Good day, and welcome to the 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.

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 Chief Executive Officer; and Scott Roe, Tapestry's Chief Financial Officer and Chief Operating Officer. Before we begin, we must point out that this conference call will involve certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. This includes projections for our business in the current or future quarters or fiscal years. Forward-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. For a full reconciliation to corresponding GAAP financial information, please visit our website, www.tapestry.com/investors, and then view the earnings release and the presentation posted today. Now, let me outline the speakers and topics for this conference call. Joanne will begin with highlights for Tapestry and our brands. Scott will continue with our financial results, capital allocation priorities and our outlook going forward. Following that, we will hold a question-and-answer session, where we will be joined by Todd Kahn, CEO and Brand President of Coach. After Q&A, Joanne will conclude with brief closing remarks. I'd now like to turn it over to Joanne Crevoiserat, Tapestry's CEO.

Good morning. Thank you, Christina and welcome everyone. As noted in our press release, our first quarter results exceeded expectations, showcasing the brand magic and operational excellence that are the foundation of our strategic growth agenda. Importantly, our strong and consistent performance is a credit to our exceptional global teams who continue to navigate the dynamic backdrop with focus and agility while positioning our brands and business for the future. Touching on the highlights of the quarter. First, we achieved total revenue in line with prior year on a constant currency basis, outpacing our outlook and reflecting the benefits of our globally diversified business model with continued solid growth at Coach. By geography, we achieved international revenue gains of 2% at constant currency which included an increase of 27% in Europe and a 2% decline in the total APAC region. In Greater China specifically, sales declined 5% consistent with the top end of our guidance range and ahead of the industry which included a sequential trend improvement throughout the quarter. Importantly, we are delivering a high level of innovation, relevance and value to consumers while continuing to invest in our brands, teams and platforms to support long-term growth in the region and with this important consumer cohort. And in North America, revenue declined 1% compared to last year including an anticipated decrease in wholesale while profit rose driven by gross and operating margin expansion. Second, we remain focused on building new and lasting relationships with consumers across our portfolio. During the quarter, we acquired approximately 1.4 million new customers in North America alone, with increases across all brands. Over half of these customers were Gen Z and Millennials, consistent with our strategy to recruit younger consumers to our brands, and they continued to transact at a higher AUR than the…

Thanks, Joanne and good morning, everyone. Our first quarter performance continued to build on our track record of consistent and disciplined execution. To this end, in Q1, we outperformed expectations across revenue, operating income and earnings, delivering strong EPS growth and cash flow generation, despite the volatile backdrop. Now moving to the details of the quarter, beginning with revenue trends on a constant currency basis. Sales were in line with the prior year and above our guidance for the quarter. These results were led by growth internationally which grew 2% at constant currency. By region, Europe, revenue grew 27% above last year, driven by increased local consumer spend and strong new customer acquisition, notably with Gen Z. In other Asia, revenue rose 10% led by growth in Australia, New Zealand and South Korea, while Japan sales declined 4% and in Greater China revenue declined 5% at the high end of our guidance range. During the quarter, we again delivered digital growth and brick and mortar trends while negative improved throughout the quarter, supported by better traffic trends which continued into Q2. Despite the overall challenging market backdrop, we are confidently investing in the region, delivering compelling product and value and positioning our brands and business for long-term growth. In North America, sales declined 1% compared to the prior year due to a planned decrease in wholesale, while North America Direct was positive. Importantly, both gross and operating margins rose versus last year as we supported long-term brand health. Now touching on revenue by channel for the quarter. Our direct-to-consumer business was in line with the prior year which included a high single digit increase in digital revenue and a low single digit decline in global brick and mortar sales. Wholesale revenue was in line with prior year which included international…

[Operator Instructions] Our first question comes from Bob Drbul of Guggenheim Securities.

Hi, good morning and congratulations on a great quarter. I guess, just the first question really is, can you expand a bit more on the deal, a bit more of an update on the deal. And then, in a deal break scenario, can you just talk through a bit more the vision for the company, your capital allocation priorities, including future M&A. Thanks.

