Title

Presentation

Tapestry, Inc. beats earnings expectations. Reported EPS is $1.28, expectations were $1.25.

Operator: 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 the Global Head of Investor Relations, Christina Colone.

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.

Joanne Crevoiserat: Good morning. Thank you, Christina, and welcome, everyone. Our first quarter marked a powerful start to our next chapter of growth. We increased pro forma revenue by 16%, adjusted operating margin by 200 basis points and earnings per share by 35% versus last year, all surpassing expectations. We achieved these gains while making strategic investments in the long-term growth drivers of the business. This outperformance positioned us to increase our outlook for the year, reinforcing that our advantages are structural and sustainable. Now touching on the strategic highlights of the quarter. We meaningfully advanced our Amplify growth agenda as outlined at our Investor Day in September. We built emotional connections with consumers, acquiring over 2.2 million new customers globally in the quarter, driven by Gen Z.

By connecting with consumers early in their journey, we’re building lifetime value and reinforcing a competitive advantage, our ability to attract and retain new generations to our brands. Next, we delivered fashion innovation and product excellence led by Coach, where our brand is strong and growing. This is evident in the accelerated growth we achieved in our core leather goods offering. The combination of craftsmanship and value we offer to consumers continues to be a differentiator of our brands and business. We powered global growth through compelling experiences, driving double-digit gains in North America, China and Europe, far outpacing the industry. Our direct-to-consumer business model enables us to connect with consumers wherever they choose to engage with our brands while gathering real-time insights that underpin data-driven decisions.

This is key to how we scale with focus and impact, and it was on display in the first quarter as we achieved strong growth in stores and online. As always, our talented teams are the driving force behind our results, delivering with creativity and discipline and building the capabilities that set us apart today and into the future. Overall, we are delivering standout performance against an uncertain external backdrop with a business that is healthy and positioned for long-term growth. Now moving to our results and strategies by brand. Coach delivered an exceptional first quarter, highlighted by a 21% increase in revenue at expanding margins. We drove double-digit top line growth across our key markets. with North America increasing 26%, China up 21% and Europe growing 39%.

These broad-based gains and outperformance versus the industry demonstrate that our unique expressive luxury positioning is resonating around the world. This is evident in our strong customer acquisition results as we welcomed over 1.7 million new customers globally to Coach, a strong increase over prior year, led by Gen Z. Our new and younger customers are transacting at higher AUR and have a higher retention rate than the balance of our client base. They are also influencing all generations as we achieved growth in acquisition and retention among both Gen Z and non-Gen Z cohorts, a clear signal of our growing brand resonance and reach. Now to discuss our first quarter results in more detail. We drove strong double-digit gains in leather goods, where we have multiple platforms powering our growth.

Our icons continued to lead, consistent with our strategy. In particular, the Tabby, New York and Terry families outperformed, driven by accelerated Gen Z customer recruitment. Further, the large Kisslock bag remained a highly coveted and viral success, a clear demonstration of our brand desire and the creativity of our teams. Bag charms and straps also continued their strong momentum, providing consumers with further opportunities for personalization, customization and self-expression. Overall, Coach’s growth in handbags and accessories highlights the innovation and value we offer in the luxury market. With these advantages, we drove mid-teens handbag AUR growth for the quarter, led by North America. Further, handbag units also rose in the quarter globally and in North America despite lower promotional activity at the brand.

Looking forward, we expect continued gains in both AUR and units, showcasing the diversified drivers in place to support healthy and sustained growth. To this point, we have a strong pipeline of innovation. This was clearly reflected in the brand’s Spring ’26 runway show presented at New York Fashion Week in September, which received outstanding reviews and social buzz. Next, turning to footwear. We delivered double-digit growth in the quarter, fueled by sneakers and the continued success of the High Line and Soho families across channels. Footwear is a long-term growth opportunity for Coach, given our brand strength and the category’s relevance with our target consumer. Touching on marketing. We continue to drive cultural relevance through emotional storytelling that showcases our brand purpose and product offering.

During the quarter, we launched our fall campaign, Revive Your Courage, inspired by insights gained from our engagement with Gen Z around the world. The campaign featured global ambassador Elle Fanning and 2 new ambassadors, Korean rapper songwriter and producer, Soyeon and Japanese songwriter, Lilas, 2 artists breaking boundaries and reshaping culture in their own ways. In addition, our Not Just for Walking footwear campaign highlighted our Soho sneaker and featured Audrey Nuna, the singing Voice of Mira in the Netflix hit film, K-Pop Demon Hunters. This campaign continued to support strong demand for our product offerings and cultural relevance for our brand. Our marketing execution exemplifies the brand’s hallmark magic and logic in action.

