansion.
Speaker Change: As we've shared, our work to reset the brand is underway, and we're making decisions today to drive sustainable growth long-term. We know this work will take time, particularly in the context of a more uncertain backdrop, however the actions we need to take are clear and we are executing with focus and urgency.
Speaker Change: Our strategies are informed by Tapestry's growth model with a focus on building brand-heat, relevant product innovation, and compelling experiences.
Speaker Change: As we build a healthier brand, we will be closely tracking leading indicators of progress along the way, informed by our learnings and success at Coach.
Speaker Change: These include first, increasing unated brand awareness and search interest, followed by an improvement in traffic and customer acquisition which will ultimately compound to drive top line growth.
Speaker Change: Now turning to the strategic details, first we're committed to fueling brand heat and relevancy through cohesive storytelling and incremental investments in brand media.
Speaker Change: In April , we launched our spring campaign, which features ice spice and charlie de Milio, two very influential and relevant Gencies celebrities.
Speaker Change: This is a further step toward a more effective spike in sustained marketing strategy that will enable us to reestablish Kate Spade as a top of my brand for our target audience.
Speaker Change: Next, we continue to prioritize strengthening and elevating our handbag offering, bringing more innovation, focus, and relevancy to our assortment.
Speaker Change: We are advancing our work to build blockbuster handbag families. During the quarter we continued to amplify the deco collection and retail and the Kayla and Kip and Outlet, which over indexed with new, younger consumers at strong AUR and margins, and we see further opportunity for these families going forward.
Speaker Change: And as we bring more innovation to the assortment, we are also working to streamline our offering by reducing handbag styles by over 15% by fall and continue to clear deselection barriers through improved styling, ensuring our big ideas cut through with consumers.
Speaker Change: Overall, we're focused on creating distinctive product that is consumer-informed, grounded and Kate Spade's unique brand DNA and modern and relevant today.
Speaker Change: Next, we're working to maximize Omni-Channel Cohesiveness with a compelling, consistent, brand message across all consumer touch points. As part of our efforts to improve the customer experience and fuel-bred health, we are committed to reducing promotional activity and delivering continued gross margin expansion.
Speaker Change: As previously shared, reducing the level of promotional activity is a key building block to scale in a healthy way globally over the long term. As we build for the future and connect with consumers on our brand values beyond simply price.
Speaker Change: In closing, we are advancing our efforts to reinvigorate Kate Spade. The brand has a legacy of creativity, joy, wit, and warmth, and we will build on this unique heritage while modernizing its expression, guided by a sharpened focus on our consumer.
Speaker Change: The steps to do this will take time, but we are confident in the potential and path forward. Importantly, the strength of our platform provides us with the experience, discipline and brand building capabilities to execute these strategies while delivering enhanced results overall. [inaudible]
Speaker Change: Our focus is clear and we are committed to unlocking the untapped growth and value creation opportunities for this iconic brand.
Speaker Change: Now, turning briefly to Stuart Weitzmann. As previously announced, we entered into a definitive agreement to sell the brand to Colaris, and we continue to expect a transaction to close this summer, subject to customary closing conditions.
Speaker Change: As diligence thords of our portfolio and discipline, allocators of capital disinsurers that all our brands are positioned for long term success and that we maintain a sharp focus on our largest value creation opportunities.
Speaker Change: At the same time, we are pleased that we found Stuart Weitzman at home in Collaris, an ideal owner to guide its next chapter of growth.
Speaker Change: Inclosing, Tapestry delivered another standout quarter with accelerated sales and earning growth that positioned us to increase our outlook for the year. I want to thank our extraordinary teams for driving these strong and differentiated results.
Speaker Change: Moving forward, the external backdrop has become increasingly complex. That said, in the face of uncertainty, our purpose is unwavering. To stretch what's possible for our brand and business.
Speaker Change: To do this, we will harness our proven competitive and structural advantages that have allowed us to adapt and win in any environment, namely, our global scale and an attractive industry, the compelling value we offer to consumers and the strong fundamentals of our business.
Scott Roe: I'm confident in our future and the meaningful opportunity to deliver durable growth and shareholder value. I'll now turn it over to Scott.
Scott Roe: Thanks Joanne, and good morning everyone. Our third quarter results exceeded our outlook, building on our track record of consistent execution as we unlocked accelerated growth.
Scott Roe: We delivered record, third quarter revenue and earnings per share while generating over $1 billion in adjusted free cash flow year-to-date.
Scott Roe: Now moving to the details of the quarter, beginning with revenue trends on a constant currency basis.
Scott Roe: Sales increased 8% to the prior year and outperformed our expectations.
These results reflect gains in North America and internationally.
Scott Roe: By region, North American sales increased 9% compared to the prior year, led by strong double-digit growth at coach. Both growth and operating margin rose, versus last year as we supported long-term brand health.