Thanks, Bob, and good morning to you as well. As you know, on the deal, we filed an appeal as we're required to do by our agreement, and that process is ongoing. As always, we're focused on our organic business, and we're operating from a position of strength. And our outperformance in the first quarter and the outlook we raised for the full year are further evidence of our disciplined brand building and the particular strength we're seeing at Coach. And I do want to recognize the talented teams across the globe at Tapestry who are driving these outstanding results. Together, we have a bold vision for our existing business and we have tremendous runway ahead. And our performance underpins our confidence in our organic growth potential. And our focus is on our largest value creation opportunities. Those are sustaining healthy growth at Coach, while reigniting growth at Kate Spade. And I'm happy to share our thinking on capital allocation. Of course, we're awaiting the outcome of the appeals process, which we're required to do. But in the meantime, I'll give you a little additional color on what Scott walked through on the call. In any scenario, we have foundational investments, and that includes investing in our organic business. And we have much more growth to unlock. And we have a commitment to maintaining our dividend with a goal of increasing it over time. Beyond these commitments, and to directly address your question in a deal break scenario, let me give you three overarching principles that highlight both our balance sheet flexibility and our focus on shareholder return. First, we're firmly committed to our long-term leverage ratio and our investment grade rating. Second, there is meaningful opportunity to resume share repurchases. This would be our immediate priority. Given our free cash flow generation, our growth prospects and our valuation, the buyback opportunity is extremely compelling. And third, strategic portfolio management. We will be disciplined with any actions. We continue to believe our platform can support more brands, and we look forward to proving that in the future. But to be clear, if this deal does not close, we do not expect any M&A in the near term. And before moving forward with M&A, we will ensure Coach remains strong and that we've returned to sustainable top line growth at Kate Spade. We are intensely focused on our existing business and we're confident that we have the creativity, the capabilities and the culture at Tapestry to drive continued success.

Thank you.

We'll take our next question from Ike Boruchow of Wells Fargo.

Hey, morning everyone. Two questions from me. I'll piggyback off of Bob's. Just understanding, Joanne, very clear on what you were explaining on capacity. Could you give us more specifics? Is it as simple as you guys were kind of annualizing around $700 million in buyback back when the deal was announced. You didn't buy back anything last year. You have nothing in your plan this year. Is it simple enough just to say if the deal did not go through, we should kind of take that number times two and that's what our expectation would be for the appetite. And then the follow up question is just on China, just kind of what you saw through the quarter, what's baked in for the second quarter and just any high-level thoughts on the region would be great.

Sure. Let me take the China question first and then I'll toss it to Scott to add some color on how we're thinking about share buyback. In Greater China, we landed and delivered a quarter at the top end of our guidance range at down 5. Our performance in the region is outpacing the industry. I was just there a couple of months ago, I know Todd was just there a couple of weeks ago. And we continue to invest in the region. We're investing in marketing and our products are resonating the brand purpose, the storytelling. We're delivering exceptional value into the market. And we did see sequential improvement as we moved through the quarter, and we saw that continue into Q2. And importantly, our digital trends were positive in the market. And I think that just speaks to how well our teams on the ground are meeting the customers where they are. They're agile. We've been in the market and I think it speaks to the level of understanding that we have of the customer and the investments we continue to make in our platform and our capabilities. We remain confident in the long-term opportunity in China and in Asia overall. And I'd love to talk it to Todd, but maybe I -- all right, yes. I'll toss it to Todd to give you a little bit more color on what he's seeing in China and then we'll toss it to Scott.

Thanks, Joanne. And we won't forget your question for Scott. We know how important that is to you. But in terms of China, we delivered a negative 3 in the quarter. That compares to the industry at double-digit over 20% drop. And as Joanne said to you, I've just come back from China. I spent a week there. I have come back more enthusiastic about China than I ever have been. And really, it comes down to our brand positioning of expressive luxury and the value and values that our brands stand for, really resonating with our target customer. And what I was very impressed with, I went to a small city called Wuxi, about two hours outside of Shanghai. When I say a small city, a city of over 7 million people, we have three stores there. We have the opportunity clearly to double our store count there, because we're not restricted by maybe places where only traditional European luxury will go. We're able to go where the young people are and our brand resonates. That story replicates itself in dozens of locations in China. So, I see over the next year and a half, two years, lots of distribution growth opportunity in China. So now let's get to that little question you have about stock buybacks to Scott.

Yeah. I'm excited to talk about it, Ike. So, I'll start by just reminding you and everybody what Joanne said and just point to our results. I mean, we have a compelling organic story with gross profit, free cash flow and essentially zero net debt. So that means we've got a lot of capacity. And I guess, another contextual point that I would point to is some of the bright lines that we've established. So, we talked about remaining strong investment grade. That means a leverage target of less than two and a half times debt to EBITDA. But in this environment, we wouldn't push the upper limit of that boundary. But it does mean we have a lot of capacity. And some have asked, what vehicles are on the table, would we consider ASR or other things. Yeah, all vehicles are on the table. Should we be in a deal break scenario, then we'll come back with more specificity and give you better parameters around what that might look like.

