Good day, and welcome to the 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 Andrea Resnick, Global Head of Investor Relations and Corporate Communications.

Good morning, and thank you for joining us. With me today to discuss our quarterly and annual results are Victor Luis, Tapestry's Chief Executive Officer; and Kevin Wills, Tapestry's Chief Financial Officer. In addition, our 3 CEO and Brand Presidents, Josh Schulman for Coach, Anna Bakst for Kate Spade and Eraldo Poletto for Stuart Weitzman, will be joining us. 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, including 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 quarterly report on Form 10-Q for the period ending December 30, 2017, 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 important factors that could impact our future results and performance. Non-GAAP financial measures are included in our comments today 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 posted today on the presentation slide. Now let me outline the speakers and topics for this conference call. Victor Luis will provide an overall summary of our fourth fiscal quarter and full year 2018 results for Tapestry. Our brand CEOs will then review FY '18 and outline their strategies for their respective businesses, focusing on FY '19. Kevin Wills will continue with details on financial and operational results and our outlook for FY '19. Following that, we will hold a question-and-answer session, where we will be joined by Todd Kahn, Tapestry's President and Chief Administrative Officer. We will then conclude with some brief summary remarks. I'd now like to turn it over to Victor Luis, Tapestry's CEO.

Good morning. Thank you, Andrea, and welcome, everyone. As you read in this morning's press release, our strong fourth quarter results capped an excellence fiscal year '18 performance, which demonstrated the power of our multi-brand model. Importantly, we achieved our overall sales and operating income guidance, driving significant growth, while earnings per share outpaced our forecast. It was also a year of many milestones for our company. We completed the acquisition of Kate Spade and evolved into a true house of brands, establishing Tapestry as our new corporate identity. Our company is built upon shared values of optimism, innovation and inclusivity in a common platform, while our unique brands, Coach, Kate Spade and Stuart Weitzman, retained their distinctive personalities, respecting their individual narratives and positioning. We also strengthened our executive and creative leadership across our brands with a clear focus on global talent to execute our strategic vision. At Coach, we reinforced our regional leadership with the appointments of Laura Dubin-Wander as President, North America; and Fredrick Malm as President, Europe & International Wholesale. We also brought Cristiano Quieti, who is Head of Jack Spade, to lead Coach's ms business across channels. At Kate Spade, we named Anna Bakst as CEO and Brand President in March, joining Creative Director, Nicola Glass, who started in January. We now have the right senior management in place to lead the talented Kate Spade team and drive the business globally. At Stuart Weitzman, we're delighted to have Eraldo Poletto at the helm, who joined us as CEO and Brand President last quarter. He brings 30 years of fashion experience and a proven track record in luxury, brand growth. And most recently, we brought in renowned footwear designer, Edmundo Castillo, as Head of Product Design. At Tapestry, Fabio Luzzi joined Tapestry's Global Strategy and Data…

Thanks, Victor, and good morning, everyone. Coach posted a strong finish to fiscal 2018 with positive fourth quarter comparable store sales, again led by outperformance in North America and driven by fashion innovation across materials and price points. In addition, and as expected, we drove significant gross margin expansion in the uarter, driving the full year margin above prior year levels. Taken together with tightly controlled expenses, we achieved operating income growth and operating margin expansion for the quarter and the year. Looking at the full fiscal year, there were many highlights. In retail, fiscal 2018 represented a pivotal year for our global business as several of our key strategies in product marketing and stores came to life. Fueled by the power of Selena Gomez in our marketing campaigns, we successfully executed our strategy to reinvigorate the $300 to $400 handbag price segment, with Charlie and Parker as the key new winnings to (inaudible). Stuart Vevers relaunched Signature as part of his spring fashion show, and the customer immediately embraced this elevated expression of this brand icon. We grew categories outside of our core leather goods, notably, women's footwear in its first full year under Coach ownership as well as ready-to-wear, driven by outerwear and other classifications of apparel. In outlet, though we entered the year challenged by voids in our product assortment and inventory mix, we were able to put these problems behind us by the important holiday period. As we moved into spring, we were able to achieve higher margins on introductions of new innovative products. Specifically, we established precedent for commanding a premium on overt novelty. And we've proven the outlet consumers' appetite for footwear through the relaunch of the category in the second half of 2018. In men's, we saw strength across categories and channels as…

