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 the Global Head of Investor Relations & Corporate Communications at Tapestry, Andrea Shaw Resnick.

Good morning and thank you for joining us. With me today to discuss our quarterly results are Jide Zeitlin, Tapestry’s Chairman and Chief Executive Officer and Joanne Crevoiserat, Tapestry's Chief Financial 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, 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 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 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 slides posted today. Now, let me outline the speakers and topics for this conference call. Jide will provide an overall summary of our fiscal second quarter 2020 results for Tapestry, as well as our three brands. Joanne will continue with details on financial and operational results of the quarter, as well as our outlook for FY 2020. 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 and Chief Legal Officer; and Josh Schulman, CEO and Brand President of Coach. Following Q&A, we will conclude with some brief summary remarks. I’d now like to turn it over to Jide Zeitlin, Tapestry’s Chairman and CEO.

Good morning. Thank you, Andrea and thank you to all of you for joining our earnings call. This morning we reported our fiscal second quarter results, which exceeded our plan. Our out performance was driven by continued momentum at Coach and a significant sequential improvement at Kate Spade. In addition, we exited the quarter in a good inventory position. We also entered our third fiscal quarter with strong underlying trends, notably at Coach as sales growth accelerated from the holiday period. Therefore, we had originally anticipated maintaining our fiscal year 2020 guidance despite continuing headwinds in Hong Kong and challenges at Stuart Weitzman. However, the escalating coronavirus outbreak in China is now impacting our business, resulting in both significant traffic declines and the closure of the majority of our stores on the Mainland. As a result, we now expect that the second half of our fiscal year could be impacted by approximately $200 million to $250 million in sales and $0.35 to $0.45 in earnings per diluted share given the current trends in China. If the situation further deteriorates or the outbreak further affects demand outside of the country, this impact could be worse. Our primary concern is the health and well-being of our team, their families, and their local communities who are dealing with the daily realities of the situation. We believe in the resilience of the Chinese people and our view that China represents a significant opportunity for our brands is unchanged. We are confident in our ability to effectively operate through this period of uncertainty. It is worth noting that during our 20 years of the public company we've successfully faced myriad macro and geopolitical dislocations from the great recession in 2009 to 9/11 to SARS and to the Fukushima earthquake, and tsunami in 2011. We have…

Thanks Jide and good morning everyone. As Jide has just taken you through the highlights and strategies, I will cover some of the important financial details of the quarter. 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. Turning to our second quarter financial results, total sales increased 1% on both a reported and constant currency basis led by continued momentum at Coach with global comp growth of 2%. At Kate Spade, comps declined 4%, representing a sequential improvement on a one and two-year, while total sales were in-line with last year, driven by distribution. Stuart Weitzman sales were pressured, down 7% versus prior year, reflecting generally softer than anticipated demand across channels. Gross margin decreased 30 basis points, compared to prior year with divergent trends by brand. At Kate Spade as projected, gross margin declined 320 basis points versus prior year, due primarily to a higher level of promotional activity as we make progress moving through excess inventory. Conversely, gross margin at Coach expanded 20 basis points over prior year. This expansion was driven by higher handbag AURs at outlet, a lower level of promotions, and product cost benefits, partially offset by FX pressure and geographic mix headwinds resulting in part from the lower penetration of our business in Hong Kong. Stuart Weitzman gross margins rose 370 basis points over prior year, driven by channel mix, due to the relative outperformance of the direct business led by Mainland China and benefits from FX. SG&A for the quarter rose approximately 4%, inclusive of the anticipated shift in timing of expenses from the first quarter into the second quarter, as well as a higher level marketing…

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

Hi, good morning. I was wondering, Jide can you provide more details on the learning’s, you know from the in-depth review of the business and sort of where you see opportunities and risks and then just a couple of parts to this actually. What kind of investment do you currently think is necessary to drive the business forward after the review? And I guess the third part of the one part question is that, would you expect FY 2021 to be an investment year? Do you have to shrink to grow? Those are my questions. Thanks.