Scott Roe: In Europe , revenue grew 35% above last year with growth across all channels driven by increased local consumer spend and strong new customer acquisition, notably with Gen Z.
Scott Roe: In greater China, growth continued with revenue rising 5%, our sequential acceleration was driven by both digital and stores, with each channel delivering growth.
Scott Roe: Our differentiated results in China clearly demonstrate that our strategic initiatives and investments in the region are yielding returns with our brands and business position for long-term sustainable growth.
Scott Roe: Now, touching on Revenue by Channel for the Quarter, our Director Consumer Business crew 9% compared to the prior year at Constant Currency, which included a mid-teens percentage increase in digital revenue and a mid-single-digit increase in global brick and mortar sales.
Scott Roe: And wholesale revenue grew in the quarter in keeping with our expectations and strategy to find targeted opportunities to expand our brands reach with consumers.
Scott Roe: Moving down the P&L, we delivered a gross margin of 76.1%, representing our highest quarterly gross margin in over 15 years.
Scott Roe: This was a head of plan and 140 basis points above prior year, driven by operational outperformance.
Scott Roe: Arstrand Gross, Margin Performance is a core element of our value creation model, providing us with flexibility and fuel to drive long-term growth.
Scott Roe: Turning to Ask GNA, expenses rose 7% and were even with prior year on a rate basis. This included increased brand building investments in higher compensation costs offset by leverage on fixed costs.
Scott Roe: As compared to expectations, there was a benefit of approximately $20 million or $5 cents primarily related to marketing timing with the fourth quarter.
Scott Roe: Taken together, operating margin increased 140 basis points in the quarter, driving profit expansion ahead of expectations and 16% over the prior year, and our record third quarter EPS of $1.3, grew 27% over prior year and exceeded our guidance.
Now turning to our shareholder return programs.
Scott Roe: As previously announced, in November we executed a $2 billion accelerated share repurchase program which remain underway during the fiscal third quarter. In addition to the ASR program we have $800 million remaining under our previous share repurchase authorization.
Scott Roe: Together with our dividend, which is expected at $1.40 per share for the year, we're positioned to return over $2 billion or more than 100% of adjusted free cash flow to shareholders in fiscal 25, a testament to our strong organic business and robust cash flow generation.
We have two foundational commitments.
Scott Roe: First, to invest in our brands and business to support long-term sustainable growth, and second, to return capital to shareholders via our dividend, with the goal over time to increase the dividend at least in line with earnings to achieve our stated target payout ratio of 35 to 40 percent.
Scott Roe: Beyond these two foundational commitments, our robust cash flow generation provides us with balance sheet flexibility for value creation.
Scott Roe: This includes the opportunity for share repurchase activity, which is on display this year. And finally, utilizing our rigorous Ford Lens Framework, we consistently evaluate opportunities for strategic portfolio management.
Scott Roe: Importantly, and as previously communicated, before moving forward with any acquisitions, we will ensure coach remain strong and Kate Spade has returned to sustainable top line growth.
Scott Roe: These clear capital allocation priorities are underpinned by our firm commitment to a solid investment grade rating and maintaining our long-term gross leverage target of below two and a half times.
Scott Roe: Now turning to the details of our balance sheet and cash flows. We ended the quarter with $1.1 billion in cash and investments and total borrowings of $2.7 billion, representing net debt of $1.6
Scott Roe: At quarter end, our gross debt to adjusted Ibadah was 1.6 times.
Scott Roe: In addition, after our quarter end, we repaid our April 2025 bonds at maturity, totaling $303 million dollars.
Scott Roe: Adjusted free cash flow for the third quarter was an inflow of $135 million and CAPEX and implementation costs related to cloud computing were $36 million.
Scott Roe: Inventory levels at quarter end were 6% above prior year, excluding $87 million of Stewart Weitzman inventory reflected in assets held for sale on our balance sheet.
Scott Roe: Our inventory continues to be current and well-positioned globally and by brand in support of our growth ambition.
Scott Roe: Now moving to our guidance for Fiscal 25, which is provided on a non-GAAP basis.
Scott Roe: We are raising our fiscal 2025 revenue, earnings, and cash flow outlook.
Scott Roe: We continue to view this outlook as prudent and achievable, and we remain clear-eyed about the realities of the external environment, balanced with the opportunities we see for our business.
Scott Roe: For the fiscal year, we now expect revenue of approximately $6.95 billion, representing growth of 4% versus prior year on a reported basis, including an expected currency headwind of nearly 50 basis points.
Scott Roe: In Greater China, we remain on track to achieve low single-digit growth over the prior year.
Scott Roe: And in other Asia, we continue to anticipate high single-digit gains while in Japan we're now forecasting a mid-single-digit decline. In addition, our outlook assumes operating margin expansion of approximately 100 basis points versus prior year. In addition, we continue to anticipate high single-digit gains while in Japan we're now forecasting a mid-single-digit decline.
