Good day and welcome to this Tapestry Conference Call. Today's call is being recorded. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations at Tapestry, Christina Colone.

Good morning. Thank you for joining us. With me today to discuss our first quarter results, as well as our strategies and outlook, are Joanne Crevoiserat, Tapestry's CEO; and Andrea Shaw Resnick, Tapestry's Interim CFO. 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-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements. Please refer to our Annual Report on Form 10-K, the press release we issued this morning and our other filings with the Securities and Exchange Commission, for a complete list of risks and other important factors that could impact our future results and performance. Non-GAAP financial measures are included in our comments today and in our presentation slides. You may find the corresponding GAAP financial information, as well as the related reconciliations on our website, www.tapestry.com/investors and then viewing the earnings release and the presentation posted today. Now, let me outline the speakers and topics for this conference call. Joanne will begin with a brief recap of our first quarter results for Tapestry and each of our brands. She will also provide an overview of the progress we have made on our Acceleration Program. Andrea will continue with our financial results and our priorities going forward. Following that, we will hold a question-and-answer session, where we will be joined by Todd Kahn, President and Interim CEO and Brand President of Coach. After Q&A, Joanne will conclude with brief closing remarks. I'd now like to turn it over to Joanne Crevoiserat, Tapestry's CEO.

Good morning. Thank you, Christina, and welcome everyone. It's a pleasure to be with you today and a distinct honor to be leading this great Company at such an important time in our history. I'm incredibly proud of the momentum our teams are driving across the organization and confident that together we can both create and capture significant opportunities ahead. Now, turning to our results. As you read in our press release, our first quarter well exceeded our expectations across brands, demonstrating the bold actions we're taking as part of our Acceleration Program. We drove a meaningful sequential improvement in topline trends, supported by strength in Digital and China. We successfully raised AUR by offering customers compelling high-quality products that delivered exceptional value. This resulted in reduced promotional activity and significant gross margin expansion for the quarter. At the same time, we continue to tightly control costs. Taken together, despite the challenging backdrop, we achieved significant increases in operating income and EPS on a year-over-year basis. Importantly, we also generated strong positive free cash flow and ended the quarter with $1.5 billion in cash and equivalents and a clean inventory position heading into the holiday season. This performance underscores the power of our brands with leadership in the attractive premium handbags, accessories and footwear categories. It also reinforces the competitive advantages of Tapestry's enabling platform, including, first and foremost, our talented teams around the world who have shown tremendous agility and passion in delivering a great experience for our customers. Second, our consumer insights resources across brands and regions, providing the tools and deep consumer knowledge to unlock value. Third, our diversified supply chain and scalable global operations, which has proven invaluable, especially during these volatile times. And fourth, our technology infrastructure and robust digital capabilities accessible across the globe.…

Thanks, Joanne, and good morning, everyone. I hope this finds you all safe and well. Before I begin, please keep in mind that my comments are based on non-GAAP results, corresponding GAAP results and the related reconciliation can be found in the earnings release posted on our website today. As Joanne mentioned, our first quarter results exceeded expectations from a top and bottom line perspective across our portfolio of brands. Total sales declined 14% from prior year, representing a significant sequential improvement from the prior quarter across all brands, regions and channels. By region, we delivered double-digit revenue growth in China, including double-digit bricks and mortar growth. Outside of China, while revenue trends remained under pressure, every region showed substantial progress from the prior quarter. By channel, performance was led by continued strength in e-commerce, where we once again drove triple-digit growth. At the same time, we continued to drive improvement in our global store sales trends. Our holiday season has started off well with the continuation of momentum in China and across all digital channels globally. Of course, the vast majority of the quarter is ahead of us and the variables are many. Moving down the P&L, gross margin expanded 320 basis points year-over-year, driven by significant -- by a significant 350 basis point improvement at Coach. This expansion was primarily due to lower levels of promotion as we successfully executed our strategy to maintain price discipline and raise AURs, along with the continued tailwind from geographic mix. At Kate Spade, gross margin rose by 100 basis points, fueled by channel mix benefits, notably a strategic pullback in the low-margin wholesale disposition channel. For Stuart Weitzman, as expected, gross margin declined modestly year-over-year as a result of actions to clear through inventory in advance of planned market exit. SG&A…

Thank you. [Operator Instructions] Our first question comes from the line of Bob Drbul of Guggenheim.