Good morning, Bob and thank you for that distinct question. But let me maybe take the latter part of your question first. To be clear, as we look at transforming Tapestry, it’s not about shrinking our total revenue or earnings to drive future growth. We’re focused on sustained growth and returns from here. We’ll grow from fiscal year 2020 results, excluding any impact, the impact of the coronavirus situation and so to just be to be doubly clear, we're not going to be satisfied with another flat year. We’re committed to drawing a line under the current results. So, to turn really to the meat of your question, if coming out of the diagnostic work we’ve done in recent months here, we’re focused on five core opportunities. One is, becoming truly consumer centric. The second is to create a culture here at Tapestry and across our three brands that enables faster decisions that are more responsive to consumer desires. The third is to use data to inform forward decisions. The fourth is better aligning our operating model with our product positioning. And then the fifth is to more clearly define the purpose of each of our brands. I know as much as I love to expand on each one of those, now is not the time to do so. I’ll leave that to the Investor and Analyst Day that I mentioned earlier. However, why don't I just maybe take a moment and give you a couple of examples of what it is we have in mind. And perhaps the first one would be around consumer centricity and I know that a lot of companies are focused of becoming consumer centric. So, let me just talk about what that means here for us at Tapestry. And for us it means improving…

Great. Thank you.

Ladies and gentlemen, in the interest of time we ask that you please limit yourself to one question only. Your next question comes from the line of Irwin Boruchow of Wells Fargo.

Hi, good morning everyone. Congrats on the good holiday. I just wanted to focus on China. I don't know if this for Jide or Joanne. So, understanding the guidance revision for 2H and assuming the majority of these revenues are located in Coach Brand, can you help us, I understand visibility is very low, but in modeling the Coach comps in the back half should we be thinking about high-single-digit declines in 2H and possibly even down maybe double digits in the third quarter? And then just any color on how this kind of revenue decline in that region should impact the Coach gross margin will be helpful?

Hi. I’ll jump into that and explain, you know take you through how we arrived at our assumption and, you know as you mentioned we’re monitoring the developments very closely, the situation is still unfolding and as you know it’s very dynamic. We are providing transparency based on what we’re seeing today. So, let me take you through the assumptions and how we arrived at these numbers, and then I will address the specific questions around the brands. The assumptions are based on – today, we see a low-to-mid teens percent of our business in Mainland China across all brands, with the predominance on Coach brand, where the outlook is an expectation of a 70% to 80% decrease in those sales through the rest of the year. And we arrived at the EPS estimate with an expectation of over a 50% flow-through given the high margin profile of that region China specifically and certain fixed costs that we now will continue. In terms of breaking it out by brand, we have not provided visibility by brand at this time. As we said, the situation is dynamic and is still playing out, but based on our store counts and our penetration on Mainland China it is predominantly impacting the Coach brand, has an, also has an impact on Stuart Weitzman, but to a lesser, much less extent Kate Spade. I would also add that we have, as it relates to China much lower exposure in our supply chain. So, I wanted to touch on that as well. We’ve already migrated the vast majority of our production outside of the country, less than 10% of our finished goods production is in Mainland China across all brands. More broadly, we’re looking at different scenarios as you can imagine, as well as mitigating actions to drive top line and control or reduce expenses in light of this news.

Josh, anything you would add?

Yes, what I would add Irwin is, to your specific question around the comp guidance, right now it’s hard to estimate the impact of China on comp, given that our store closures are typically removed from the comp calculation, which I believe is common practice. And so that part to estimate. What I would like to emphasize though is that the health of our business in Mainland China prior to this very unfortunate set of circumstances, we have been seeing a strong comp store sales in China in Q2 and importantly in the first few weeks of Q3 leading up to the Chinese New Year period. And we're seeing that both in our – we were seeing that, both in our directly operated store channels, which make up the vast majority of our business, but also in our emerging digital channels. As you know, we launched with Tmall had a series of soft openings and then grand opening in December and immediately we saw that the brand has become the top handbag of brand on Tmall in December in the period meeting up to Chinese New Year. So, we believed in the resilience of the Chinese consumer and what we’ve seen in previous crisis is that whether it’s SARS or different types of geopolitical situations that these have deep impacts for a time limited period and then we bounce back to normal.