By using data-driven insights to scale creativity, we are enhancing the efficacy of our campaigns, expanding our reach and enabling our growth. And finally, we are fueling brand desire through distinctive, immersive retail experiences that resonate with today’s consumer. This quarter, we launched 2 new Coach coffee shops in North America at Jersey Gardens and Woodbury Commons, tapping into the importance of experiential retail, especially among younger audiences. These activations go beyond marketing. They’re driving longer dwell times, commercial momentum and deepening emotional connections with the brand. Looking ahead to holiday, we’re leaning into proven drivers of the business. To this end, we will bring new animations to Tabby, expand the New York family, launch newness within our Coach Originals collection and deliver a compelling assortment of seasonal novelty brought to life through marketing campaigns that connect brand, purpose and product.

In closing, Coach continues to deliver standout results guided by a bold brand vision to be the world’s most inclusive, genuine and loved fashion brand. With the consumer at the heart of everything we do, our talented teams are operating with focus and purpose, turning insights into action and impact. By blending creativity with disciplined brand building, we’ve reimagined this iconic brand for the next generation of consumers, driving sustainable compounding growth. Now moving to Kate Spade. Our actions to reset the brand for durable and profitable growth are underway. In the first quarter, revenue trends improved sequentially to down 9%. At the same time, we continue to back our turnaround efforts with disciplined investments, taking the strategic steps necessary to strengthen the brand’s foundation for long-term growth.

Importantly, in the first quarter, where we placed our strategic focus and investments, we drove progress as tracked against the leading KPIs we’ve previously outlined. We saw a lift in consideration with our fall campaign and delivered an improvement in Gen Z acquisition trends driven by handbags. While still early in the turnaround, the improvement in these KPIs are signs that we are executing our strategies and they are beginning to take hold. To touch on our strategies and the results of the quarter in more detail, our first strategic priority is to fuel brand heat through our uplifting luxury positioning to become top of mind and relevant with our target consumer, the Gen Z connector. In the quarter, we launched our fall campaign, Spark Something Beautiful, featuring influential Gen Z celebrities, Ice Spice, Charlie D’Amelio, Levy and Reign Judge.

The campaign had strong organic engagement as the most watched video on social channels for Kate Spade and drove higher brand consideration and purchase intent. This campaign will continue into holiday, building with festive editions as we remain focused on driving cut-through by increasing brand media through a spike and sustained strategy. Next, we advanced our strategy to build handbag blockbusters with a consumer-informed assortment that is more relevant and focused. During the quarter, we made important progress. Our handbag blockbusters outperformed the balance of the offering with higher AUR and strong Gen Z acquisition. This is another example of how our strategic focus is translating into early green shoots in the business. In Q1, we launched Duo, the hero of our fall campaign, which became the top-performing style in retail, winning with consumers on versatility and value.

We also successfully introduced the 454 family in outlet, an on-trend silhouette reimagined from our archives. At the same time, we continued to animate Deco and Kayla, pillars of the assortment that are supporting new Gen Z acquisition. And as we continue to bring more innovation to the offering, we are streamlining, reducing handbag styles by 40% by holiday, allowing us to stand behind our big ideas with clarity and intention. Importantly, we are embedding deeper consumer insights and a rigorous test before we invest approach to all aspects of our work, ensuring that methodical consumer testing drives greater relevancy and impact across the entire assortment. Finally, touching on our third strategic pillar to maximize compelling omnichannel consumer experiences.

A critical part of this work involves removing deselection barriers with cohesive messaging that builds the brand through desire. And we’re moving in the right direction, evidenced by the higher full price selling we delivered in the quarter, a building block to scale in a healthy way. We know that staying disciplined on discounting will impact our top line results, especially in promotional and highly competitive time periods like holiday, and we are committed to this strategy as we position ourselves for sustainable growth over the long term. Overall, we are strengthening the brand’s foundation for long-term profitable growth. While turnarounds take time, Kate Spade is a unique brand with significant runway. To unlock this potential, we have a focused strategy, targeted investments and clear KPIs to track our progress.