Great. Thank you.

We'll take our next question from Matthew Boss of JPMorgan.

Great. Thanks. And congrats on a really nice quarter.

Thanks, Matt.

So, Joanne, on market share gains at exceptional margins, which you cited at the Coach brand, could you elaborate on the drivers of outperformance relative to what you're seeing in the category over the past 12 months? And maybe if you could just speak to recent global demand trends that you're seeing. And then, Scott, gross margin. If you could just walk through the continued gross margin opportunities for the balance of this year, and then just how best to think about opportunities remaining multiyear.

Yeah. I'll kick it off, Matt, but also ask Todd to add a little bit of color on the Coach issues specifically. But as I look around the world and what we see in our business is very consistently a consumer that is choice and innovation and emotion, however, are continuing to win with consumers and you have to break through with emotion. We have to deliver value in the way of innovation, great quality and craftsmanship as we do and understand where the customers are, meet them where they are, and that's how we win. We've been very methodical at building the capabilities at Tapestry over time and investing behind our brands. And Coach is clearly winning. As you think about the category, the handbag and leather good category has been incredibly durable and resilient over decades. The category has grown mid single digits over decades. In the last quarter, we did see the category slow and decline in Q1, but again, in that context, Coach is clearly winning. We believe we can grow both now and into the future. And we would expect the handbag category again to resume historic growth rates over time. But even now we expect that we can grow in this environment and then we're building our business to be able to be even stronger as the category more fully recovers to historic growth rates. But I'm going to toss it to Todd to share what he's seeing at Coach.

Thanks, Joanne. And I'm going to elevate for a second and really talk about Coach and really and by extension how Coach and Tapestry have always excelled at logic. Coach, though, is at its best when the magic is equally strong. I believe we are at one of those moments. And let me give you two proof points which I think speak volumes. First, our own employees are buying the Brooklyn bag in droves, even though it's exempt from our traditional employee discount. And second, in my almost 17 years at Coach, I have never seen consumer demand for a new collection as I've seen for the New York collection with literally tens of thousands of clients registering at stores and online to quote, notify them when a particular colorway or size is back in stock. And the best part is we are not seeing the New York collection cannibalize the demand for our Tabby family. So, when you think about long-term sustainable growth, one, we're acquiring new customers who are younger. Two, they're transacting more frequently at higher AURs. Three, we're creating tested purpose led campaigns that resonate with our target consumers. And four, we've increased our funding for those campaigns to allow a true spike in sustained candidates. And finally, and maybe most importantly, we have meaningful platforms in our product assortment to continue this momentum for the quarters and years ahead. So, I am very bullish on our future now. We're going to stay very close to the consumer. And I think you had a follow up question on gross margin for Scott.

Yeah. I got it. Boy, that's a great lead in though Todd, in terms of giving the context of why we have such confidence in long-term gross margin growth, but a little bit of shaping, Matt. So, remember what a quarter in Q1 for gross margin with 280 basis points. A couple things to remember. First of all, we did see some benefits from freight. It was highlighted in the prepared remarks about 60 bps in the quarter and we see that turning to a very modest negative and for the full year it's really not much of an impact. But that did benefit Q1. Also as expected, we know that there was some wholesale pressure in Q1 which abates as we go through the year. That's really just a timing year-on-year thing. But obviously that mix benefited us in Q1. That said, we expect gross margins to be up for the year, be the primary driver of our Op margin expansion of about 50 basis points. And remember in the shaping of the year the first half gross margin will be the driver of our profit gain. And as we get in the second half, we start to see more leverage on the SG&A side and that's a bigger contributor in the second half to up margin. And as you look at the structural drivers, I mean, Todd said it right AUR and AUC. AUR investing in the brand's brand heat and our continued ability to get price over time is on display right now. And AUC, which I still believe is one of the underappreciated drivers of gross margin as we use consumer insights in our world-class supply chain to drive efficiency, not cheapen the product, but to get more efficiency and lower the cost throughout the value chain. And that's an additional driver of gross margin that we see on an ongoing basis.

We'll take our next question from Lorraine Hutchinson of Bank of America.