Scott Roe: We anticipate gross margin expansion to drive this increase due to improvements in both AUR and AUC. Both freight and FX are still expected to have a negligible impact on gross margin changes for the full year.
Scott Roe: On SGNA, we expect expenses to increase above the pace of revenue growth, driven by increased
Scott Roe: While we remain diligent with respect to overall expense control, we continue to make deliberate, growth-focused investments in our strategic priorities.
Scott Roe: Moving to below the line expectations for the year, net interest expense is now expected to be approximately $25 million dollars.
Scott Roe: The tax rate is now expected to be approximately 17.5%, and our weighted average diluted share count for the year is forecasted to be approximately 223 million shares.
Scott Roe: So, taken together, we're raising our EPS guidance to be in the area of $5 representing high teens growth compared to last year, and ahead of our prior guide of $4.85 to $4.90. This guidance fully embeds all trade policies as of April 10th.
Scott Roe: Anchor metal tariffs are expected to have an immaterial impact on fiscal 25 results based on the timing of our fiscal year-end.
Scott Roe: Moving on, we now anticipate adjusted pre-cash flow of approximately $1.3 billion. And finally, we expect CapEx and cloud computing costs to be in the area of $160 million.
Scott Roe: We anticipate about half of the spend to be related to store openings, renovations and relocations with the balance primarily related to ongoing digital and IT investments.
Scott Roe: Touching on the shaping of the fourth quarter, to start, given the dynamic nature of the rapidly shifting market, it's important to note that our revenue trends quarter to date are in line with our Q3 results.
Scott Roe: However, while we've seen no slowdown in our business today, we're taking a more conservative approach to the quarter to go outlook. For the quarter...
Scott Roe: We are estimating revenue to grow at a mid-single digit rate on both a reported and constant currency basis.
Scott Roe: Further, we're forecasting operating margin to be in the area of prior year, which incorporates the expectation for continued gross margin gains, offset by a higher SG&A cost, including the previously mentioned marketing expense timid shift from the third quarter.
Scott Roe: So taking together, we're modeling Q4 EPS to be over 95 cents.
Scott Roe: Before closing, I want to provide some additional context on our business in light of tariffs and the shifting global trade landscape.
Scott Roe: First, as it relates to our supply chain, our products are primarily manufactured in Vietnam, Cambodia and the Philippines. These countries taken together represent 70% of our production, including Vietnam, which accounts for one-third of our total production. [inaudible]
Scott Roe: Conversely, we have very limited manufacturing exposure to China with less than 10% of our production in the region across all categories. This primarily includes manufacturing for jewelry and ready to wear, with negligible exposure in our core letter goods category.
Scott Roe: As a point of reference, over the past 12 months, roughly $900 million of our cost a good sold was related to product imported into the U.S.
Scott Roe: Touching on our tariff mitigation strategies, we're taking thoughtful actions to protect the compelling value, quality, and innovation we offer to consumers. To share some color, we pulled forward inventory receipts ahead of the incremental tariffs going into effect in April .
Scott Roe: In addition, we are leveraging our agile supply chain to optimize our global manufacturing footprint, minimizing our tariff exposure where possible. We have scale and long-standing relationships with our service providers, and we are actively working together to unlock efficiencies.
Scott Roe: And most importantly, I want to think our supply chain organization, their deep global trade expertise, operational excellence, and culture of continuous improvement allowed us to take swift action in the face of this uncertainty.
Scott Roe: Overall, while we're not immune to external factors, we're in a position of strength with structural advantages. Our fundamentals are strong and our business has momentum, with compounding growth fueled by innovation, customer acquisition, and AUR gains. [inaudible]
Scott Roe: In closing, we delivered another record-breaking quarter, highlighted by accelerated top and bottom line growth.
Scott Roe: And we raised our outlook for fiscal 25 and are on track to achieve EPS in the area of $5 while returning over $3 billion to shareholders over the last three years, consistent with the target we outlined in our September 22 investor day.
Scott Roe: Moving forward as we face an increasingly complex environment, we remain confident in our brands, our people and our strategy, with a differentiated and highly cash-generative business model that has proven agile, resilient and adaptive to change.
Scott Roe: We'll continue to focus on the factors within our control operating with a commitment to discipline and consistency to deliver long-term growth and shareholder value.
I now like to open it up for your questions.
Speaker Change: At this time, if you would like to ask a question, please press star one now on your telephone keypad to withdraw yourself from the queue you may press star two.
Speaker Change: Our first question is coming from Ike Boruchow of Wells Fargo. Your line is open.
Ike Borucow: Good morning, everyone. Really, really strong quarter. Good to see it. I guess this very high level, maybe for Joanne, just...
