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 Vice President of Investor Relations at Tapestry, Christina Colone.

Good morning. Thank you for joining us. With me today to discuss our third quarter results as well as our strategies and outlook are Joanne Crevoiserat, Tapestry’s Chief Executive Officer; and Andrea Shaw Resnick, Tapestry’s Interim 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. This includes projections for our business in the current or future quarters or fiscal year. 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. Separately, as we have started to anniversary the onset of the COVID-19 pandemic last year, we believe year-over-year comparisons are not fully indicative of business performance. Therefore, we will be providing financial information compared to both FY 2019, or pre-pandemic, and FY 2020, where applicable. Now let me outline the speakers and topics for this conference call. Joanne will begin with a brief recap of the third quarter for Tapestry in 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, CEO and Brand President of Coach. After Q&A, Joanne will conclude with brief closing remarks. I would now like to turn it over to Joanne Crevoiserat, Tapestry’s CEO.

Good morning. Thank you, Christina, and welcome, everyone. As you read in our press release, Tapestry reported a standout quarter, which once again outpaced expectations, reflecting the successful execution of our acceleration program and the power brands. Our sharpened focus on the consumer fueled new customer acquisition at Coach, Kate Spade and Stuart Weitzman, contributing to a continued sequential improvement in overall top line trends. Revenue growth in the quarter was led by robust increases in digital and China, two areas of meaningful long-term opportunity. In addition, for the third consecutive quarter, we achieved operating income and EPS gains, both compared to prior year and to pre-pandemic fiscal year 2019, supported by a reduction in promotional activity and higher AUR as well as disciplined expense management. We also generated significant free cash flow in the quarter, demonstrating our financial strength and flexibility. This performance is a testament to our talented teams around the world. Their creativity, agility and resilience have enabled us to effectively navigate a challenging backdrop and deliver for our customers, while positioning Tapestry to emerge from the pandemic stronger and build on our recent momentum to drive sustainable growth. Before turning to a discussion of our strategic pillars, I want to touch on the leadership changes we have announced in recent weeks. I’m delighted with the team that we brought together, which combines deep knowledge of our company with fresh perspectives as we position Tapestry to win in the dynamic retail and consumer environment. Todd Kahn, who was appointed Coach CEO, has a unique balance of brand stewardship and commercial capabilities and has done a tremendous job leading Coach and delivering exceptional results. Andrea Resnick is a proven leader who ensured that we successfully executed on our acceleration program as interim CFO, and we are excited that…

Thanks, Joanne, and good morning, everyone. 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 performance in the third quarter and year-to-date was well ahead of our expectations as we drove operating income growth ahead of both FY 2020 and FY 2019 levels despite the volatile backdrop. Total sales increased 19% from the prior year and well-outpaced our projections. Compared to FY 2019, revenue declined 4%, representing a sequential improvement from the prior quarter. Importantly, we were pleased with Coach’s returned to pre-pandemic levels of sales in the quarter. By region, North America drove the improvement compared to the prior quarter on a 2-year basis as trends accelerated across stores, e-commerce and wholesale channels. In addition, the region achieved sales in line with FY 2019 despite continued store traffic pressures. In Asia, direct sales increased approximately 40% compared to FY 2020 and were in line with FY 2019, fueled by significant gains in Greater China. Across the balance of Asia, sales remain below pre-pandemic levels with notable pressure in Japan given the declaration of a state of emergency during the quarter. Europe, while a small portion of our total sales experienced a material slowdown in the business given the significant increase in lockdowns in accordance with government regulations. By channel, performance was driven by another quarter of triple-digit growth in e-commerce as we continue to build our digital platform and capabilities, which enable us to lean into the opportunity to meet the consumer wherever they want to shop. In our global bricks-and-mortar channel, while revenue pressures continued, we were pleased with the trend improvement compared to the prior year as traffic…

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

Just got a couple of questions. You mentioned signs of a recovery. What are you seeing in the backdrop that does give you the increased confidence generally? And then, on a related point, how’s your digital business performing now that the in-store traffic trends are improving. Are you seeing any signs of cannibalization?