Thank you. Good morning. Joanne, you spoke of a clear imperative for growth at Kate Spade. Can you diagnose the key reasons for its recent declines and then talk to a timeline for stabilizing these sales trends?

Well, thanks, Lorraine. We have a lot of confidence in the Kate Spade brand and the potential we see for the brand, and the opportunities we see are in brand building and really supporting the innovation that we're delivering. We have a clear bias for action. We are excited to welcome our new CEO, Ava, to the organization last month and she is the perfect leader for the organization with a proven track record of building global luxury brands and building sustainable results. We have set an important foundation at Kate Spade. We're seeing expanded gross margins and operating margins and that's important. We are introducing new product families that are resonating with the consumer. We need to reinforce this work and make those launches and that more impactful with brand building. We're also recruiting new customers to the brand. So, the foundation is there. We need to accelerate and improve our execution. Ava will be sharpening our long-term strategic roadmap as well as improving execution. And we're acting with urgency to impact the things that we can immediately impact, and we covered those a little bit in the call. But that includes marketing, our upper funnel marketing and how we reach and where we reach consumers as well as the storytelling behind the big ideas. We're also making changes on styling and editing our SKUs to be more focused. Those are some of the immediate actions we're taking and we're confident that we have a bright future ahead for Kate.

And Lorraine, it's Scott, maybe just a quick build. We don't expect growth in this fiscal year. We would expect the trend that we're seeing right now to be more or less in line for the balance of the year. Just to be a little more specific.

That's helpful. Thank you.

We'll take our next question from Michael Binetti of Evercore.

Hey, guys. Thanks for taking our questions here. So, I guess, just one modeling quick question. As you look at the -- it looks like there's about a $12 million drag on wholesale in the quarter. Scott, I think you referenced it for a second there. Maybe that it gets better through the year. But what was that? Is that just cycling the Amazon sell in and does that remain a drag for a couple quarters? Maybe just any context there. And then if we peel out that wholesale, it looks like Coach direct-to-consumer grew nicely. Are -- maybe just some context on whether the underlying full price and outlet stores are accelerating on an underlying basis?

Yeah. Sure. You mentioned one of the factors. We did have the pipe fill last year in Amazon and frankly, Michael, it's just timing of orders and when products are dropping from a wholesale. So, I would say while it impacted the quarter there's no new news here. It doesn't represent a fundamental change in the breakdown of the business or any kind of change from a strategic standpoint. And as we look at the year, we'll see that wholesale will grow as will our direct-to-consumer. And I'll start and maybe throw it to Todd in terms of what we're seeing in terms of retail. But yeah, we did see nice growth in our omnichannel, particularly in the online channel in the first quarter, and we expect that to build and even stronger in the Coach brand when we look at the overall direct-to-consumer business. So, maybe, Todd, a little bit more there?

Yeah. Sure. Thank you, Scott. In the first quarter if I strip out the wholesale and the pipe fill from Amazon, Coach globally delivered 3% on constant currency. So, we did better in our direct business. We are seeing good trends through the year. Obviously, led by the Empire Collection, the New York Collection with Empire in Brooklyn and then, of course, the strength of Tabby. We're really seeing great growth in North America. And while we talked about AUR growth which again goes to brand health, we actually saw AUR growth across globally and in North America. So, we're very excited to see the reaction to our product offering. And again, I reinforce this customer acquisition vehicle through our purpose campaigns is the future fuel. So, as we continue to start bringing in new consumers to the Coach family, their lifetime value is so great. It really gives us long-term runway.

Thanks.

We'll take our next question from Paul Lejuez of Citigroup.

Thanks. It's Tracy Cogan [ph] filling in for Paul. I just had a follow up on your comment on AUR. I think, Todd, you mentioned that it was up globally as well as in the US. And I was wondering if you could maybe give us a little more color on how that has varied regionally and what you're expecting for this year for AUR. Any quantification you can give. And then what's driving the AUR increases, how much of it is like for like increases versus adding maybe some bells and whistles to the product. Thanks.

Yeah. I mean, we had mid single digit growth and it was led globally, but it was led by North America. I foresee AUR growth continued throughout the year. It's really a little less about the bells and whistles. It's a couple things. As Scott mentioned and the unsung hero here, is some of how we're going to market. Obviously, we're discounting less. That's an important contributor to it and newness with Brooklyn and the Tabby demand that shapes our business in a different way. We're going to test and see some of the benefit of putting Tabby at full price in outlet. I think that's a driver. When we spend so much on upper funnel marketing and when the focal point is the Tabby bag, the consumer comes into all of our channels of distribution looking for that. And one thing we're learning more and more is consumers don't see channels, they see brand. So, when a consumer comes to Sawgrass Mills for the first time and maybe they're a tourist coming to that Miami area or Woodbury Commons and that's their one shopping experience, they're coming cellphone in hand with a picture of Tabby, they are prepared to pay full price and are so desirous of having that in that channel. So again, once you put everything in a customer centric lens, you see things very differently than the historic norms of our industry.