Thanks, Josh, and good morning, everyone. It's great to be on my first Tapestry earnings call and with good results to speak to. At Kate Spade, the successful integration onto the Tapestry platform continued as we achieved the targeted synergies of $45 million for the year. Fourth quarter results exceeded our expectations from both the top and bottom line perspectives, with both sales and operating margin increasing from prior year reported results. In our first year as part of Tapestry, Kate Spade delivered double-digit earnings per share accretion despite the strategic pullback in online flash and wholesale disposition. Most importantly, we set up the brand for future growth, focusing on the most significant geographic and category opportunities for the brand while staying committed to reducing negative promotional impressions. Looking at results. Fourth quarter sales totaled $312 million, up about 4% from prior year on a pro forma basis, reflecting new store distribution and a consolidation of China. Bricks-and-mortar comps were down 3% globally, impacted from the Easter shift in North America, which had helped our third quarter results, while aggregate comp was also down 3%. Though we did pull back on circulation and open day is a surprise this quarter from the sale event held in the year prior, our e-commerce site as well as our store sales reflected the strong and immediate heartfelt response to loyal customers to the tragic news of our founder's passing. In fact, we were very touched by the outpouring of love across social media, filled with so many stories of the impact of her legacy and our brand. For the full fiscal year, excluding the 10-day stub period not under Tapestry's ownership, which is worth about $30 million, Kate Spade sales totaled $1.28 billion. Global comps for the year declined 7%, in line with…

Thanks, Anna, and good morning to everyone. At Stuart Weitzman, and as anticipated, fourth quarter results continue to be negatively impacted by development and delivery delays, which pressured sales and margin across all channels of our business. For the fiscal year, sales were essentially unchanged, reflecting the second half challenges. Importantly, during the quarter, we continue to make progress in addressing the issue which arose this spring as we continue our transition from a founder-led shoe manufacturer to a truly scalable global, multi-category footwear and accessories brand. The action we are taking are focused on 3 main areas, people, process and systems, to support the brand's creative vision and growth. On the people front, I am delighted that Edmundo Castillo has joined the team in the role of Head of Product Design reporting directly to me. Together with our Head Merchant, Francesca Bertoncini, we have the right team to move the brand forward from a design and merchandise perspective. We have also made significant investments in our overall supply chain teams in Spain. I am pleased with the progress they are making. On process, we have added infrastructure and capacity as we contracted with additional manufacturing facilities also in Spain. We have built a quality assurance team on the ground to ensure that all of our footwear delivers on our brand of promise of fusing fashion and feet. And finally, on systems. While the most significant benefit will come from the future implementation of our new ERP SAP platform, we have added additional reporting capability to improve visibility of our order and capacity. Looking to fiscal year '19. Our strategic priority for Stuart Weitzman are focused on creating clear direction and improved execution, the impact of which will have a longer-term benefit beyond just the year ahead and create a…

Thanks, Eraldo, and good morning. The team has just taken you through the highlights and strategies. Let me now take you through some of the important financial details as well as our outlook for fiscal year '19. Before I begin, please note the comments I'm about to make are based on non-GAAP results. Corresponding GAAP results as well as the related reconciliation can be found in the earnings release posted on our website today. Overall, we delivered strong results in fiscal 2018, fueled by the acquisition of Kate Spade and organic growth, reflecting the benefits of our multi-brand model. Total sales rose 31% for both the quarter and year. We achieved our top line guidance for Tapestry, generating revenue of $5.9 billion in FY '18, with sales and comps for Coach and Kate Spade consistent with expectations. At Stuart Weitzman, sales were roughly even with prior year, reflecting challenges we experienced in the second half, as discussed. Turning to gross margin. For the quarter and as planned, we generated significant gross margin expansion with total Tapestry gross margin of 68%, up 120 basis points versus prior year, driven by a 220 basis point increase at Coach. In addition, Kate Spade's gross margin of 65.6% in the quarter exceeded our expectations and represented a significant increase from prior year, helped in part by the realization of COGS synergies as we are now starting to benefit from migrating the brand onto the Tapestry supply chain. Stuart Weitzman's gross margin of 53.5% in the quarter was down 540 basis points versus prior year, including 520 basis points of pressure from currency. For the year, Tapestry's gross margin of 67.5% declined 120 basis points from prior year, primarily due to pressure of 110 basis points from the addition of Kate Spade given the lower…

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

I guess, Kevin, just -- with what you've just finished on one of the big comments I think is important, I was wondering if you could talk a little bit more about the earnings algorithm that you mentioned, returning to both double-digit operating income and EPS growth in FY '20.