Yes. A couple of points I will cover there in your question. First is around our confidence. I will also touch on what we see in the backdrop and then how we see our digital business evolving. But starting with confidence, we have increasing confidence in our Tapestry platform. We see it as a competitive advantage. We are also gaining confidence in the power of our brands and the potential that we see in the acceleration program, including the execution from our talented teams around the globe. Our year-to-date results have definitely increased our confidence in the strategy despite the volatile backdrop, our teams continue to deliver, and we are building a foundation for sustainable long-term growth. We are getting closer to the consumer, remaining into digital and leveraging data in better ways, and we have a streamlined operating model. But we are also seeing the backdrop improve. We are seeing encouraging signs of recovery, we have seen vaccination efforts progressing, resulting in increasing consumer confidence, strong demand for our categories and improving in-store traffic trends. And I think to your question that begs the question of what do we see in digital with those increasing trends? And our approach to our digital business is really being laser-focused on meeting the consumers where they want to shop. We are focused on the omnichannel experiences with digital and stores contributing to our success, and that is an important qualifier. Digital, we see as an and, not an or. We are acquiring new younger customers through these channels. And we are seeing the ongoing strength of our digital business, even as stores begin to reopen and traffic begins to build back to historic levels. We have seen another quarter of triple-digit growth, while also driving sequential improvement in store trends. So we are encouraged by that performance as we see traffic starting to come back - I should say, starting to come back. But let me talk with Todd, he can give you a little bit of color on what we are seeing specifically at Coach.

As Joanne mentioned, we have been seeing significant runway to realize our continued growth while our brick-and-mortar productivity is improving. Specifically in the U.S., we continue to see incredibly strong demand online, even as we see restrictions and improving brick-and-mortar traffic. This is supported by the fact that our new customer recruitment has fueled our strong digital growth. In fact, as Joanne mentioned, in the quarter, we added another 400,000 new customers from our e-commerce platforms, bringing the year-to-date number of new customers from these channels to two million in North America. And what is really encouraging, of these two million, approximately half are Gen Z and millennial. And then when I return to brick-and-mortar, if I take Texas as an example, we experienced a significant acceleration in our store sales trends, while, at the same time, we see the restrictions being lifted. And while those restrictions are being lifted, our digital traffic and demand trends remain strong. So this bodes really well for our future as we see a return to traffic in North America brick-and-mortar.

Our next question comes from the line of [indiscernible] of Wells Fargo.

Congrats on another great quarter. I guess, my question was on profitability in e-commerce. Joanne, you talked about digital being accretive to the operating margin, which is pretty unique and a great sign for the business. As digital continues to increase, where do you see penetration rates moving? And then, what does that ultimately mean for the margin structure of both Coach and the Kate Spade businesses over time?

Yes. Thanks for the question, Ike. We do see the digital business being accretive to our operating margins currently. Our digital business is quite profitable. It is structurally more profitable than their respective bricks-and-mortar channels. And it is really a function of the fact that we have structurally higher AURs, high margins and relatively low returns in that channel. So we consistently deliver higher margins through our digital performance. And I think it is also important to mention that for, as Todd said, recruiting new customers and engaging new customers through our digital channels. So that makes the channel accretive as well. And in terms of where we see the penetration going, ultimately, the customer will decide. We are very focused on meeting the customer where they are. And I think we have been innovating quite well in terms of our ability to engage consumers, both digitally and on social channels with real innovations on TikTok, as an example, capturing customers where they are today. And we are committed to staying close to the customer and seeing how that unfolds. Having said that, our brick-and-mortar business, also, we are really pleased to see the operating margins of our brick-and-mortar business this quarter achieve pre-pandemic levels - exceed pre-pandemic levels this quarter. So that also bodes well for our business, really driven by the gross margin gains that we have seen. And we expect that as traffic builds back, those numbers will also improve. So we see digital as accretive where it lands in terms of penetration. Ultimately, the customer will decide and we are focused on driving improved profitability in our brick-and-mortar channel as well.

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

Great. Congratulations to all of the promotions there. Joanne, I was hoping you could go a little bit deeper in the comment you made about the lapsed consumer coming back. Which brands currently are you seeing the biggest influx of a lapsed consumer? And then, what strategies do you have at place to keep them?