Speaker Change: What's driving it? I mean, especially at the coach brand. I just don't think you guys have put up numbers like this, you know, in 20 years. What's driving it? How are you thinking about the business in the future in a more dynamic environment? Can the brand sustain this kind of heat? Just kind of curious your thoughts. Thanks.
Speaker Change: Well, good morning, I can thanks. We did deliver a standout quarter, and I think one that illustrates the power of our business model and the unique strengths and structural advantages that we have to navigate in really any environment.
Speaker Change: at Increasing Margins, and that enabled us to raise our outlook for the year, and there are really four key structural advantages that we think about as we think about navigating.
Speaker Change: A dynamic environment. And those are also the things that helped contribute to our success to date. And I would say the first is that we're building strong emotional connections with consumers.
Speaker Change: And we play in a category in handbags that have proven to be durable over time because of the emotional connection that consumers have with our category.
Speaker Change: Next second is our high margins and strong cash flow and our direct-to-consumer model. These fundamentals insulate us from some tariff exposure, but also allow us to read demand
Speaker Change: and allows us to react sooner. And that brings in our diversified and agile supply chain. You know, this supply chain we've built over decades, and it's proven we've navigated disruptions in the past both on the supply side and on the demand side.
Speaker Change: And I think underpinning it all is the value that we're delivering in the global market. We are delivering incredible exceptional innovation. I can say at compelling value and customers are responding. [inaudible]
Speaker Change: And I do think it's notable that we're on track to deliver five dollars in earnings for share. That's consistent with the targets that we set at our investor day in 2022.
Speaker Change: Our teams have done an excellent job navigating through volatility and delivering on the commitment we made three years ago, and that gives us confidence that we're in a position of strength and it shows our ability to adapt and win in all environments.
Great, congrats.
Thanks, Ike.
Speaker Change: Our next question is coming from Lorraine Hutchinson of Bank of America. Your line is open.
Speaker Change: If the environment stays where it is today, can you provide some guardrails around what 2026 impacts might look like?
Scott Roe: The other end, I'll take that as a Scott. So, first of all, you know, I think you can appreciate our longstanding and consistent practice. We'll give you guidance on next year at the end of our next fiscal, which will be our...
Scott Roe: Fourth Quarter, but there's some things I can say that might help you a little bit. First of all, remember, we've taken a number of actions already to mitigate impacts of tariffs. We mentioned, I mentioned that in my prepare remarks, but...
Scott Roe: You know, some of those are, we brought some inventory in a heavy time before effective dates. We're looking at optimizing across our diverse...
Scott Roe: Supply Chain with a very agile team that's informed by the insights of, I would say, a cracker jack.
Scott Roe: Trade expertise that's allowing us to optimize across that diverse supply chain.
Scott Roe: And lastly, we're working with our suppliers. We have scale and we have long standing relationships.
Strategic Relationships with...
As we think about trying to find those mitigating actions to make our actions clear.
Scott Roe: And I also mentioned in the prepared remarks and in some of the documents that we gave you.
Scott Roe: Just some ways to dimensionize potential exposures to tariffs, so about 900 million.
Dollars of Costigate Sold is...
Any potential exposure that we might see?
So, you know, everything I've said here.
Scott Roe: is related to the cost side, and if you think about gross margins, remember independent costs, we also have...
Scott Roe: A longstanding history of AUR gains, right? So you think about mitigating the cost side coupled with our brand building consumer engagement and our ability to raise AURs over time because we're delivering a more compelling value.
Speaker Change: That gives us confidence in our ability to maintain margins. Maybe Todd, a little more on the AUR side of that equation.
Todd Kahn: Sure, Scott, thank you. Again, you know, one thing we don't do, you know, we're not just looking at cost to...
Todd Kahn: Deal with AURs. We have compelling reasons to increase AURs and just for grounding everyone, you know in the last five years.
Todd Kahn: We've been able to raise our global AURZ coach in 18 of those quarters. That should give you a lot of confidence in what's happening at coach. And I will say with real conviction,
Todd Kahn: The brand heat today is at its best in the last five years. We have real momentum at Coach, and you see it.
Todd Kahn: In a number of ways, we talk about brand heat which is really desirability. We talk about innovation and I'll give you two quick examples. In the last quarter, we had
Todd Kahn: A really fantastic product in both retail and in outlet. Outlet we launched a collection called
Powder Pink
Todd Kahn: We have lines outside our door. This is not during a Black Friday or a holiday period. This is just for a collection that we launched and it was millions of dollars of results in literally ten days.
Todd Kahn: Similarly, with our launch at retail of our Crystal SIG collection, just compelling product
Future Coffinance is...
Todd Kahn: We know these results and based on the data that we see, our innovation pipeline will continue to get better and better. So I feel very good about not only the brand heat, the innovation.
The Quality, but absolute value that we're offering our clients.