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

Great. Thanks. Good morning.

Good morning.

My question is around the Coach brand, last quarter AUR grew in outlet for the first time in several years and based on your comments today, it definitely sounds like there is some inflection here that could continue, I guess can you share with us how far below peak AUR is in that outlet? And then based on some of your diagnostic work are there further opportunities in pricing? And then I apologize, but a clarification on the guidance, Joanne, are you including any impact from lackluster Chinese tourism here into the U.S.? Thank you.

I'm sorry. I didn't hear part of your question.

When you said, how far below, and then we didn't hear…

Oh, apologies. So, I guess on the Coach brand how far below is a AUR today in outlet versus when it peaked and then based on your diagnostic work, just curious on if there is any further opportunity in pricing?

Okay. Why don’t I give some context around the AUR growth? I really appreciate the question, because as you know, we’ve been talking about this for several quarters both externally and it’s been a huge focus for us internally and so this was an important milestone quarter for us. We were up in AUR in both channels, significantly in outlet. In outlet, our AUR went up 4% globally, 5% in North America, driven by a 7% increase in the AUR of handbags in North America. And so, I’d like to just take a few minutes to explain how we went about that. We achieved that through a really holistic approach of listening to the customers. In fact, Jide referenced the top five bags in North America outlet, which frankly had been the top five for a long period of time, and we did very deep consumer insights involving [indiscernible] project within the company of bringing together Stuart, the cheap merchant, the head of North America outlet and doing a road show and really listening to what customers love about those bags and what features and functionality that they would be willing to pay more for. And so there was a lot of focus on those top five bags and I’m very proud of what the team did there. And so going into the holiday quarter, this assortment allowed us to be much shallower and more surgical on the types of promotion. So, we coupled the product development work with learning’s from our data labs about where we need to be more promotional and where we need to be less promotional. So, clearly there has been a significant erosion in AURs in North America outlet over sustained period of time, nearly 50% from the peak, but we see the actions of the last few quarters and specifically the holiday quarter as being a milestone that turns us in the other direction and even more importantly gives us a very tangible material example of where we can start looking at increasing prices in the outlet channel.

Erinn, I’ll take the second part of your question regarding our guidance. Our guidance reflects what we’re seeing today, which is an impact to our business in Mainland China, if the – you know as we’ve mentioned the situation is dynamic and unfolding. If it impacts more broadly across the globe than our results maybe different and maybe worse. However, specifically on North America, we do not anticipate or we have not in our guidance anticipated the coronavirus impact on the Chinese tourist in North America. Having said that, over the past few quarters and years we’ve been seeing a down trend in the Chinese tourists, which has been offset by the domestic business particularly in our outlet stores.

Our next question comes from the line of Alex Walvis of Goldman Sachs.

Good morning. Thanks so much for taking the questions. So, I wanted to ask a few questions about Coach as well. Maybe firs of, I wanted to clarify a comment that you made in response to the prior questions, I think you said that AUR at the Coach brand in North America outlets was 50% lower than it had been historically, did I hear that accurately and then perhaps you know any thoughts on how far we could go back to the prior high’s and how much progress I suppose you can make from here already strong progress, but you know the environment in that channel is a little different than it was a few years ago. And then one further question on Coach, you know any comment on how the logo product is performing and what percentage of the assortment that accounts for today?

Yes let me clarify the comments on the hand bag AUR in our North America outlet channel. I was specifically around handbag AUR versus the peak; it is approaching 50% off of peak, so there has been erosion over a long period of time as the channel dynamics have changed.