Yes. Thanks, Erinn. The work that we are doing to stay closer to our consumer and the work in data and analytics is really helping us unlock, not only the recruitment, which we are seeing across brands, but also the reengagement of lapsed consumers. And while we are seeing that across all of our brands, we have an important focus, particularly in Kate Spade and Stuart Weitzman, to ensure we reengage as we clarify the positioning of those acquired brands to reengage that last customer is critically important. And it shows that we are making traction speaking to our core customer. And we have been really pleased with the work that is happening there and the traction we are seeing. But also, as we get better at recruiting and better leverage data and implementing some of the tools and technologies and marketing, it really is about taking our customer database and driving more active consumers, recruiting more, retaining more, bringing them back with higher frequency, which you heard us talk about, we are very focused on driving that activity, increasing retention and ultimately increasing lifetime value.

And I just can add for the Coach brand, one of the tools that we are so pleased with is our launch of the Coach Insider program, a loyalty program. And what we are seeing is that members of the program, their frequency is 25% higher than nonmembers. So that really bodes well as the tool, as Joanne says, to get closer to the customer, understand what customer needs are and provide them with reasons to keep coming back to the brand.

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

You made a lot of progress in Coach outlet. As you anniversary the direct marketing with respect to the Coach outlet customer and broadcasting that, what are your thoughts on innovation year-over-year in terms of what you are doing, and the rationale for the outlet loyalty program? I would also love your thoughts on sustainability on the metrics you are focused on, as well as what you are seeing from a customer point of view as you think about continuing to make progress there?

I think I will take that, Joanne. So your first question, we are really pleased as we anniversary sort of our reimagined coachoutlet.com and we continue to see strong demand. And as I indicated in the last question, one of the tools is our ability to bring them into the Coach loyalty program. And I think that will bode really well. On sustainability, Joanne can talk about the Tapestry sustainability, but I see this as a really interesting opportunity for the Coach brand. As an 80-year-old brand, particularly one grounded in leather, we have opportunities to talk in a really authentic way about sustainability. And we have done some interesting things. On Earth Day, we brought forward a handful of bags, which we call reloved, which were bags that were literally returned, unusable over many years, we couldn’t repair them. And what we did was our designers and our workshop reconstructed them basically. And the bags that we put up online on Earth Day is sold out in an hour. And the demand for them were incredibly strong. So as we start thinking about and talking about sustainability and what it means for each of our brands, particularly at the Coach brand. I see opportunities in this relove concept, something else we have done, which is basically taking scraps and turning it into a weave that creates an entirely new handbag. So I think you are going to see us do some really interesting and innovative opportunities. I think, turn out to Joanne [indiscernible] sustainability issues?

Sure. Thanks, Todd, and I appreciate the question, Oliver. We are very focused on sustainability as part of the fabric of our company. We call our sustainability program our social fabric. And it really incorporates three pillars around our people, our communities and our planet. And some of the metrics that we are driving and focused on, under our people, we are very focused on representation across the organization and in leadership, and fostering an inclusive environment, one that is equitable, inclusive and diverse. We have goals internally focused on those actions. And also, around our communities, we are working to drive meaningful positive change in our communities through our empowerment programs, through financial donations and product donations and also volunteering and increasing the impact that we can have around the world and the communities where we live and work. And then finally, on our planet, we are focused on reducing our impact on the environment. Todd mentioned some initiatives within the brands. But across our supply chain, we are focused on reducing our carbon footprint, increasing traceability, there is some interesting work that the team is doing around traceability, and increasing our use of environmentally preferred materials. So we are making progress, we are incredibly focused on it, and fundamentally important part of our company.

Our next question comes from the line of Matthew Boss of JPMorgan.

And congrats on the nice quarter. So could you maybe help break down the overall AUR opportunity remaining from here, meaning, where do we stand today relative to maybe to prior peaks? And what inning do you see each of the brands in today as we think about the SKU reductions, promotional activity and overall pricing power remaining from here?

Yes. Let me kick this off and then pass it to Todd, who can give more color on the Coach brand. But across our brands, we have made progress in AUR. And it is really a function of our acceleration program and how effective we are in getting closer to our consumer and delivering product that resonates with them. And also, some of the work that we are doing foundationally, the better leverage data in our decision-making. So our streamlined assortments, our improvements in inventory turns, our ability to allocate those assortments where they’ll be most productive, those are all contributing to our AUR growth. But we do see opportunities across all of our brands, and we are encouraged by the AUR growth that we posted at Kate Spade this past quarter as well, both at retail and at outlet, showing that the product that we are delivering is resonating with our consumers. But I will pass it to Todd to talk about the Coach progress as well.