Again, you've heard me talk about this before, but...
in a world where...
Speaker Change: 20 years ago, coach with play and European luxury, traditional European luxury was 2X, R price points, today they're 10X.
Speaker Change: That just gives me more and more confidence globally that our value proposition cuts through across the world and you see that in markets like Europe and Asia and of course the 20% we delivered in North America.
Thank you.
Speaker Change: Our next question is coming from Matthew Boss of JP Morgan. Your line is open.
Great thanks, and congrats on a really nice quarter. Thank you, Peter.
Thanks, maybe I'm-
Speaker Change: Maybe two parts, Joanne, if you could elaborate on the new customer acquisition that you cited, seems like it's really driving.
Speaker Change: The Infliction in North America, and just some of the retention metrics that you're seeing and initiatives around that. And then Todd, I wanted to circle back, maybe just forward looking, how you see the merchandising assortment position today to take continued market share. And maybe if you could just assess the product and the relative value at coach, maybe relative to luxury, or just what you're seeing, is it trade in, trade down, maybe just elaborate on the...
market share acceleration that you're seeing.
Speaker Change: Sure, Matt, I'll kick it off. And I'm glad you called out new customer acquisition. This is a metric and KPI that we've been focused on from the beginning of our transformation. And I used to say, you know, new customer acquisition is like oxygen for brands. [inaudible]
Speaker Change: And that's what everybody in our company is really focused on. How do we engage more consumers and engage them?
Speaker Change: We're connecting these consumers to our brand on an emotional level, and that's what proves to be durable over time.
and the exciting thing about...
and acquiring a young consumer.
Speaker Change: is that the Lifetime Value Opportunity is long, so we see that, but we also see young consumers influencing all age groups, so we haven't.
Speaker Change: forgotten about our entire customer mix. We love all of our customers. And when we talk about our growth
We're seeing growth across age groups across income demographics.
Speaker Change: But our focus on acquiring a new and younger consumer is breathing a lot of life into our brands, a lot of relevance into the way our brands show up in the world.
Speaker Change: And again, because these young consumers are so connected, digitally connected across the world, honestly, they're driving choice for all generations, and influencing all generations. So that's helping us drive our brand heat.
Speaker Change: And you mentioned retention rates. We're actually beginning now and we called it out this quarter to see the jump consumers coming back with higher frequency. So the year one retention rate of Gen Z at coach.
Speaker Change: It is going up, it's higher, and that is a great sign for us as we talk about this.
Speaker Change: Lifetime Value and the durability of this business over time. It's a great leading indicator of what's to come for coach. So we have a lot of confidence in the future and I'll pass it to Todd, talking about the positioning of coach.
Todd Kahn: Thank you, Joanne. Just one thing on the customer, in addition to capturing these 900,000 new customers, 70% as we noted were Genzi and Millennial.
Todd Kahn: I believe are bringing new customers into the category and I think that's incredibly important. We are very focused on point of entry because as Joanne mentioned, if you get them a point of entry, their lifetime value really increases. Now in terms of...
People coming into the market that you mentioned. And, uh...
I'm sorry, as a product.
Todd Kahn: Yeah, yeah, the product, sorry, our merchandising position. You know, it's interesting. I think anybody who buys a coach bag is buying up regardless of where they came from because the absolute value is there. So, we're clearly taking market share across the spectrum.
when the category is growing at...
You know, globally, 1% let's say. [inaudible]
Todd Kahn: And we put up, I'm sorry, well the category is going north American about 1% and down globally.
Todd Kahn: When we put up these kind of numbers, we're clearly taking market share. And I think it's coming across the board, and I'll give you one proof point that gives me a lot of...
Todd Kahn: Confidence. We've talked about the list index, which talks about the hottest brands globally.
in the...
Todd Kahn: Holiday Quarter, we moved from 15 to 5 on the list index. In the last quarter, the first calendar quarter of this year, we moved to 4. I'm not going to do an editorial for who those other brands are, but we're really one of the only American, North American-based luxury brands. [inaudible]
Todd Kahn: That tells you a lot about the consumer behavior because the list index not only measures sales and measures search and measures intent to buy and relevant.
Todd Kahn: And I feel very good. And one of the things we've done these last five years and you've seen us do is...
We're
Todd Kahn: Focus on these big families, these big ideas, whether it's Terry, whether it's...
Tabby, whether it's the New York family.
for our customers.
Todd Kahn: Again, I emphasized it in the first question we had, but the compelling value globally...
Todd Kahn: is really resonating. You know, I've said often, I don't like the idea of somebody having to say three or four months salary to buy a handback.
Todd Kahn: Okay, that has never been coaches DNA. We want to make people feel confident. We want them to feel good about their purchase and buy something of true value that represents values. And I think that gives us a lot of confidence in the future.
Speaker Change: We'll take our next question from Michael Binetti of Evercore ISI. Your line is open.