But to your underlying point Alex, we do believe that represents substantial opportunity to re-gain back much of what it is that we have over an extended period of time given back. And so maybe you want to talk about signature logo.

Yes absolutely. So, to your question about Signature, Signature remains a very important part of forward assortments in our retail assortments, it is approximately 25% of our retail business, we are finding that it continues to generate a higher AUR, actually than leather showing the demand for the brand, the other thing that you will notice in this past quarter we launched a new Horse & Carriage logo platform and this was something again from our archives and I think it gives us a second branded platform to have because we are very careful that we don't want to go back to an over exposed place and we want to keep the branded platforms relevant and current and achieving these higher AURs.

And Josh has may be saying something that may have an implicit Alex in your question, even at current penetration Signature is materially below where it was in the last cycle.

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

Hi, thank you. Regarding Kate Spade would love your latest thoughts on timing of optimization and your thoughts on how this may involve with conversion relative to traffic, the new CEO Liz and comments around self-expression as you continue to calibrate the brand with novelty and other thoughts? And City Sole seems like a big deal…

City Sole is a big deal, maybe – sorry, go ahead.

You have made strides and attempts in footwear in footwear in the past, so love your context on what’s different and it would also be interesting to get your views on how big that could be and it’s responsive lightweight flexible looks like it’s in touch with the way the customers are really moving?

Right. Maybe let’s look back because there’s a lot there, maybe Josh will talk about City Sole, Joanne as you all know has been the interim leader of Kate, so maybe she can talk about the – some of the Kate brand specific comment, and I’ll close out by talking about Liz Fraser the New President there, the new brand's CEO.

Good morning, Oliver. Thanks for noticing the emphasis on City Sole, which is particularly prominently this week as we’re launching it. As you know and you follow it for a long time, Coach has a long history in footwear and in fact back in 2005, 2006 in some ways Coach invented the fashion branded sneaker category coming from a leather goods brand with strong branding. Over time, we let that position erode and at that time the brand was producing shoes under license. Since bringing the shoe collection back under direct control a few years ago, we’ve really been focused on getting the prize value fashion style equation right and we know to break through here that we needed to do something very special and unique in terms of both product and marketing. So, we worked on this project for some time, really thinking about where the customer is going in terms of the increasing casualization and how to create a sneaker franchise that will last for more than one season, and that could really be a catalyst for the overall footwear category. As we’ve mentioned on previous call, our shoes around 4% and our ambition is to – is that this should be a business with double digit penetration and we couldn’t be more excited about the reaction to the marketing with J.Lo and Michael B. Jordan and I hope to see you wearing a pair next time I see you.

Hi, Oliver it’s Joanne. I’m going to jump into the Kate Spade question. As Jide mentioned, I did jump into help lead the brand trough December and January and as I entered the brand the team was very engaged and focused on the improvements to the assortment and really managing through the important holiday quarter. We did see sequential improvement as we implemented key product. We took key product actions and merchandizing actions, really to balance our assortment we talked a little bit last quarter about the assortment architecture. The changes we made did gain traction in the second quarter. We did see strong performance in our expanded satchel offering, and we talked a little bit about holiday giftables, but that expression was strong and the customer responded very well to that assortment, as well as jewelry which is not a high penetration category for us, but we see opportunity moving forward. We also enhanced the novelty offering that was a void in our assortment. Coming into the second quarter, we added some fun in novelty back with collaborations like Tom and Jerry and the cats collaboration as well as the novelty elephant bag tiny adding some fun back into the mix. We also focused on moving through excess inventory, so that we could clean up our inventory and these merchandizing changes would be more evident and apparent to the customer. We moved our marketing focus forward; we increased spending digital and did see some traction there. We leveraged new tactics. So, we saw nice growth in the digital channel particularly in December and saw some green shoots with new customer acquisition there as well. So, lots of work going on right now in the brand on the current assortment, but we are also doing foundational work and we’ve made progress on sharpening our brand position that has worked that we began as we spoke to last quarter, we began last quarter and the team has moved that forward. We’re also doing deeper customer segmentation work to truly understand the Kate Spade customer. We are really looking forward to having Liz join us in March to continue to move that forward with the team and Jide; I don’t know if you have other comments?