Good morning. And Joanne, congratulations on the new official role. Best of luck.

Thanks, Bob.

Congratulations on a great first quarter. I was wondering if you could just address -- maybe elaborate a little bit more in terms of how you feel your position for the holiday. I was just wondering if you could share any of the trends you've seen thus far in Q2 for us. Thanks.

Thanks, Bob. And thanks for getting up a little early with us this quarter. We did deliver a strong quarter in the first quarter and our Q1 performance really reinforces the potential of our Acceleration Program, as well as the agility of our teams. We're really pleased with the progress we're making across all of our brands and we're confident in the foundation we're building and the opportunity to drive long-term growth and value. The environment is uncertain in the near-term and we're staying focused on being close to the consumer, and as Andrea said, controlling the controllables. We have a comprehensive strategy around holiday, leaning into Digital. We have initiatives to elongate the holiday shopping period. We're leveraging technology, such as virtual queues or appointment shopping, which we're seeing customers increasingly adopt, and omnichannel capabilities like buy online, pickup in store become more important. October has started out well. We've continued our momentum from the first quarter and we're well positioned to flex should demand further improve.

Our next question comes from the line of Ike Boruchow of Wells Fargo.

Hey. Good morning, everyone. Great to see the improvement, Joanne. I'll add my congratulations. That's great news. Just at a high level since Bob kind of went through the holiday stuff. On AUR, the past couple of years I feel like you guys have talked about a shift to lower-priced handbags, cross-body, things that have added to the AUR pressure for the category in your business. And it seems like some of that stuff might be reversing, maybe a shift to larger bags, women need to carry gloves and sanitizers and masks. So, I'm kind of curious if you're seeing any of that. And if that's has some tail to it? And then within North America, the improvements are great, but can you talk about market share? Are you gaining share? Or is the category just kind of taking off a lot faster than what people thought? Thank you so much.

Thanks, Ike. Our AUR performance has been quite intentional and really not related to product mix. We've been on this journey for a while, even pre-COVID starting to get traction in growing our AUR. And I'll make a few comments, but top it over to Todd to talk about the specific successes we're seeing at Coach. But we are focused on driving AUR by being close to our consumer and delivering value that our consumers value. And we're also embedding data and analytics better into our decision-making processes to better inform the assortment breadth, how we allocate that assortment, where we put -- allocate inventory by at a store level and how we price our product. And I think you're seeing all of those things come to bear in the AUR expansion. But it does start with understanding our consumer and delivering beautiful products that they value and we're doing that so well at Coach. And I'll pass it to Todd for his comments.

Thank you, Joanne. Joanne is exactly right. What we've seen and what we've started in the fourth quarter demonstrated in the first quarter and will continue in our future is really deliver compelling product. And with great intention we have taken down the promotional cadence and that has really impacted our AUR and we see that trend going forward. Also, we benefit slightly from mix. So, as you know, China is more and more important in our mix and that's adding to our AUR. But again it is a very intentional process. And as we've always said, at Coach, we use magic and logic. I think now more than ever, this consumer centricity that we are embedding in the actual design and the briefs that our merchants and our designers get create much better success rates going forward. And you'll see that in a reduced SKU count that will also enhance our ability to maintain higher AURs.

And Ike, I want to come back on your question around market share in North America. We're really pleased with the progress we're making and the trends in North America across our channels and we believe that we are -- we have tremendous growth potential in the market and we're seeing more -- and recruiting more new customers to the brands. So -- and that's across all of our brands. So, we are pleased with our performance in North America and the growth we're seeing across the market.

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

Great, thanks. Good morning. And Joanne congratulations to you and to the team as well. I guess, my question is around the influx of new customers that you were just speaking to. Can you talk a little bit more about where are these customers are coming from? Are they switching from other brands? Or just following up on Ike's question, so just broader interest in the handbag category. And then maybe if you can share a little bit more about your strategies to retain these customers and think about them as more repeat customers over time. Thank you.