We remain confident in our path forward and the brand’s opportunity to deliver sequential improvement in the back half of the fiscal year and return to profitable growth in fiscal year ’27. In closing, Tapestry achieved a record quarter, and we raised our outlook for the year, exemplifying the strength of our model. Our Amplify growth agenda is working, and our structural advantages are enduring. We operate in a large market where our runway is significant, and we have the strategy, capabilities and team in place to drive durable growth and value creation for years to come. Our vision to give more people the power to bring their own style and story into the world is fueled by our systemic approach to brand building. This is what guides us and drives our success.

I’ll now turn it over to Scott.

Scott Roe: Thanks, Joanne, and good morning, everyone. Our first quarter performance reflects the compounding momentum behind our strategic growth initiatives and the discipline of our execution. In Q1, we outperformed expectations across revenue, operating income and earnings, delivering record sales and EPS. In the quarter, we achieved pro forma revenue growth of 16%, led by 21% growth at Coach. We drove adjusted operating margin expansion of 200 basis points, and we delivered adjusted earnings per share of $1.38, an increase of 35% versus last year. Turning to the details of the first quarter. I’ll begin with a discussion of revenue trends on a pro forma constant currency basis. Sales increased 16% versus the prior year and outperformed our expectations.

These results reflect strong global momentum. By region, North America sales accelerated, increasing 18% compared to the prior year, led by 26% growth at Coach. Importantly, both gross and operating margin in the region also rose versus last year. In Europe, revenue grew 32% above last year with increases across all channels, led by growth in our direct business. Strong new customer acquisition, particularly among Gen Z and increased local consumer spending continued to fuel our momentum. Given our market positioning and low penetration, we see significant opportunities for further growth in this large and attractive market. In Greater China, revenue outperformed our expectations, increasing 19% with notable strength in digital. Our strong performance in China underscores that our strategic initiatives and investments are working, and our business remains well positioned for long-term sustainable growth.

In other Asia, revenue increased 3%, led by growth in Australia, New Zealand and South Korea. And in Japan, sales declined 10% as expected amid a challenging consumer backdrop. Now touching on revenue by channel for the quarter. We delivered gains across all channels, fueled by direct-to-consumer growth of 16% compared to the prior year, which included a mid-teens percentage increase in both digital and global brick-and-mortar sales at strong and increasing profitability. Moving down the P&L. We continue to drive healthy margin expansion versus the prior year, delivering a first quarter gross margin of 76.5%, 120 basis points above prior year. This expansion was driven by operational improvements of approximately 170 basis points as well as a benefit from the divestiture of Stuart Weitzman of 70 basis points.

These tailwinds were partially offset by a negative tariff and duty impact of 70 basis points and a currency headwind of 60 basis points. Our strong gross margin remains a core element of our value creation model, supported by our agile supply chain, which delivers craftsmanship at scale, a core competitive advantage of Tapestry. Turning to SG&A. Expenses rose 11%, driven primarily by an increase in marketing investment, which represented 11% of sales. Even with this investment, we drove 80 basis points of expense leverage, reflecting our disciplined cost control while growing our top line. So taken together, operating margin expanded 200 basis points in the quarter, driving profit expansion of 24% over the prior year, which was ahead of expectations.

And our first quarter EPS of $1.38 grew 35% over the prior year and exceeded our guidance. Now turning to shareholder returns. Starting with our dividend, our Board of Directors declared a quarterly cash dividend of $0.40 per common share, representing $83 million in dividend payments for the quarter. Additionally, during the first quarter, we spent $500 million to repurchase over 4.7 million shares. In fiscal ’26, we now expect to return $1.3 billion or 100% of expected adjusted free cash flow to shareholders through dividends and share repurchases. This includes approximately $300 million in dividend payments for an annual rate of $1.60 per share as well as $1 billion in share repurchases, which is an increase from our original outlook of $800 million.

Our significant return of capital to shareholders is a testament to our strong organic business and robust cash flow generation and underscores our confidence in the future. And now before turning to the details of our balance sheet and cash flows, I’d like to reiterate our capital allocation priorities, which are unchanged. We have 2 foundational commitments. first, to invest in our brands and business to support long-term sustainable growth and to return capital to shareholders via our dividend with the goal over time to increase the dividend at least in line with earnings growth. Beyond these 2 foundational commitments, our robust cash flow generation provides us with balance sheet flexibility for value creation. This includes the opportunity for share repurchase activity, which includes our previously announced $3 billion share repurchase authorization.