Speaker Change: Hey guys, congrats on a great quarter, just a couple from me.
Speaker Change: I'm the gross margin, nice to see the beat in the quarter. And I think about the contribution.
Speaker Change: Kate Speed coming in a little above the hundred basis points for the company.
Speaker Change: that you got it to, coach a little below. Is that how you planned it? Are there any new dynamics at hand for the coach brand to think about it? And can you talk a little bit about the coach brand, Gross Margin? Outlooks from here, you know, what's embedded in 4Q? I know Scottie said it was operational for a minute, but what's embedded in 4Q and then just the puts into takes after. What's embedded in the coach brand? What's embedded in the coach brand?
Speaker Change: Fiscal 25, excluding the terrace. I know we still have a lot to learn there. And then I guess, on AURs, I know Todd gave us some thoughts through the product lens. It's very obvious, and we've all learned.
Speaker Change: The lesson of not questioning you guys on the AUR growth here, but…
Scott Roe: Scott, could you break down those drivers of the acceleration a little bit from the finance?
Speaker Change: side, and I know you said there's further opportunities for expansion, but just a few thoughts on how you start to lap these two
Speaker Change: Midteens, A U R, quarters in a row now. As we think about our models after the call today since it's taken such a nice step up in the last couple quarters.
Speaker Change: Yeah, boy, there was a lot there, Michael. I can always count on you. When I hear your name, I know you're coming my way, but first of all, I'm not sure exactly
Speaker Change: What you were saying on the gross margin, but listen, one of the reasons for our beat versus guidance is gross margin strength and it's all driven by operational.
Speaker Change: and a lot of that A-U-R, but also A-U-C. Again, I always say A-U-C is the-
Speaker Change: Underappreciated part of our story. So we've been consistent in finding opportunities to find efficiency, never at the expense of quality or innovation, but we're finding that you see opportunities. But a lot of the strength is an A U R, and it's all the things that Todd just said. [inaudible]
Speaker Change: So, there's no magic in there, there's no big mix, there's no other, you know, extraneous things. It's solid fundamentals here, you know.
in a ployarge in a crowded dash. [inaudible]
Speaker Change: We're continuing on A U R and so where is it coming from? It's coming [inaudible]
Todd Kahn: from both merchandising. It's less about, like for like price, right? I mean, there is some of that, of course, and we don't think cost plus. I hope that came through in what Todd said, right? We're looking at value and innovation. So, as we merchandise new products and new drops and new colors and continue to refresh and update and innovate around our iconic products, we're always finding opportunities to [inaudible]
Todd Kahn: Test whether that value and innovation is working with the consumer and make sure that we have the right price value relationship. And so far because of the brand heat and all the things that are being delivered, particularly in the coach brand,
Todd Kahn: We're seeing that there's been zero resistance from a price standpoint, and we're generally using our data and analytics to find the right.
Todd Kahn: to Greedy, and also that we just have the right relationships. So that's one of the reasons we have confidence, right? The combination of brand heat, understanding the consumer receptivity to that price value relationship and being very sensitive to that.
Todd Kahn: and we think we've got that dialed in pretty good and that gives us confidence in the future.
Todd Kahn: So, I don't know if I'm answering your question. As it relates to Kate, I think Kate is a really nice story of...
Todd Kahn: supply chain, finance, working with the brand teams to even even what we would say has been a
Todd Kahn: A tough backdrop from a demand in top line standpoint. We're focused on quality. This is something you've heard us say for quite a while. Not chasing the last dollar. Some of the actions we're taking honestly do even have some top line impact.
Todd Kahn: But we're continuing underneath that to manage inventory well and continue to grow our gross margins. So we look at that as an indicator or a green shoot for the future and that's an important metric that we keep an eye on.
Yeah, thanks for all the...
Todd Kahn: Sorry, I just want to jump into to clarify the coach, Gross Martin comment you made because my team will never forgive me if I don't.
Todd Kahn: We achieved a 79% gross margin this last quarter, probably the highest lead.
Todd Kahn: The highest gross margin in coaches history for the third quarter. So we feel very good about this neighborhood that we're in and we'll continue to be in this neighborhood.
Speaker Change: Great job. Okay, thanks a lot. That's all the detail.
Thanks, Mike.
Thank you.
Speaker Change: Our next question is coming from Brooke Roach of Goldman Sachs. The line is open.
Speaker Change: Good morning, and thank you for taking the question. How are unit volumes trending at the Coach brand, both in North America and internationally? Given the strong growth in AUR that you've seen, what do you think is the right medium to long-term balance between AUR and unit growth?
Um, I guess I'll take that, uh...
Speaker Change: You know, we're bringing a new client to our business and over time you'll continue to see us grow units, but
Speaker Change: This AUR that we've had, we've grown so materially since I'll take the starting point of 2019.