Sure. First and foremost, we'll just let everyone know we're going to extend the call a little bit given that we had quite long prepared remarks, given year-end. To your question, Bob, obviously, first and foremost, we're very excited by '19 and the year ahead of us with the operating income outpacing our top line. And this, of course, in spite of the significant investments that you just heard us mentioned in our prepared remarks with the buybacks. And for '20 and beyond, we're clearly targeting mid-single-digit top line growth with double digit I think and earnings per share growth as these investments pay off. So a lot of excitement right now in terms of seeing things into the medium and long term.

Your next question comes from the line of Irwin Boruchow of Wells Fargo.

I guess I'll give this one to Kevin. So the Coach brand gross margin, I think, was the strongest in 8 years this quarter. Maybe, Kevin, could you just give us some more detail around the margin performance? Maybe you see tailwinds versus improvements and pricing or promotion and then whatever benefits you saw on the cost side. How much tail is there to that as you enter the next fiscal year?

Sure. Good morning. As indicated, we were very pleased with our Coach gross margin performance for the quarter, up 220 basis points. It was consistent with our expectation, which we outlined at the end of third quarter. As you know, there are a number of components that go into the gross margin determination but principally, saw benefits in product cost and mix is what drove the quarter. And as we look at the next year, we certainly feel good about our inventory position as we enter into FY '19 and are looking for gross margin expansion in Coach in '19.

Your next question comes from the line of Erinn Murphy of Piper Jaffray.

I guess my question is for Victor and then maybe Josh as well. I guess overall, you referenced the category as growing up high single, and the Coach brand globally is comping in a low single-digit range. So maybe for Victor, if you could walk through the factors that are creating the discrepancy between overall category and the run rate of the Coach brand? And then in 2019, when you think about low-single-digit comps, any key regions that you feel most confident in to get there?

Sure. I'll let Josh discuss the Coach factors in a moment. But in terms of the overall category, Erinn, of course, a lot to be excited about over the past year. Much of that growth, as we've referenced, pretty consistently over the last 3 to 4 quarters, has been driven by just a few limited European luxury brands, those that are the most highly branded where there's been a lot of excitement and innovation most recently and, of course, remains for us a key opportunity given our history there. Globally, in dollars, of course, as I mentioned during the call, low double digits, high single digits on an organic perspective. Of course, very unpredictable as we look ahead. Given the torrid pace with a few brands this past year, we don't see that as being sustainable. But all points to, I would say, a pretty good picture for the handbag and accessories category and most importantly, for consumers' attraction to brands and, of course, our own very strong feelings in continuing to invest in our brand portfolio. Josh? A - Kevin Wills In terms of how we're feeling about '19, when you look at the performance in '18, North America outperformed. And as we go into '19, we see many of the same economic factors that Victor referenced in his opening remarks continuing in North America. We're also making a very significant investment in China marketing this year. So that is going to be a very big focus for us. I mentioned earlier about the fashion show that we're bringing to Shanghai. So there's going to be an unprecedented amount of attention and investments on China, which we think will drive the Chinese business as well as our global-traveling Chinese consumer.

Yes. And specifically to your question, Erinn, on discrepancy, I would just add that obviously, the 2 or 3 brands that are driving outsized growth are really unique within the space. And of course, for ourselves, within our own journey to replatform, if you will, and to transform the brand, we're in the very early stages of our own Signature growth and Josh can speak to that. But as you know, we've only relaunched Signature ourselves in March, April of this year. So very, very early innings for us.

Your next question comes from the line of Oliver Chen of Cowen and Company.