Thank you. Yes, we are very focused on the AUR, and we are pleased with the progress we have made in this quarter and the progress we have shown all year. In the third quarter, our handbag AUR rose approximately 25%, both globally and in North America. And as Joanne indicated, so much of this is deliberate actions that we have taken about how we are looking at things differently. First, it starts with incredibly strong innovative product led by Stuart Dever’s creative direction. We then couple that with using data to inform our decision-making and really, really put the consumer at the center. And the SKU reduction is helping driving AUR. And let me give you a quick example. If you take Tabby, which right now is our #1 family in our retail fleet, Tabby originally launched in July of 2019. Entire years, what would have happened by the time we got to February of 2021, we would have been bored with it and tired and moved on. Instead, we recognize what an iconic family we have, and we relaunched it with Pillow Tabby, bringing the entire Tabby family back to the number one position in our fleet. So this elongation and - of the life cycle of an iconic family helps us raise our AURs, helps us reduce our SKU counts and helps create greater gross margin and profitability. And I think you are going to see us do that over and over again.

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

Congrats on the strong quarter. I guess, a couple of questions for me on margins. I guess, first, how should we be thinking about the sustainability of the low 30s EBIT margin at Coach? And what opportunities do you see for a greater level of reinvestments in 2022? And then, similarly Kate Spade, just with where you are with the recovery? Are there creative changes? Near term, any thoughts on a reasonable range of expectations for 2022? And just longer term, structurally, what do you think that branch would look like relative to what Coach has achieved here recently?

Sure, Mark. I will take that. I have got to say, we are thrilled with the progress we have made in 2021. And as you know, based on our outlook, we are projecting a high teens operating margin for Tapestry, which was above our previous peak as a house of brands, if you will, despite this volatile backdrop. And that is really been accomplished through the focus on the consumer, leveraging digital and data and transformation into a leaner organization. And we feel we are exiting the pandemic even stronger positioned to take market share at higher levels of profitability. We are not providing detailed guidance by brand. But to your point, Coach, this year, will already be at a best-in-class op margin in and around 30-ish percent. And we still think that we’ll have digital and China being the revenue drivers. So our opportunities at Coach are really around opportunity to grow the top line and maintain attractive margin. These are excellent margins already. Kate Spade, where we have clarified our brand position and better execution to deliver for our customers, we have an opportunity to drive both top and bottom line growth. I think we are in, I would say, early innings, and this will be a meaningful Tapestry growth driver over the planning horizon. And then lastly, when we look at Stuart Weitzman, our priority there has and continues to be a return to profitability, and we are making great progress. We are leaning into our strength in China, which obviously has very strong margins, we have exited quite a number of unprofitable doors and geographies, and we have strengthened our position in North America, including in wholesale. So as we have said, we expect to achieve higher margins or bottom line to exceed top line over our planning horizon and feel very good about that.

And Mark, I will just add to Kate Spade. We still have tremendous confidence in the long-term potential of the Kate Spade brand. And you asked about the product changes. I think Liz and team are doing a fantastic job. And the creative team is really energized by this new way of working. They are focused on the Kate Spade consumer, they are driving innovation, increased collaboration across [indiscernible], product development and marketing and it really builds on the story telling heritage of the brand. So we are excited to see that continue to develop, both in Q4 and beyond and continue to have confidence in the long-term potential of Kate Spade.

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

I just wanted to hone in on the gross margin line item and just to ask you how the gains you’ve made during the pandemic have shaped and changed your long-term outlook for gross margins at both the Coach and Kate Spade brands? And maybe talk through some puts and takes around AUR, geographic mix, AUC, where do we think will shake out over the long term for both brands?