Speaker Change: We're behind 2019, but in 2019, our AUR was about 70% lower than it is today in North America.
Speaker Change: Each of these interactions is, as I always say, one client, one customer that we interact with.
I am very pleased that we are selling less-
Product on Promotion [inaudible]
Speaker Change: That's just a general truism that creates the sustainable brand growth and because of that and because of these new customers we're going to see a not only AUR continue to grow but we will start seeing units to grow as well but again the brand positioning is one of strength.
and the fact that we are not just... [inaudible]
Speaker Change: Pumping units into the market to create sales volume gives me sustainable long-term growth.
Great. Thanks so much. You're welcome.
Speaker Change: Our next question is coming from Rick Patel of Raymond James. Your line is open.
Speaker Change: Thank you, and congratulations on this strong execution. Can you unpack your performance and strategy across coachable price and outlet just given the evolving macro? How do you maintain the moment we have while remaining nimble given consumer preferences could be subject to change your in the coming months?
Um...
Speaker Change: Thanks for the question. You know, it's very interesting. We've been talking a lot about our performance across the fleet and we've talked to you a little bit about our one coach strategy where we're putting more and more what was historically full price product.
Speaker Change: in traditional outlets at full price and it's resonating with the consumer as as we've seen over and over again we want to be consumer centric, not channel centric [inaudible]
Speaker Change: And what that means is when somebody comes into a sawgrass mall and outside of Fort Lauderdale with very common, that might be the only mall they go to. It might be their best mall in the area. It might be the mall that they're visiting as a tourist.
Speaker Change: They come in knowing they want the tabby back. And so we're giving them that opportunity at full price across the channel. And we're extending that one coach concept into other categories like Footwear.
Speaker Change: All channels at one price point, it's resonating really strongly, particularly with that young consumer we're going after.
So, you're going to see us...
Speaker Change: Lure the lines more and more across channels because the value proposition is there.
Speaker Change: It's there, it's compelling, it's recognized by the consumer. So, I think you'll hear us talk continue to build on the momentum of this one coach idea and blurring the channels. Again, putting that consumer at the heart of everything we do.
Thanks very much.
Dana Telsey: Our next question is coming from Dana Telsi of Telsi Group.
Congratulations on the nice progress.
Dana Telsey: Would the uptick an acceleration in digital and store sales that you saw this quarter?
Speaker Change: How the marketing obviously is very effective? How do you think about marketing by channel and what you're looking at? And as you look even towards next year a little bit, remodels of stores, opening new stores, what do you see as the balance of where you're looking to show up, given the competitive most that you're building around the coach brand? Thank you. Thank you.
Todd Kahn: Well, maybe I'll kick it off and then toss it to Todd to give you some details on coach specifically, but appreciate you noting that we grew in our direct channels. We think our direct business is a competitive advantage.
Todd Kahn: Dana, and we are able through our direct business to meet consumers wherever they are, and that includes having the strong digital capabilities as well as really compelling in-store experiences.
Todd Kahn: So we think that's a competitive advantage for us, and we care about the experiences that we deliver to consumers in each of those channels, making sure that those channels are fit for purpose in terms of...
Todd Kahn: You know, how the customer interacts with our associates, their discovery, their brand discovery, their the inspiration we provide.
Todd Kahn: So, we spend a lot of time on that, and you ask about our media investments, and I will say marketing overall, we talk a lot about the fact that we've increased our marketing and brand building investments over time. I think I went back to pre-pandemic levels, we were at three to four percent.
Todd Kahn: of our sales at one time, and we're approaching 10% of our sales now invested in marketing and brand building.
Todd Kahn: And as we built the capabilities, the brand building capabilities and the experience and expertise to drive these investments into places that are driving high return, we are very intentional about those media investments and where we show off with what content.
Todd Kahn: And based on where the customer is in their journey and that's not something we'll ever be done with. This is a process of continuing to improve our execution behind our media strategies and investments. This is a process of continuing to improve our execution behind our media strategies and investments.
What I can say, what is on display is...
Todd Kahn: The compounding effect of these strategies, and you can see that at coach.
Todd Kahn: As we continue to hone those capabilities, we're seeing the compounding effect of the brand building and the brand heap we're driving at coach in addition to all the other things that need to come together to deliver a great customer experience, including the creativity and product and the store experience and the digital experiences.
Todd Kahn: And we're investing in store experiences as well, and maybe I'll talk to Todd and he can share a little bit about some of the excitement that's happening there.
Todd Kahn: Thanks, Joanne. And one thing about the marketing is Joanne noted, you know, historically coach spent about 3% today. We're, as Joanne said, we're spending 10%. But I will say over the last couple of years, we've refined our thinking. We've gotten so much better at this. We are really spending across the funnel and we're elongating our stories to have deeper richer stories because to cut through.