Regarding data, Victor, what are your thoughts on near-term opportunities versus longer? And how you will also pursue data across the organization and structure that over time as you look to best practices and findings? And our other question was just on the Coach comp and modeling the Coach comp. Is there going to be more pricing or conversion led in terms of a positive comps? And if you could brief us on where you think Logo penetration can go versus where it is versus in the past. I think that'd be a helpful parameter, too, because it sounds like there's a nice runway of opportunity.

Sure. I'll let Josh, in a moment, talk about the drivers of Coach comp and then Signature penetration. As it relates to data, I'm really excited, Oliver. And you and I have talked a little bit offline about this. In terms of the talent that we're bringing to bear to this, we have the infrastructure now in place in terms of our database. We've hired key leadership for the Data Labs with Fabio Luzzi having joined us and, in fact, just a couple of weeks ago, presented a very detailed strategy to our board discussing both what we would like to do near and longer term. Nearer term, you're going to see us, of course, leverage the 120 million names that we already have. Looking to drive insights with our merchant teams, we are beginning to leverage some machine learning in terms of driving better allocation of product and better inventory managements overall. Those would be some of the key priorities in addition to what we could do in managing pricing much more dynamically across channels. So a lot of work going on. A lot of testing going on. And I would imagine that over the next 2 or 3 quarters, we'll be able to share much more some of those results with you. Josh?

Oliver, in terms of the Coach comp, we see opportunity of -- primarily in conversion. We also have a pricing opportunity as well. We referenced earlier that in outlet specifically, we are focusing on a significant amount of innovation. And this amount of innovation is coming in at elevated prices. And we really did a study of what attributes the customer is willing to pay for in the outlet channel, and I could not be more excited about the product that's coming in the outlet channel to drive pricing. In terms of Signature penetration, I think you're referring to in retail where we reintroduced Signature this March. Our Signature penetration at -- had outperformed our initial expectation. The customer immediately embraced the way Stuart Vevers was reinterpreting this icon and is already at 10%. We see opportunity to grow from here significantly, but we're doing it in a really disciplined manner. We don't want to get back to the overexposed nature of Signature. And the best part about Signature, it shows really how the customer is feeling about the Coach brand that 4 years into the transformation, she is feeling so proud to wear Signature out in the world. And we saw this both in terms of our comp performance this year, the impact of Signature, but also in the brand tracking that we mentioned that the customer really sees Coach on the way up in both the broad premium customer and the millennial customer. And having Signature at elevated prices at the pinnacle of our brand is giving her pride to wear that icon the way she wears the European luxury brands. And the final question, the bigger picture. But Victor, with millennials and Generation Z, and we're also seeing some interesting trends regarding the sharing economy and the circular market in terms of handbags as well as the rise of smaller brands and an openness to smaller brands which may or may not have high degrees of awareness, what are your thoughts for Tapestry over the long term in the context of ensuring that your strategies are consistent with how the new generation of shoppers are evolving?

Sure. I think, in essence, Oliver, it comes down to maintaining brand relevance and us behaving in the most innovative ways possible to be relevant to younger consumers, whether, of course, that'd be through product, everything that we're doing digitally through marketing, everything that we could do, of course, through other forms of marketing and ensuring that our store experiences, whether they'd be on the digital or brick-and-mortar stores stay relevant as well. I think it's job description for our teams to continue to innovate. And obviously, in the case of Coach, you've heard Josh reference a lot of the work there. In the case of Kate Spade, very excited about that launch happening in September under Nicola's new creative direction and for you to see that live. And I know that Eraldo and Edmundo are very, very active in writing the next chapter of Stuart Weitzman as well.

[Operator Instructions] Your next question comes from the line of Mark Altschwager of Baird.

Good morning, Thank you. A lot of moving pieces with the Kate Spade model this year. Beyond the incremental synergies, how should we be thinking about the core organic EBIT growth rate at Kate versus the contribution from the distributor acquisitions? And then separately, if I could, I just wanted to follow up with Josh. At the end of the prepared remarks, you talked about the opportunity to optimize the footprint in North America. If you could just expand on that a bit more and maybe discuss by channel how we should be thinking about the magnitude of change happening this year. Thank you.