TAPESTRY, INC. Q1 FY2025 earnings call

• First quarter results exceeded expectations with total revenue in line with prior year on constant currency basis.
• International revenue gains of 2% at constant currency, with 27% growth in Europe and 5% decline in Greater China. North America revenue declined 1% but profit rose due to margin expansion.
• Acquired ~1.4 million new customers in North America, over half Gen Z and Millennials, with improved lapsed customer reactivation.
• Digital business grew high single digits, representing over 25% of revenue at accretive margins. Global brick and mortar sales decreased at low single digit rate but maintained strong profitability.
• Coach delivered continued growth in handbags with AUR gains, launched successful product tests and new collections. Kate Spade focused on brand building and margin expansion. Stuart Weitzman drove revenue gains with product innovation and marketing.
• Pending acquisition of Capri: US District Court granted FTC's preliminary injunction, appeal filed, and integration planning paused.

Coach: Achieved 2% constant currency revenue gains with 330 basis points of gross margin expansion and 90 basis point lift in operating margin. Leather goods like Tabby family and New York Family performed well. Kate Spade: Revenue declined as expected but profit margins expanded. Focus on strengthening core handbag offering and lifestyle products like jewelry. Stuart Weitzman: Drove revenue gains in North America offsetting softness in Greater China. New styles and product innovation drove traction at wholesale.

• Raised full-year fiscal 2025 outlook: Expect revenue over $6.75 billion (1-2% growth on reported and constant currency), operating margin expansion over 50 basis points, EPS $4.50-$4.55 (mid single digit growth), free cash flow ~$1.1 billion, CapEx and cloud computing costs ~$190 million.
• Constant currency sales expected to be up slightly in first half, low single digit growth in back half. Q2 sales expected to grow 1-2% on reported and constant currency basis.
• Capital allocation focused on investing in brands, maintaining dividend at $1.40 per share, and potential share repurchases if deal with Capri doesn't close.

• FTC's preliminary injunction on the proposed acquisition of Capri, which is being appealed, and impact on the deal's financial aspects and integration planning.

Q: Expand on the Capri deal update and vision in deal break scenario A: Filed appeal on FTC's preliminary injunction, focused on organic business. In deal break scenario, focus on investing in organic business, maintaining dividend, resuming share repurchases as immediate priority, and disciplined strategic portfolio management with no near-term M&A until Coach is strong and Kate Spade has sustainable growth Q: China performance, second quarter outlook A: Greater China sales declined 5% at top end of guidance range, outpacing industry, with sequential improvement. Q2 sales expected to continue positive trends with continued investment in marketing and products Q: Coach market share gains, gross margin outlook A: Coach winning in handbag category, outpacing industry. Gross margin expected to be up for the year, primary driver of operating margin expansion, with first half driven by gross margin and second half by SG&A leverage Q: Kate Spade's growth challenges and timeline A: Kate Spade needs to accelerate brand building, execution, and marketing. Foundation exists with margin expansion and new product launches, but urgency to improve execution. Trend expected to be in line for balance of the year Q: Wholesale drag, channel growth in North America A: Wholesale drag in Q1 due to timing of orders, no fundamental change. Coach direct-to-consumer grew nicely with strong trends in North America, driven by product offerings like Empire and New York collections Q: AUR growth, regional variation, sourcing tariffs A: AUR grew mid single digits globally, led by North America, expected to continue. Less than 10% of sourcing from China, agile supply chain to manage disruptions and tariffs Q: Balance between newness and core collections, pricing impact A: Balance innovation in core collections and newness. AUR growth from product innovation, consumer insights, and marketing investments, with categories expected to maintain exceptional margins