Let me start and pass it to Andrea on some of those details. But I would say that the work we have done under our acceleration program gives us more confidence in maintaining and sustaining our gross margin performance, getting closer to the consumer and leveraging data in new ways and driving healthy growth. Everything that we have done from staying close to consumer and acquiring new customers, to leveraging data on our SKU count, as I mentioned earlier, and managing our assortments and driving inventory turn as well as better leveraging data and new marketing tools to reach our customers in new ways is allowing us to drive healthy growth for all of our brands. And I would say that is a focus. But I will pass it to Andrea to go through some of the puts and takes.

Thanks, Joanne. I think when you are looking at our overall gross margin, and Joanne and Todd alluded to this, we see where we are at Coach as a sustainable gross margin given the ability for us to reduce promotions, we have controlled the SKU count, et cetera. So when we look at all of those factors taken together, we feel that Coach’s gross margin, which we used to say was going to be in the area of 69% to 70%, ad infinitum, can stay at these higher levels. I think you are absolutely right when you are looking at Lorraine at the upside to the gross margin will primarily now come from Kate Spade, where we are, as I mentioned, in the early innings. We do have the benefit of China growing for all of our brands and having that be this gross margin anywhere in the world, and that will continue. So I think the combination of both the focus on lower promo, higher AUR across brands as well as the change in the geographic mix will help overall Tapestry gross margin sustain and perhaps rise. But again, I think where we are with Coach is definitely best-in-class, and we do believe it is sustainable.

And ladies and gentlemen, we have time for one more question. Our last question will come from the line of Michael Binetti of Credit Suisse.

I guess, Joanne, I guess, to kind of dovetail off the questions on gross margin as you look ahead to next fiscal year. I mean, maybe, Andrea, is it safe to assume that given where inventories are for the whole industry and promotional levels being so low right now, there might be some level of give back on the gross margin in total next year? Is that consistent with how you would think about it as promotional levels normalize to some extent? I guess, and then, Joanne, on some of the new customer metrics you gave and related to Todd’s comments earlier about Texas. Maybe just a little thoughts on that new customer. I think you said last quarter, the big holiday quarter, there was 1.5 million new customers, a really big number and a little bit of time has gone by with that customer. I’m curious if you have any insights where that customer came from and any kind of early indications of repeat levels with that customer, what you are learning about that customer relative to old cohorts. I’m assuming your competitors that, that customer came to you from are trying to do similar things with reactivating lapsed customers, too? So any insights there on how sticky that is would be very helpful.

Yes. So just a quick comment on gross margins and the environment. We have developed new levers and a new way of working, staying closer to our consumer to help us maintain these margins. We are getting smarter about how we approach our assortments. I have mentioned a few things on the call already. But at the end of the day, there is more in our control than what is out of our control. And we see increasing confidence. We have increasing confidence in our ability to manage and control our own fate as it relates to managing our margins, managing our AURs and managing our business. So we, as Andrea mentioned, believe these margins are sustainable given the confidence we are building and our execution behind the levers of our acceleration program. And then as it relates to customer metrics, that is where our focus is. We are increasingly recruiting new customers. These customers are increasingly younger. And we have maintained a very robust database of customers over many years. So we know that these are customers are new to the brands. And again, the fact that they are increasingly younger really bodes well for the long-term health of our brand. And to your point, we are focused on driving lifetime value of these customers. We are seeing these customers repeat at higher frequency. And again, that is a result of the work we have been doing through our acceleration program, leveraging data, new marketing tools, staying close to our consumers, building relevant product and marketing stories. Some of the focus in our assortments also helps, telling better, stronger stories for our consumers. So we have increasing confidence in our ability to continue to drive, not only our business forward as is margins, but also continue to drive lifetime value for our customers over time.

Thank you. That concludes our Q&A. I will now turn the call over to Joanne Crevoiserat for any concluding remarks.

Well, thanks, everyone, for joining us today. Our standout results for the third quarter reinforced the deliberate actions we are taking under our acceleration program and the strength of our global teams. We are demonstrating meaningful progress and have a clear strategy and a differentiated platform, and we are emerging from the pandemic stronger and increasingly confident that the foundational changes underway are focused on the consumer use of data and analytics and optimized structure and ways of working can support stronger connections with our customers and sustainable growth for Tapestry and our brands. Again, I would like to thank our teams around the world for their contributions in delivering our strong third quarter results and all of you for your continued interest in our story. Thank you, and have a great day.

Thank you everyone. This does conclude today’s conference call. You may now disconnect.