We spent a lot of time improving our marketing capabilities and understanding our consumer. When we say as part of our Acceleration Program, that we want to focus on our consumers, it's really developing a deeper understanding of our consumers and how to reach them. We talked a lot about some of the test and learn capabilities that we've added to our marketing teams, leveraging analytics, not only to know them better and develop deeper insights, but also test how to reach our consumers at a better level and that has helped us unlock some of this new customer recruitment that we're seeing. But also, we believe will help us reach these customers and retain customers. There are many things that we have under way across our brands to drive, not only recruitment, but retention of our customers and we're seeing traction. We talked about recruitment at Coach, but we're also seeing it at Kate Spade as well, including reengagement of lapsed customers. And we're also rolling out loyalty programs to continue to better engage our consumers. So we have a comprehensive strategy, not just in marketing, as Todd mentioned, it's knowing our consumers, leveraging those insights, building it into our product, also building it into our marketing capabilities, so we can continue to reach and engage those consumers.

Yeah. And just building on what Joanne said with the Coach brand. This quarter, we attracted 500,000 new customers, over 40% of them were Gen Z and Millennials. And we see a continue high purchase intent. And one of the things early days, but we're seeing them their repeat purchase at an accelerated rate. So, that bodes really well for the program and our offering. And as Joanne mentioned, we launched on October 1 in North America, our Coach Insider program, which is an omni program for both digital and brick-and-mortar to really further engage and create a sense of community among the Coach customers.

Our next question comes from the line of Mark Altschwager of Baird.

Good morning. Thanks for taking my question, and Joanne, [indiscernible] my congratulations as well.

Thanks, Mark.

So, I wanted to follow-up on gross margin. Could you maybe just help us understand the magnitude of some of the geographic mix benefits versus AUR in some of the other factors? Looking ahead, gross margin comparisons do ease over the next couple of quarters, but as North America recovers, perhaps that's a bit of a headwind to gross margin. But, I guess, as you put this all together, I mean, are you -- do you think you can sustain gross margins near this 70% level that you've achieved over the past couple of quarters? Thanks.

So, Mark, we are targeting gross margin expansion for the year and we are making the systemic changes to how we manage our business and that is driving our margin improvement, as well as we have seen some channel mix benefit as well in the gross margin, but we are also seeing product margins increase from the actions -- specific actions we're taking, I touched on them earlier. But driving AUR includes embedding data and analytics into how we're managing the business, really knowing our customer and delivering products that resonates with them and delivering a great value. That has allowed us to step away from promotional activity and that has been a real win in terms of driving AUR. I'll pass it to Andrea, she could give you some of the statistics about the splits between channel mix and product mix. But the answer to your question is, we expect to continue to drive AUR growth and margin expansion this year.

Thanks, Mark. Thanks, Joanne. Yes, absolutely, in the first quarter, we saw, obviously, very strong gross margin expansion. At Coach, that gross margin expansion was primarily driven by a reduction in promotional activity and higher IMU, while channel mix did help, given our growth in China, which as you know, Mark, international markets do have a higher overall gross margin. And, of course, having a very low exposure at Coach to wholesale also helps its gross margin. The overriding driver there was on the promotional -- the reduction in promotional activity in the higher AUR. At Kate Spade, we saw the primary driver, the channel mix, and as I spoke to in the prepared remarks, we saw a significant decline in year-over-year wholesale disposition, which, of course, is a low-margin business for us. As we look ahead, in our second quarter, we would expect that gross margin at Coach would continue to be significantly expanding on a year-over-year basis, driven again by that promotional activity and AUR. At Kate Spade, we would not expect gross margin to increase and that will not have that, if you will, the channel mix driver in the second quarter, although, we would not expect promotional activity to be up year-over-year as it was not up in Q1, and we would expect gross margin at SW to be down. So in the second quarter, promotional activity at Coach and higher AURs at Coach will be the primary driver. And for the full-year, we would expect gross margin for Tapestry to be overall up. Obviously, in the fourth quarter of the year, just going out a little bit, we will have a very difficult comparison given the significant growth in gross margin in the fourth quarter of '20.

Our next question comes from the line of Jamie Merriman of Bernstein.