And finally, using our rigorous lens framework, we consistently evaluate opportunities for strategic portfolio management. Importantly, and as previously communicated, before moving forward with any acquisitions, we will ensure Coach remains strong and Kate Spade has returned to sustainable top line growth. These clear capital allocation priorities are underpinned by our firm commitment to a solid investment-grade rating and maintaining our long-term gross leverage target of below 2.5x. Now turning to the details of our balance sheet and cash flows. We ended the quarter with $743 million in cash and investments and total borrowings of $2.64 billion, including $240 million outstanding borrowings under our newly established Commercial Paper program.

Together, this represented net debt of $1.9 billion. At quarter end, our gross debt to adjusted EBITDA leverage ratio was 1.5x, a full turn below our target. Adjusted free cash flow for the quarter was an inflow of $103 million, and CapEx and cloud computing costs were $38 million. Inventory levels at quarter end were 1% below prior year on a reported basis and up high single digits, excluding the impact of Stuart Weitzman. As we enter the holiday season, our inventory continues to be current and well positioned globally and by brand. For fiscal ’26, we continue to expect inventory levels to be modestly down year-over-year on a reported basis. Now moving to our guidance for fiscal ’26, which is provided on a non-GAAP basis and excludes the impact of Stuart Weitzman from our fiscal ‘ 26 expectations.

We are raising our fiscal 2026 outlook, which incorporates our first quarter outperformance and our momentum quarter-to-date. We view this guidance as prudent and achievable, balancing the realities of an uncertain external environment with the significant opportunities we see for our business. Now turning to the details. For the fiscal year, we expect revenue to be in the area of $7.3 billion, representing pro forma growth of 7% to 8% on a nominal basis or 6% to 7% in constant currency with FX planned to be a 70 basis point tailwind. Touching on sales details by region at constant currency on a pro forma basis. In North America, we now expect revenue to increase mid- to high single digits. In Europe, we expect growth in the area of 20%. In Greater China, we now expect to achieve low double-digit growth over the prior year.

In Japan, we’re forecasting a high single-digit decline. And in other Asia, we anticipate high single-digit gains. And by brand, this guidance now incorporates low double-digit growth at Coach. At Kate Spade, we continue to embed a high single-digit decline in revenue for the year with sequential improvement planned in the second half. In addition, our outlook assumes operating margin expansion of approximately 50 basis points. We anticipate gross margin to decline in the area of 50 basis points, an improvement from our prior outlook. This assumes operational gross margin expansion of 140 basis points due primarily to improvements in AUR, slightly offset by an FX headwind of 20 basis points. Further, we expect to realize a 60 basis point structural tailwind to gross margin from the disposition of Stuart Weitzman.

Offsetting these planned margin drivers is a 230 basis point headwind from incremental tariffs and duties, which incorporates the timing of policy implementation, product sell-through and mitigating actions underway. For context, this is a headwind of $170 million in the fiscal year, which assumes we mitigate 30% of the annualized run rate of $250 million. I remain confident in our ability to offset these headwinds fully over time given the strength of our business and supply chain. On SG&A, we expect at least 100 basis points of leverage. This reflects our diligent expense control, partially offset by ongoing growth-focused investments in our strategic priorities. To this end, we expect marketing as a percentage of sales to increase around 90 basis points versus last year, reaching over 11% of revenue.

We will also realize a 20 basis point benefit to expenses from the sale of Stuart Weitzman. All in, this means operational SG&A leverage is expected to be at least 170 basis points. For some texture on operating profit by brand, we anticipate Coach will maintain its operating margin even with tariff pressure and continued brand investments. At Kate Spade, we continue to expect a modest profit loss given the outsized tariff impacts and brand investments, as mentioned. Moving to below-the-line expectations for the year. Net interest expense is expected to be approximately $65 million. The tax rate is expected to be approximately 18%, and our weighted average diluted share count for the year is forecasted to be approximately 212 million shares, which includes the expectation for $1 billion in share repurchases.