Great. Thanks very much.

We'll take our next question from Rick Patel of Raymond James.

Thank you. Good morning. Can you talk about the shape of growth in North America? Q1 was down 1%. Guidance suggests potential for modest growth this year. Just curious if you can provide color on the progression of growth and the drivers of the implied sequential improvement.

Well, maybe I'll kick it off and talk it to Scott. But as we talked about, our trends in North America were in fact better than we expected in the first quarter. And we continue to use discipline in managing the business. I would say also we're driving higher gross margins, operating margins and profit dollars, while we're also acquiring new consumers to our brands. So we're operating with a great deal of discipline. The trend in the first quarter was impacted, as we just talked about, by the wholesale drag. And that's a headwind in the first quarter that doesn't repeat for the balance of the year. But maybe, Scott, the shaping of that.

Well, I think you said it. Really, the underlying trend when you take out the noise from wholesale. And I'll remind you that this is a relatively small quarter too. Right? We do see slight growth balancing the year as wholesale comes back to normal, if I use that word, and the continued underlying direct-to-consumer trends go through the balance of the year.

Thanks very much.

We'll take our next question from Mark Altschwager of Baird.

Good morning. Thanks for taking my question. I guess, first, just following up on the channel discussion for North America, did digital outpace brick and mortar for both retail and outlet? And then what are your current thoughts on the distribution footprint for North America, considering there appears to be some increasing product and consumer overlap between the channels. And then separately, Scott, tariffs topic back on the front burner. Can you just remind us of the China sourcing mix and the material changes over the past few years for bags and other categories, and just bigger picture how we should think about mitigation strategies. Thank you.

So let me take your question on digital. Our digital -- I'll start with our direct business. Our omnichannel business did grow or was in line with last year and the first quarter. The digital growth offset a slight decline in our stores. So, our important focus is on meeting the customer where they are and our capabilities allow us to drive our business regardless of where the customer chooses to transact. These are key capabilities that I believe are a competitive advantage for Tapestry. We're well-positioned to meet the customer in digital spaces. That's what you saw in the quarter. And our focus continues to be on our omnichannel business. So, again, omnichannel in line with last year and our wholesale business as well, in line with last year. But international growth really driving that wholesale business. And importantly, globally, the wholesale growth in international is driven by digital and we grew in digital in China. So, this underpins the opportunities that we see to meet the customer where they are. We're moving quickly to meet the customer where they are, and we're acquiring new customers in this channel, which is also very important for our brands going forward. So, a big opportunity for us in customer acquisition. We're acquiring younger customers in these channels. The digital channel for us is accretive in margins to our total. So, those are all capabilities that are important today for our business, for our P&L, but also long-term for our brand.

Yeah. And let me pick up the question, Mark, on tariffs. So, first of all, I'd say we benefit from having a diverse and agile supply chain. And my goodness, we've had so many disruptions and challenges that have forced us to make adaptions based on port strikes and freight lanes, whatever it might be, tariff regimes changing over time. So, we're pretty well versed in managing through this. We'll see what comes in terms of specific tariffs and other legislation that may come. And we're monitoring that closely and certainly prepared to react. I would point out one thing though. As it relates to China specifically, we have less than 10% of our overall sourcing comes out of China. And when you look at leather goods, it's really minimal. So, from an exposure standpoint, at least as it relates to China, that's really on a relative basis, not a big concern from our standpoint.

Thank you.

Thank you. We'll take our next question from Dana Telsey of Telsey Group. Your line is open. Ms. Telsey, your line is open. You may want to check your mute switch.

Hi. Good morning, everyone. Joanne, as you think about the complexion of the brand and the growth opportunities go forward, given the state of the consumer, how do you think of the balance between introducing newness in core collections and also existing collections? And how do you see pricing evolving and the impact of margin given the current sourcing complex that Scott just mentioned? Thank you.