Thanks very much. Joanne, you've talked about data and analytics initiatives and the ability of that to help drive your lower promotional levels and help reengagement of your lapsed customers. But could you talk a little bit about how you're building that capability? Is that being done and how are you partnering with third parties? And then where do you see the biggest opportunities to leverage that data? Is it in terms of actually driving accelerated revenue? Is it sustainably reducing promotions over the long-term? Thanks.

Thank you. It's all of the above. Part of our Acceleration Program is really focused on leveraging data and analytic capabilities. And we have over time built a very sophisticated data and analytics capabilities. And our focus through the Acceleration Program is really embedding those capabilities into our decision-making process. So, we have very robust capabilities and the right architecture and a lot of data. And our focus now is how to unlock that data and the insights and really drive decision-making. And we're seeing that benefit across several areas of our business and of the value chain, if you think about it from how we assort products. We talked about SKU reductions. We've taken significant reductions in our SKU count informed by the analytics that we're seeing. So the teams, the merchants and the product teams are understanding the performance of our assortments and leveraging those analytics, balancing that with their intuition, but leveraging analytics to understand what the right assortment architecture is. I talked about the work we're doing to allocate to our stores, the right product based on the customers in those stores and what they are voting for and what they -- what resonates with them. So knowing customers more deeply in each of our locations and then building our assortments in our stores to reflect their preferences. We're getting much sharper at that. That's driving improvement. The pricing piece of it and the promo analytics is about -- is aggregating our promotional data and understanding at a consumer level what resonates with which consumers. And then leveraging that to our marketing capabilities, leveraging analytics to make sure we're reaching the right customers with the right messages. So, it's really throughout the value chain and it's an opportunity -- we found the opportunity to really embed the analytics into our decision-making processes. And it does impact revenue growth overall, because all of those things drive higher AUR, faster turnover of our inventory and lower promotional activity, which drives higher sales.

Our next question comes from the line of Lorraine Hutchinson of Bank of America.

Thanks. Good morning. I was encouraged to hear that you'll begin paying the revolver down in the second quarter. Can you talk a little bit about what it will take to reinstate the dividend? Is it a debt leverage ratio or sales and margin returning to positive territory? Maybe just give us a little bit of your thought process behind that?

Yeah. I would say, I appreciate that question, Lorraine, because as we entered and have been navigating through the disruption, our focus was to ensure the stability of our business and the sustainable generation of free cash flow. So as we're having this conversation about paying down the debt and capital allocation in the future, it does show that we're making progress and generating stable free cash flow. I'll pass it to -- but the environment and visibility does remain uncertain in the environments dynamic. So we're managing through that. But I'll pass it to Andrea to give you an understanding of our capital allocation priorities.

Yeah. Joanne, I think you really touched on it. We're really prioritizing liquidity and financial flexibility in '21 to navigate the current environment. We made the decision to suspend our dividend and share repurchase programs that saves us about $700 million a year on an annualized basis compared to last year. And our intent is to return to sustainable top and bottom line growth and strong free cash flow generation, which we're going to use for debt paydown. In fact, our first paydown on the revolver should be tomorrow. And so, we're going to begin in Q2 '21, but just note that during our covenant period, we are restricted from paying dividends or repurchasing shares. And Lorraine, I think you know that I think we discussed that. But longer-term, we are going to, of course, evaluate shareholder returns as part of our priorities for cash through dividend and share repurchase. And we're going to be prudent before restating -- reinstating our shareholder return program. We have to consider the near-term liquidity needs of the business and credit metrics to maintain our investment-grade rating and we know what it takes to maintain that and that's important to us.

Thank you.

Our next question comes from the line of Oliver Chen of Cowen.

Hi, thank you. Regarding Coach outlet and marketing to the Coach outlet customers, what do you see as the roadmap ahead and plans there to continue to innovate and capture customers and engage them there? I would also love your thoughts on creativity and creative innovation and magic plus logic. In the context of the consumer data and the machine learning and your thoughts on the Coach brand and where that should go next? How do you -- how will you harness that to just maintain fashion credibility as you continue to make progress? Thank you.