Todd Kahn: One of the things we talk a lot about is you have to create sustainability and constant messaging. So years ago, we would have new messaging every month. Today, we fundamentally do two campaigns annually and drive that we call over and over and over again. So we talk about spike and sustain is something we're doing very well. In terms of this.
Todd Kahn: You know, COVID restrictions, they love being in stores, they love experiential retail.
Todd Kahn: So, you've seen us roll out some new concepts like Coach Play. You've seen us lean into food and beverage with the Coach Coffee shops that we started in Asia and now we're bringing to the U.S.
and you're gonna see us.
Again, continue to evolve our store design.
Todd Kahn: To speak in an authentic way, in an approachable way, to this Yihar consumer, but also in a luxury way. We believe in this concept of expressive luxury.
Todd Kahn: We have fashion shows, our creative director is always thinking about new ideas, new concepts, we're not following trends, we're creating trends. So we feel very good about where coaches and what we'll do in the future.
Speaker Change: Our next question is from Mark Altschwager of Beard, your line is open.
Mark Altschweger: Good morning. Thank you for taking my question. First, with coach for so open to get a little bit better sense as some of the regional drivers. Is it the same product that's hitting at the same time across the globe here?
Mark Altschweger: And then China, I was a nice momentum, you know, currently, just how you're navigating the risk of consumers potentially souring on US brands. Thank you.
Speaker Change: So maybe I'll pick up the last part of your question and start with China.
Speaker Change: We're seeing that broad-based growth, right? Growth in digital and in stores, across city tiers. And we are driving Gen Z acquisition. And I will say that's in a market to your point that has been in our category pressured.
Speaker Change: Some of the numbers we see is that the market was down double digits.
Speaker Change: in our category, but yet we're growing, and we're doing that because we're acquiring a new and younger consumer, and we're delivering incredible value.
Speaker Change: and innovation to that consumer. It is a discerning consumer in China.
Speaker Change: And we're seeing momentum building there. So we continue to see China as an important region. We're confident in the long term opportunity. And we're staying close, importantly staying close to consumers so that we can read and deliver. [inaudible]
of pressure on anti-American sentiment.
Speaker Change: Again, we're seeing strong engagement from consumers, continued new customer acquisition, and we're delivering growth in China, and in China we expected the liver low single-digit growth for the year with continued acceleration in the fourth quarter.
Todd Kahn: So our business is on track in China. We have great teams on the ground building the business. We were just there a few weeks ago talking to the teams in the region and we feel good about the opportunities ahead and now I'll toss it to Todd to talk about maybe more color on China, but also what's happening in the other regions.
Yes, thank you, Joanne. One of, I think...
Todd Kahn: The reasons we're winning is we did our strategy on regionalization.
A great back is a great back everywhere.
Todd Kahn: and Tabby, and Empire, and Terry, these are winning with our target consumer because it's...
Todd Kahn: We have a news, our creatives, our marketing people are always going after the customer and the value has been well translated across all regions.
Gen Z are the most homogenous generation.
Todd Kahn: Ever to come about. Because what they're seeing when we put Bella Hadid and put a bag on her that looks compelling. It's compelling in Shanghai, it's compelling in Paris, it's compelling in New York, and it's desirable. And what that allows us to do is take our marketing dollars instead of constantly trying to regionalize stories. [inaudible]
and spread it so thinly, we're able to concentrate.
Todd Kahn: Merchandising fallacy to believe that every business unit needs a 30% tail of product. So one of the things we did five years ago, we started to cut the tail of that special product. That gives us, that creates that...
Todd Kahn: More Gross Margin, Less Markdown, more focused on light product that allows us to lean in on what's winning globally. So we feel very good about this strategy and it is working and it allows us to capture new customers globally.
Todd Kahn: Thank you. That concludes our Q&A. I will now turn it over to Joanne Crevoiserat for some concluding remarks.
Joanne Crevoiserat: Well, I want to close by first thanking our exceptional global teams for not only delivering a standout third quarter, but for the strong results they've consistently delivered over the last five years. As you heard, we accelerated top and bottom line growth in the third quarter and raised our outlook for the years, showcasing the strength and resiliency of our brands and our business.
Joanne Crevoiserat: And while the environment is uncertain, we are well prepared and well positioned. We have momentum, strong margins and cash flow, a flexible direct to consumer model, and agile supply chain.
Joanne Crevoiserat: And we offer compelling value at global scale. These advantages are underpinning our success today, and I'm confident they will continue to drive durable growth into the future. Thank you everyone who joined us today for your interest in our story. Thanks and have a great day.
Joanne Crevoiserat: This concludes Tapestry's Earnings Conference call. We thank you for your participation.
and the on the moment home on
Speaker Change: Catherine Charratt, Cherie Halderman, Liane Kilcock-Clay Le', and Annette Cat закон.
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