Absolutely. So, just – Oliver to you question about Liz, she is the right person at the right time for Kate Spade and that this is somebody who has 20 years of relevant industry experience and she has run the gamut from merchant roles to supply chain roles to – for the – better part of the last decade and a half, real leadership roles. She is clearly in her last two incarnations knows the ready to wear and the handbag accessory business well, and then most relevant for 14 years she was a key player in building the mark-by-mark Jacobs business from roughly 20 million in revenues to well over 750 million in revenues. So, this is a person who gets things done, has built businesses and has very good relationships with her internal teams and external teams. I followed her for over a decade and I’m really pleased that she is going to be joining us and joining the Kate Spade team.

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

Good morning. Thanks for taking my question. As you dig into the uptick and brand perception at Coach I’m curious what you think is having the biggest impact there in terms of driving that inflection and any insight on the trends you are seeing with your more mature customers versus maybe some newer younger customers in terms of driving that improved brand perception? And then, you know, separately for Jide, I was hoping you could quickly touch on Stuart Weitzman, just given the management change announced today, any updated thoughts you could share on the pace and magnitude of margin recovery we should be looking for over the next several years? Thanks.

Yes, thanks for the question. I mean we were very pleased to see the brand tracking report this quarter, and particularly to see the inflection in the number of customers in the broad premium market who consider Coach to be a brand on the way up. And I think it’s a few things. You know, we have been talking about building a fashion relevancy for some time and I think that continues, and so the great work that Stuart has been doing and his team, but also coupled with a lot of the marketing approach that we’ve taken. In fact, the mix of a very high profile celebrities like Jennifer Lopez and Michael B. Jordan clearly have resonance in the North American market, but also coupled with emerging celebrities like Yara Shahidi and really moving the vast majority of marketing into the digital place and becoming significantly more active on the various social channels. And so, we are very encouraged by what we’re seeing and it’s really across the demographic with a focus on the millennial.

And with respect to Stuart Weitzman, a couple of comments, you know, first of all and particularly on the back end here of our diagnostic work, we are quite confident in terms of the strength of that brand, you know, a brand that basically has a unique proposition as a, you know, gateway to luxury and where we think that there is a fair amount of white space above us with a distinctive heritage and, you know, DNA as you’ve heard us talk about before in terms of melding or this fusion of [European Lux] with, you know, aesthetic and craftsmanship merged with or combined with, you know, an American practicality and comfort. So, you know, fundamentally the brand, we think, is in – is a powerful brand. The – you know we’ve talked in the past about some of the challenges we had in earlier days on design and supply chain, which are working their way through the system. and so, our focus now is, you know, very firmly on the product line, and as I mentioned in my opening comments, you know, we’ve lacked innovation to just be very blunt about it, particularly in our core heritage boot offering, as well as just real distinctive newness more broadly across the product architecture to drive top line sales. The team has been very focused on that and that takes some time to just work its way through the pipeline, but we believe that – you know, that we’re making progress on that front and I'm really excited about Giorgio because he is somebody who has had a tremendous impact at every business in our organization that he has been a part of and I'm confident that coming together with the existing team at Stuart Weitzman, he’s going to have a really big impact, particularly as we look to both have a very strong base as well as to periodically have key items that we lean very heavily into. So – you know, we – it’s on the right track. I think Giorgio will help accelerate moving it further forward, and you know, it’s a business that we continue to feel very good about particularly frankly coming out of the diagnostic work.

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

Thank you. Good morning. As you think about the evolution of the business in China as it relates to the virus, how are you thinking about managing inventory and making sure that when that demand does return, you’re presenting a full price offering? I guess what happens to that excess inventory from the lost sales in China? And how are you thinking about managing it?