Thanks, Oliver. I'll make a couple of comments, but then pass it over to Todd. In terms of the outlet business we're really thrilled with the response we've seen from our consumers. In the outlet channel, we continue to deliver really tremendous value and beautiful high-quality product to consumers in that channel. And we're learning how to engage consumers in a more relevant way through all channels in the outlet. And it's not just the outlet, it's also across the space -- across all channels. And as we think about, I love the question about creativity and magic and logic. I tend to talk a lot about data and analytics, but our Company has always priced that balance of magic and logic. And I think you can see from the assortments that we're delivering that creative balance is critically important to deliver products that consumers value, and our teams continue to do a great job delivering beautiful products and great value for our consumers. And that's a key element. I think if you see in the Basquiat collection at Coach, and Todd, I don't want to steal all your thunder. I'm just stealing all of your thunder. But it is a beautiful product and quite creative, as well as the novelty products and the Spade Flower that we're -- we've introduced in the Kate Spade, so it's across our brands. But I'll kick it over to Todd and let him comment.

It is the CEOs prerogative to steal a little thunder, that's OK. But Joanne, did hit on really key issues. First, machine learning is absolutely something we're looking at and all of this data, particularly to help inform the briefs and the merchants. But I think and you hit it on the head, it's the balance of the magic and logic. And that is so key, a machine as sophisticated and I hope my data analytics people don't get too offended by this, are not going to design the handbag that definitively we put out there in shelves. They will also help inform the design of the handbag. And what you see with Joanne mentioned Basquiat, that's a full price opportunity. We hit amazing AURs in the first quarter for handbags over $745 with that collection. It just shows, when it's emotional, it really trumps price and trumps anything else. And that was emotional. Similarly, in October, we launched the Marvel collection for outlet. Again, incredible AUR, very compelling, very emotional. So, we see those opportunities continued. And even what we've done with Basquiat is, for the first time, we ceded a bag, the beat bag in that collection, and now that's a major bag for our holiday season going forward. So, I think it is constantly reimagining that blend. And then finally on outlet, we're just getting started. What we understand and recognize is the outlet consumer is an omni consumer. And limiting that value customer, who by the way tends to be a little younger, limiting them only to brick-and-mortar was a mistake. The opportunity to be expansive and to allow them to shop where they want to shop is a huge unlock that I see us accomplishing our goal of capturing market share through all of these channels.

Our next question comes from the line of Paul Trussell of Deutsche Bank.

Good morning, and I too want to share my congratulations, both for the performance and one of the announcement, Joanne.

Thanks, Paul.

And also, I can personally speak to the men's Basquiat collection being quite compelling. So, I wanted to go back and touch on the Digital growth. You're obviously driving really strong gains there. Maybe just speak in more detail on the success you're having across the geographies on the Digital platform? And maybe in China, specifically, how should we think about your direct business versus the third-party online distribution mix? And just the overall impact that these Digital gains are having to the P&L from a channel mix perspective? And then just to sneak in, just separately, Coach has really been the focus of investor conversations that we've had. So, I would just want to make sure that we have -- what should be the major takeaway or learning for investors from this quarter as it relates to Kate and Stuart, specifically?

I'll start with the Digital business, Paul. We saw the second quarter in a row of triple-digit growth across our digital channels. And we're leveraging and leaning into our digital capabilities, not only to serve the customer in that channel, but also the recruitment vehicle for new customers. Todd just mentioned the success we're having in the Coach brand, but across all of our brands and recruiting new customers across brands through that channel. Significant growth in North America, but also globally. And we have the capabilities to serve our customers through the digital channel globally. Simultaneously, however, we saw that triple-digit growth while we continue to drive sequential improvement in the stores business, so -- in the first quarter. So encouraged that we continue to see the consumer adopt and lean into digital as the stores businesses has improved. To your point on the P&L, our digital margins are accretive. And we are structurally from a P&L perspective leaning into Digital is a benefit to our P&L. Our business, as I said structurally, is favorable. In the Digital business, we have high AUR and high order values, as well as high-margin and because our businesses not size, we have a relatively lower returns rate, which drives a higher overall operating margin in the channel. We're capturing new customers, as I mentioned and expect to continuing to invest in this channel, both in marketing, but also new capability. So, we're incredibly optimistic about what we see the road we see ahead in digital and continue to expect the penetration to increase. We're doing that across regions, to your question, again, significant growth in North America, but also significant in China, where -- and in Europe. But in China, interestingly, our -- the Coach brand is the number one ranked brand…

Our next question comes from the line of Omar Saad of Evercore.