Taken together, we now expect EPS to be $5.45 to $5.60, representing 7% to 10% growth compared to last year. Moving on, we anticipate adjusted free cash flow of $1.3 billion. And finally, we expect CapEx and cloud computing costs to be in the area of $200 million. We anticipate about 60% of the spend to be related to store openings, renovations and relocations with the balance primarily relating to our ongoing IT and digital investments. Touching on the shaping for the year. To start, given the dynamic nature of the rapidly shifting market, it’s important to note we could experience volatility by quarter, notably within profit as the tariff and duty impacts work their way through the P&L. Now to our current assumptions, we expect pro forma constant currency revenue growth throughout the year, led by the first half.

For Q2 specifically, we’re anticipating a pro forma total sales growth in the area of 7%, which includes an FX tailwind of nearly 50 basis points. This incorporates the expectation for low double-digit revenue growth at Coach or mid-20% growth on a 2-year stack basis, consistent with Q1 and a mid-teens revenue decline at Kate Spade. Turning to margin. We anticipate reported gross margin in Q2 to decline by approximately 50 basis points due entirely to tariff and duty headwinds. while SG&A is expected to leverage by over 100 basis points in the quarter. Together, we expect operating margin to increase roughly 80 basis points in the quarter. In the second half, operating margins are planned in line with prior year despite tariff and duty pressure.

And finally, taking a prudent approach to our guidance, we expect Q2 EPS to grow high single digits to approximately $2.15. This includes a projected tax rate in the area of 20% for the quarter. In closing, we delivered another record-breaking quarter, highlighted by strong top and bottom line growth. This outperformance positioned us to raise our outlook for the year, clear evidence of the power of our Amplify growth agenda and our disciplined and consistent execution. Moving forward, our foundation is strong, and we have competitive and structural advantages to fuel durable growth and sustainable value creation in the year ahead and for years to come. I’d now like to open it up for your questions.

Operator: [Operator Instructions] Our first question comes from Ike Boruchow of Wells Fargo.

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Irwin Boruchow: I guess high level, I’d like to start, maybe Joanne. Just can you elaborate more on the drivers of the accelerated growth that you’re seeing and really more about the sustainability of the momentum? I know compares are going to start getting more difficult for you come holiday. And really at Coach specifically, what gives you the confidence that you can sustain double-digit revenue growth as you start to cycle those comparisons?

Joanne Crevoiserat: This was a powerful start to our Amplify growth agenda. Our results are clearly differentiated in the market, and I’ll start by sending a thank you to our teams who continue to focus on what matters, and that is delighting consumers all around the world. But to comment on the durability of our results overall, the beat and raise that we delivered this quarter reinforces that our advantages are structural and they’re sustainable over the long term. At our Investor Day, we highlighted that we play in an attractive TAM with massive headroom, and we’re focused on that new customer acquisition at point of market entry. And as we showed in the first quarter, we’re winning with this next generation of consumers, and that’s expanding the market.

We’re taking share, but it’s also giving us the opportunity to drive higher lifetime value. And this is compounding. We’re seeing increases in both acquisition and retention. And I think that’s an important point to note, and we’re managing the business for the long term. We’re continuing to invest behind these capabilities at scale, which is expanding our competitive moat and it’s ensuring that our performance continues well into the future. But let me turn it to Todd to talk about the durability of the Coach momentum more specifically. Todd?

Todd Kahn: Thanks, Joanne. Good morning. Let me give you 5 proof points to support my conviction for long-term sustainable growth. They are the key 5 Ps of our business. These Ps are foundational to how we win in our space. First, it starts with product. The innovation pipeline of our products that our designers and merchants are developing is remarkable. You saw it on display at our most recent fashion show in September, and I have the benefit of seeing our development a year in advance, and it will continue to build on our icon strategy and the product is fantastic. Second is our people. We are nearly 90% direct-to-consumer, and our people know how to engage our customers on a global scale. A few weeks ago, I participated in our Asian Store Manager Conference.

The enthusiasm and shared understanding of our mission and our brand positioning empowers and uplifts our people. Third is place. Because of our focus on Gen Z, we know that they love to shop in the real world, and our almost 1,000 directly operated stores are the environments to best express the world of Coach. Additionally, we are no longer restricted to only traditional malls and outlets and have the right to win in new locations where Gen Z shop. Fourth, promotion or marketing. Our purpose-led storytelling resonates with our consumers. In Q1, we spent almost 11% on marketing, a 43% increase in actual dollars from the prior year. Since our marketing activities are primarily focused on customer acquisition, that does not immediately take place in the quarter.

