Joanne Crevoiserat
Chief Executive Officer at Tapestry
Good morning. Thank you, Christina, and welcome, everyone. As noted in our press release, our strong second-quarter results outperformed expectations, showcasing our commitment to disciplined brand-building. Our exceptional teams brought innovation and craftsmanship to consumers around the world this holiday season, driving accelerated top and bottom-line growth to achieve record quarterly revenue and earnings per share. From this position of strength, we increased our outlook for fiscal year '25 while making strategic investments to extend our competitive advantages and fuel strong durable growth and value-creation into the future. Touching on the highlights of the quarter. First, we powered global growth with total revenue gains of 5% outpacing guidance, fueled by 10% growth at Coach. By geography, all regions exceeded expectations. International revenue rose 7% at constant-currency, led by an increase of 42% in Europe, where our business is strong and our runway for growth is significant. In addition, we delivered a sales increase of 1% in the total APAC region. In Greater China specifically, we returned to growth with revenue rising 2%. Importantly, we continue to bring compelling innovation, relevance and value to consumers with a sharp focus on driving long-term growth in the region and with this important consumer cohort. And in North-America, revenue increased 4% compared to last year, while gross and operating margin expanded as we continue to drive a healthy business. Second, we remained focused on building new and lasting relationships with consumers. During the quarter, we drove new customer acquisition growth, welcoming approximately 2.7 million new customers in North-America alone. Over half of these customers were Gen Z and Millennials, and they continue to transact at higher AUR than the balance of our customer-base. Importantly, Gen Z consumers at Coach have the highest retention rate of all cohorts, reinforcing the opportunity to build lifetime value with our target consumer base. At the same time, we improved lapsed customer reactivation in North-America, highlighting our ability to successfully engage our existing customer-base as we recruit new consumers to our brands. Third, we delivered compelling omnichannel experiences underpinned by Tapestry's leading capabilities, which enable us to enhance the customer experience across all touch points with our brands. To this end, we maintained strength in digital, which grew high-single-digits versus prior year and represented approximately one-third of revenue at accretive margins. Our global brick-and-mortar sales rose at a low-single digit rate in the quarter at strong and increasing profitability. Fourth, we fueled fashion innovation and product excellence as we remain focused on bringing creativity, quality and compelling value to consumers around the world. This is clearly on display at Coach, where we delivered strong and broad-based growth in handbags with AUR gains, underscoring the vibrancy of the brand and product offering. Our success is also reflected in our strong gross margin as we achieved a record second-quarter gross margin with further opportunity for expansion long-term. Importantly, underpinning our innovation pipeline and margin gains is our agile supply-chain, a key competitive advantage, which enables us to deliver craftsmanship globally and powers our growth. Overall, we generated record earnings per share, which exceeded our expectations and increased over 20% compared to the prior year. Importantly, our business is strong today and well-positioned for the future as we remain committed to delivering consistent long-term growth and shareholder value. Now moving to our results and strategies by brand. Coach had a breakout quarter as we continue to drive brand heat and bring this storied brand to a new-generation of consumers. Coach's success is compounding and it demonstrates the enduring power of its expressive luxury positioning. Our growth is credit to our talented global teams who are operating with excellence and intention to deliver innovation across products, marketing and experiences to cultivate emotional and lasting connections with consumers. To this end, during the quarter, we achieved 10% constant-currency revenue gains at exceptional margins, highlighted by 270 basis-points of gross margin expansion and a 210 basis-point lift in operating margin. Importantly, our strategies are working with three key areas underpinning our accelerated growth. First, new Gen Z customer acquisition resulting from our systematic understanding and engagement with our target consumer. Second, strength in our core leather goods category, where we have authenticity and scale and our innovation is winning. Third, global outperformance led by North-America and Europe and a return to growth in Greater China. These growth pillars will continue to drive our success in the future. Now touching on the strategic highlights of the second-quarter in more detail. First, our results were driven by strong gains in leather goods, where we have multiple platforms for growth, given the power of our iconic handbag families and the success of new product introductions. The Tabby family once again outperformed over-indexing with new and younger consumers and doubling versus last year, building strength on strength. The Tabby Shoulderbag 26 continued to anchor the offering with momentum in core Tabby as well as new introductions including the Times Square and Quilted Tabby. In addition, the recently launched New York family significantly outpaced expectations, featuring the Brooklyn and Empire Bags. During the quarter, the Brooklyn shoulder