[Indiscernible] especially maybe give us kind of a historical evolution of the digital channel for the outlet business. I think a couple of management teams ago it was more of a flash sale operation. And maybe you can kind of describe the iterations and where you are now with coachoutlet.com or what the vision is for coachoutlet.com and how that's different for this, obviously, very important part of the customer base? Thanks.

I think you cut out on the first part of your question, Omar, but related to the Digital and how we think about the Digital business now versus historically. I -- historically, the consumer and the channel was leveraged for in a completely different way. And now as we think about, you're right, historically, we did lean into the flash sale element of the Digital business. But today, as we get closer to our consumers, the digital channel and understand how they shop. The digital channel is an important way the consumers discover brands, engage with brands on a number of levels, not just to transact, but also to engage across different platforms. And the way we think about engaging consumers today is really putting the consumer first. And being available for that consumer wherever and however they want to engage with our brands. We're seeing a lot of success in the digital channel in terms of growing sales through the channel, but we're also having a lot of success through the digital channel in engaging our consumers through our marketing activities, even with our store associates engaging our consumers on social media platforms, the virtual staffing parties and really developing communities behind our brands. And so, the digital space is quite a bit different today than it was even a few years ago. The consumer shopping behaviors are changing rapidly. We're staying very close to our consumers and working to meet them where they are. And I can pass it to Todd to talk about some specifics around the Coach brand.

Yeah. Thank you, Joanne. And I was here in the days when we launched [DOS]. And this is not your father's DOS. This -- our digital platform now is so different. Before it was a closed idea where we kept going to the same customer base over and over and over again and talking about price, price, price. This is an expansive channel recognizing where the consumers, how she shopping, and talking about value. And the learnings we're getting, and the frequency of purchase and the marketing that we're putting behind it, that's measurable in the digital performance marketing, it's completely different. And as I mentioned a little earlier, talking about the Coach Insider launch, this is a huge opportunity to create a sense of community across both the digital and the physical platforms. And what we're seeing is greater purchase intent, higher frequency and really just deeper engagement with the brand. So, I see this as a tremendous opportunity and the learnings with that we're gaining from North America will transcend this market. And we will see us do this in other markets over our planning horizon.

Thank you. That's very clear. Sorry about the tech issues and congratulations, Joanne, on the great opportunity.

Thank you, Omar.

Ladies and gentlemen, we have time for one more question. Our last question comes from the line of Simeon Siegel of BMO Capital Markets.

And again, Joanne, really congrats on the new position. That's a great news. So, really impressive handbag AUR increase. Could you share the total Company your Coach level AUR increase? And then, really encouraging to hear kind of the short-term expectation for opportunity. Any help on thinking through the longer-term gross margin opportunity from here? Thanks.

Yeah. I'll kick it off by saying the gross margin expansion that we saw in the first quarter has been intentional and an integral part of our Acceleration Program to get closer to our consumer and embed data and analytics and I touched on a couple of times on the call, how that's coming to life in the business and delivering the gross margin expansion that we're seeing. We do believe that we have the opportunity to continue to expand gross margin as we move forward, not only for this year, but beyond this year, across all of our brands. And I can let Todd touch on the specific Coach AUR.

Yeah. Our AUR, as you saw, grew over 25%, including 20% in North America. So, we are really pleased with these AURs. And again, our intention through creation, through SKU reduction, through reduction in promotion, we want to hold on to higher AURs, and we think we have that opportunity.

Thank you so much everyone for your time. I will now turn it over to Joanne for some closing remarks.

Yeah. Thanks, again, everybody for joining us today a little bit earlier than normal. It is an honor to be leading this organization. We have such talented global teams with great brands and Tapestry is an enabling platform. Very pleased with the results we delivered in the first quarter against a very uncertain backdrop. And we're confident in the long-term strategy and potential to create value. I'm looking forward to keeping you all posted on our progress moving forward. Thanks very much.

Thank you ladies and gentlemen, this does conclude today’s conference call. You may now disconnect.