Sure. I'll add my comments, but then toss it to Todd for a little bit of color on what's in fact been working for us in terms of adding newness, but also investing behind our icons. And that is a balance that we talk about and we manage. But the key is that we always have to deliver innovation even within our icons. And you see us building strength on strength in our icons at Coach. Tabby continues to get stronger because we're innovating on that platform. And the iconic original Tabby 26 continues to perform. And then, we're introducing as well newness and innovation that is also working and in fact becoming new pillars for the brand. So, as we think about AUR growth, it's a combination of this magic that Todd talked about of bringing the right product and the right innovation to market with the logic that we're bringing with consumer insights and understanding and all of the data and analytics we bring to bear across our assortment, and then the investments we're making in marketing and maybe I've stolen all of your thunder, Todd, but I'll talk it to you.

You left a little on the bone. So, I think it's very foundational. If we go back four or five years and Joanne and I were on this journey together, we cut the tail of sort of that very one off product, that is foundational to building a future. So, we really looked at how productive every SKU was and we recognized that the big families, a good bag is a good bag globally. So, once we started with that discipline, we then started adding the magic. And Tabby, if you remember, I sent it to you in FY '20, Tabby was starting to slow down. We invigorated the family first with pillow tapping. That reinforced it. So, we're very, very focused on keeping these large families not for a quarter, not for a monthly drop, but for years. We have to balance both the core, because there's still millions of customers who have not yet benefited by owning a core Tabby, which I am keen on selling them. And our marketing people will continue to focus that in our global marketing campaigns. And then, we have our creative teams led by Stuart Vevers, who really keeps very top and center fashion trends. And you can see that evident in the New York collection, which is a completely different aesthetic than Tabby. We joked initially, the New York bag, particularly the Brooklyn bag, didn't have the natural attributes of a great Coach bag. It's not adjustable. The functioning is not as robust as we often think of in a Coach bag. It's not structured. The branding is low key, yet it was exactly the right family for the time and our marketing campaigns. And just the pickup is so strong. So, now instead of just having a Tabby platform, a signature platform, we have this entire New York collection platform that again, will invite and allow more people at compelling prices to come into the Coach family.

And we'll move next to Aneesha Sherman of Bernstein.

Thank you. So, I'm hearing a lot of optimism on organic growth, especially on the Coach brand. And going back to your Investor Day in 2022, your guidance at the time was assuming growth in line with the market, which at the time was mid single digits. Given your increased optimism on customer acquisition and new growth, are you now expecting to grow top line above the market? And then I also have a second question around margin impact of your category mix, especially on Coach. You talked about the innovation pipeline, moving into ready to wear, into footwear, with the sneaker, et cetera. How do you think that's going to impact gross margins going forward? And is there an offset strategy for that? Thank you.

Yeah. I'll start and then maybe toss it to Scott on some of your questions on category. But in terms of overall growth and growth versus the category, I think the reality is we are growing faster than the category right now. So, we see an opportunity for us to grow. This is a tremendous category that consumers have an emotional connection to. It has proven to be resilient and durable over time. We love the category we are in, and we have sharpened our execution within our category. And you see that with Coach. We have a tremendous amount of runway in the category to continue to grow Coach. Todd just talked about the opportunities, he's excited about. So, we've got a lot of runway at Coach in the category. And then, if you consider Kate Spade in the category as well, we see tremendous opportunity to continue to unlock growth in our organic business long-term. So, we're very optimistic. And then in terms of categories, I will say one thing about category growth and that is we see opportunity there. It will be incremental. And then I'll toss it to Scott to let you know how he's thinking about it.

Yeah. That's really the point. I mean, like for like, we will continue to grow margins. The structural drivers AUR, AUC are there. Certain categories just have different and sometimes lower gross margins. But from an operating margin standpoint, certainly we would see that as accretive. And overall, we expect even with this category growth to maintain the exceptional margins that we enjoy today. That's our expectation.

That concludes our Q&A. Thank you. I will now turn it over to Joanne for some concluding remarks. End of Q&A:

Well, thank you for joining us and for your interest in our story. I want to leave you with three overarching messages today. One, we're operating from a position of strength which is reflected in our first quarter beat in raise. Two, Coach is strong and has momentum. Our brand building efforts and platform capabilities are working. And three, we are focused on our existing business and have competitive advantages that provide us with flexibility, ability to accelerate our organic growth and drive significant value creation. I'm confident in our future and I want to again thank our talented global teams for driving our success. Thanks again and have a great day.

This concludes Tapestry's earnings conference call. We thank you for your participation.