bag 28 at $295 was a top recruitment driver, while the soft Empire Carry All 40 at $695 outperformed. The New York family, a new foundation for the brand, continued to prove incremental and compelling, providing innovation that's clearly resonating with consumers globally. Further, our Coach Originals collection featuring archival bags that celebrate the brand's legacy with a modern sensibility drove growth, notably with Gen Z consumers. And finally, bag charms and straps amplified our offerings, particularly the viral cherry charm cutting through for being emotional, highly giftable and trend-right. Importantly, our strategies are driving strong brand heat and desire among Gen Z consumers. In fact, Coach was again recognized by the list, climbing 10 places to become the world's fifth hottest brand with the Brooklyn bag leading as this quarter's hottest product. Additionally, the Coach Cherry bag charm entered the list as the number four hottest product. Overall, Coach's growth in handbags and accessories continued to outpace the industry, which included mid-teens AUR gains globally, led by North-America. And looking-forward, we remain confident in the opportunity for further sustainable growth given our brand strength and innovation pipeline as well as the compelling value and craftsmanship we offer in the luxury market. Next, we remain focused on fueling lifestyle with an emphasis on footwear, where we are underpenetrated and have a right to win by leveraging our brand strength to drive customer recruitment, frequency and lifetime value with our target timeless Gen Z consumer. During the quarter, we successfully launched the new sneaker, which sold at $125 in both retail and outlet and attracted new customers to the brand. This introduction in both retail and outlet channels builds on our One Coach learning agenda, which we successfully piloted with Tabby. Thank you. Turning to marketing. We continue to drive cultural relevance through emotional storytelling that amplifies our brand and product offering. This holiday, we rolled-out the next chapter of our Unlock Your Courage campaign. And with each campaign, we're learning, gaining deeper consumer insights that enhance our storytelling and media execution. This capability enables us to deliver the right content at the right time on the right platform, ensuring that our messages are cutting through. This is key to driving sustainable customer acquisition and it's working globally at-scale. To this end, during the quarter, we continued to increase our top of funnel marketing investments, demonstrating the confidence we have in our brand and product offering. As a result, this helped drive greater consumer engagement and outperformance versus the industry, particularly in our key markets of North-America and China. In addition, we also cultivated enthusiasm for the brand through unique and immersive retail experiences. Our Coach Play concept stores, which engage consumers across their five senses, continue to outperform with higher Gen Z traffic, longer dwell times and higher-return frequency. We are taking these learnings and evaluating opportunities to bring the highest impact elements of these locations to our store fleet more broadly. Overall, our holistic brand-building activities helped to drive increases in new customer acquisition as we welcomed over 1.7 million new customers to Coach in North-America, a strong increase versus prior year and a significant acceleration in trend. Of these new customers, nearly 60% were Gen Z and millennials, consistent with our strategy to recruit younger customers. At the same time, our retention rate with the Gen Z cohort also increased, reinforcing that we're building lasting relationships with our consumers in support of durable growth. In closing, Coach, our largest brand is strong and differentiated and it continues to deliver outstanding results, highlighting the capabilities of Tapestry's growth engine. With consumer understanding at the center of all we do, our talented teams are delivering the blend of magic and logic that is the hallmark of the brand and the foundation of our future. From this position of strength, I'm confident our best days are still to come with significant opportunity to drive continued consistent long-term growth. Now moving to Kate Spade. While profit results met our expectations for the quarter, driven by gross margin expansion, revenue trends declined 10%. Most importantly, together with Ava Erdman, Cape Spade's new CEO, we are moving quickly and decisively, addressing what we know is not working and laying the groundwork for a return to sustainable profitable growth. Since Ava's arrival in October, we've assessed the current state-of-the business and made progress in-building our roadmap for the future, informed by deeper consumer insights. The takeaway of this work is clear. We need to rebuild the brand with consumers to reignite growth. To do this, we must focus our execution and accelerate our investments with clear priorities distorted to our largest opportunities, developing emotional storytelling to fuel customer acquisition, building handbag icons and driving growth in North-America, our home market. And we see the path forward as having two important stages. First, we will streamline and solidify our foundation by editing for focus and investing to build brand heat. This will ultimately drive customer acquisition, which will allow us to scale from a healthy foundation, which is the prerequisite for sustainable top-line growth. While we are acting with urgency, we acknowledge the work to reset the brand is a multi-quarter journey. Having said that, we know the path to growth is within our control and I am confident in the