Lorraine, this is Joanne, I’ll take that. The situation is very dynamic and the teams are, you know working on mitigating actions. I’ll first say that we have globally shippable product. So, we are not constrained as to where our product goes. So, as the teams are responding, they are actively managing inventory to make sure it is in the right location to match demand and we may see different trends in the digital side of that business versus brick and mortar particularly as we work our way through this event as well as different demand trends globally. So, the teams are working very hard to make sure that we’ve got the inventor in the right location, we have the flexibility and we’re also evaluating future order flows based on what we’re seeing for demand.

Ladies and gentlemen we do have time for one final question. Your next question comes from Michael Binetti of Credit Suisse.

Hi guys. Good morning. Let me add my congrats on a really nice quarter.

Thank you. Good morning.

Jide, I guess I’m trying to calibrate the model a little bit from your comments on Kate in the second quarter, the comps are quite a bit better than planned, but it looks like you took opportunity to clear some inventory when you had traffic in the stores, so I guess the gross margin was a little below, but on total, Kate much better than we thought. You sound like that you feel like inventory is in better shape in the brand, you gave some guidance on second half comps improving, but you previously did suggest that Kate comps would improve sequentially in each quarter. Since comparison on Kate changes a lot in the third quarter, I just want to see if you still see it accelerating especially if you drill down the inventory quite a bit on the holiday when you had the opportunity. And then I just wanted to ask if, you know, it sounded like if I had to characterize the plan you laid out, Coach and Kate came in a little bit above the plan, and I know you have to deal with corona in Asia, but it sounds like U.S. or North America was a lot better, I’m wondering if, you know, as you look at your internal plan, did you move up in North America Coach assumptions in your internal plan for same store sales in the back half?

Let me start. Particularly with the Kate business, we had an expectation pre-coronavirus outbreak that expected inflection in the second half and that we continue to expect to improve in the second half for Kate. We haven’t called for it to be sequential each quarter, but for the second half we expect to see improvement and we in the second quarter, we did move through some inventory and we still have some excess inventory in the Kate brand that we will be working through as we move the second half, but we are also seeing some traction with the assortment changes we’re making and the marketing actions we are taking as well as adding new brand spokes people to the brand. So, we continue to expect, particularly in North America, improved results in the second half versus the first half in Kate Spade.

Thank you. I’ll now…

I was just going to just say on the question with regard to Coach in the second half, we don’t disaggregate our – we don’t disaggregate the growth.

Thank you, operator. We’re going to conclude the Q&A now with some brief closing remarks from Jide. Jide, whenever you are ready.

Absolutely. So, first, I just want to underscore the comments that we’ve made that I know a lot of our industry peers have made in terms of just our focus on both on our team in China on their families and on their community, but also just much more broadly to the Chinese people. Those of us that live in New York, many of us went through 9/11 and we understand just how deeply unsettling a situation such as this can be. And you know, we’ve got clearly immense confidence in the Chinese people in their character and in their resilience and believe that clearly the fear that is evident in a day-to-day basis there is one that we will abate and look for to doing everything we can as a corporate citizen to be a part of helping China more broadly return to a greater sense of normalcy as we all as global citizens have seen in so many other crisis in the world over time. So, I just want to say that and say that very clearly and heartfelt. The second comment, I would just make in closing which is one where I would like to just call out one of our many colleagues in our organization, who I had the privilege of spending time with last week and this is a gentlemen named [Darien Lewis] who is the store manager for Coach’s Chicago Premium Outlet Store. And [poor Darien] had me show up on his door step a week ago as basically one of the members of his team. I worked as a sales associate on the floor much again to the chagrin of [Darien] and his team and almost certainly to the surprise of most customers who wondered why the usual high standard of both hiring…

Thanks everyone.

Thank you. That does conclude this Tapestry conference call. You may now disconnect your lines and have a wonderful day.