plan we've developed and the significant opportunity ahead for the brand. Thank you. Now let me take you through our growth strategies and learnings in more detail, which includes results from the quarter. First, we're committed to fueling brand heat through relevant marketing to drive consideration and accelerate customer acquisition. During the quarter, we took a step forward in our brand-building efforts and this began with streamlining. In the fall, we made the decision to reduce spending on our fall campaign based on consumer feedback during testing. Instead, we pivoted working with speed and agility to create new, more compelling content. And in December, we launched our holiday campaign. This was a social first campaign featuring Grammy-nominated singer-songwriter Madison Beer, consistent with our strategy to distort our marketing investments into upper funnel campaigns with more relevant messages for our target consumer. Importantly, the tagline to the one who was pulled through creative activations on social media and in our stores. Following the campaign, we saw a significant increase in purchase intent among Gen Z consumers who engaged with the content, reinforcing the opportunity to make incremental marketing investments to drive consideration and ultimately new customer acquisition. As a result, we are extending our brand campaign in the 3rd-quarter to sustain and amplify engagement with consumers. Importantly, our learnings will be used to inform our bigger-picture efforts as we build towards a larger purpose-driven 360-degree campaign launch in the fall of 2025. Next, we are focused on sharpening and elevating our handbag offering, improving our execution to drive more relevancy in our assortment. In support of this ambition, we leveraged our consumer survey work, which illuminated the need to streamline our offering, clearing deselection barriers through a tighter assortment and improved styling. By simplifying our product stories and focusing our merchandising efforts, we will ensure that the big ideas in leather goods cut through with more cohesion and relevancy. With this effort, we expect to reduce the number of handbag styles by over 15% by fall. At the same time, we will work to build blockbuster handbag families informed by consumer understanding. And we have learnings from holiday. We stood firmly behind the recently launched Deco collection in our stores and in our marketing. The DECO collection continues to over-index with new younger consumers at strong AUR and margins and we see further opportunity for this family going-forward. Importantly, we know in its rise 30 years ago, Kate Spade offered a pioneering proposition in the market along with distinctive iconic product. And this is our aim today to build-on what made us unique and successful historically in a way that is modern and relevant to our consumers today. Next, we are focused on maximizing omnichannel cohesiveness with one brand message across all consumer touch points. Importantly, we are taking steps to reduce our promotional messaging across channels. The results of the last quarter reinforce that emotion and newness are what's winning with consumers, while promotional activity is not. Therefore, decreasing our level of promotional activity will be a key building block of solidifying our brand and positioning it to scale in a healthy way globally over the long-term. To this end, we expect our gross margin to continue to expand moving forward as we build for the future and connect with consumers on our brand values beyond simply price. In closing, we are focused on executing our strategic roadmap for durable growth and we are accelerating our investments to do this. We acknowledge that our strategic actions will pressure the brand's near-term financial results. However, the strength of our portfolio allows us to do this while delivering enhanced growth overall. Importantly, we have conviction that we are taking the right steps to reset the brand and unlock its full potential. Cape Spade is a beloved, unique and purpose-driven brand. And though there is significant work to do to enhance its relevancy and reconnect with consumers, the strategy to deliver this outcome is well-understood and in our control. We are confident in the meaningful long-term runway for the brand and the value-creation opportunity it represents for Tapestry. Now turning to Stuart Weitzman. Financial results remain challenged in the quarter with net sales decreasing 16% versus prior year at constant-currency, primarily reflecting softness in Greater China and in North-America direct channels. In addition, global wholesale net sales declined, impacted by shipment timing, while trends at POS remained strong, growing at over 20%, a key indicator of strategic progress. Overall, the Stuart Weitzmann team remains focused on fueling brand relevancy, driving customer engagement and delivering improved financial results long-term. In closing, Tapestry delivered a standout holiday quarter. I want to thank our teams once again for their passion, creativity and commitment to brand-building and for driving our strong results. From this position of strength, we raised our outlook for the year with a sharp focus on the path forward. We will continue to fuel momentum at Coach, while taking action to reset the Cape Spade brand for long-term growth. We are confident that our bold growth agenda will support meaningful value-creation and we look-forward to sharing the details of our long-term roadmap at an Investor Day this fall. Our future is bright, and we have the ambition, discipline and strategies to generate strong and durable growth and shareholder returns for years to come. I'll now turn it over to Scott.