This investment future-proofs new customer acquisition. And finally, price. Our brand position of expressive luxury and the sweet spot of the $200 to $500 range ensures that we have room to grow AURs while maintaining our compelling value proposition. So overall, I feel great about our growth potential. We’re just hitting our stride and not only will we comp the comp, but the path to $10 billion is well within our sights.

Operator: Our next question is from Matthew Boss of JPMorgan.

Matthew Boss: Congrats on a great quarter. So Scott, at the Coach brand, 21% revenue growth represented 800 basis points of acceleration on the 2-year stack. I think every single geography accelerated sequentially. So first, can you break down the drivers of the material 2-year inflection this quarter? And then second, is there anything beyond just prudent macro planning that you’ve embedded in the back half guide, which embeds moderation on that 2-year stack?

Scott Roe: Yes. Matt, thanks for the question. So first of all, I’d just remind you what Joanne and Todd just said about the structural advantages, the fact that this is a methodical approach to brand building and you see it on display. But maybe I’ll give you some numbers behind some of that growth inflection that we saw in Q1. So you’re right, we grew 21% in Coach in Q1 and 26% in North America. And we also talked about AUR being up mid-teens. So what that means is we had a significant inflection in units. And this has been a multi-quarter pattern that we’ve seen with for a while, we were talking about growth without the units and driven by AUR. We’ve now seen a meaningful acceleration in units. And I think tying that back to more than 2 million new customers acquired who we know are transacting at higher AURs and driving more transactions in the Coach franchise, that’s driving both AUR and unit growth.

And then geographic expansion, right? We grew significantly, as you mentioned, in every one of our major geographies, really led by North America and China, but for the Coach brand, almost 40% in Europe, which is a huge opportunity. So putting those things together, continued AUR growth opportunities, new customer acquisition and an inflection in units, significant geographic growth. That’s one of the things that allowed us to take our — to have a beat and raise, take our guidance up. And remember, we’re talking about now double-digit growth on top of double-digit growth 1 year ago, right, based on the guidance we have. And you asked about the balance of the year. So we’re 1 year in, we’re 25% through the year. And our biggest quarter of the year is coming up with holidays.

So I’ll just take you back and remind you how we guided to the year. We looked at what we could see in the current quarter in Q1, and we also looked at the 2-year stack. So our balance of the year is the same approach that we entered this year, which is we’re fairly consistent on a 2-year stack. The reality is in Q1, we saw a significant inflection. And quarter-to-date, we see that trend continue even though it’s early in the quarter, we still — we’re not through the peak months in holiday, but we see nothing in our business that gives us any concern. We just feel like 25% of the year, it’s prudent to maintain that. Let’s get through holiday. We’ll come back. We’ll reevaluate and we’ll give you guys an update on the picture for the balance of the year.

Todd Kahn: I know you asked the question for Scott. I will tell you, our brand is one of — we say what we do and we do what we say. We said that in our Investor Day. And we tend to have a conservative outlook. But I want to reinforce that as the person running the brand, as Scott said, we feel very good about our positioning, where we’re at, what we’re seeing in the quarter. We’re the first quarter in, we’re a team way ahead, but we got a lot of game to still play. So that’s how we prepare you, but I feel very good about where we’re at.

Operator: Our next question is from Alex Straton of Morgan Stanley.

Alexandra Straton: Perfect. I just wanted to focus quickly just on the gross margin pieces in the year. So it looks like you’re assuming gross margin falls a bit after expansion in the first quarter. Can you just walk through kind of the puts and takes and the factors there and the shape if there’s a difference from 2Q to 4Q? And then maybe just one for Joanne, just on industry trends. I think some experts are calling for a luxury resurgence. So just curious how you think about any implications for your business there or maybe what you’re focused on from just an industry dynamics perspective?

Scott Roe: Yes, Alex, I’ll start on your specific gross margin question. So first of all, this is very consistent the way we’ve guided our gross margin, our understanding of the cost of tariffs are — we’ve got our arms around that. It’s essentially unchanged. I’ll remind you, we’re making progress, and we just took our gross margin guidance up by 20 basis points for the year, very strong performance in the first quarter. So we continue to make progress against the impact of tariffs and have great confidence in our ability to grow our gross margins as we go into ’27. And I’ll remind you, even this year, with those tariff pressures, we’re growing our operating margins. So if you look at the second half, about 2/3 of the pressure versus last year is tariff related. Again, that’s not new news. That’s unchanged. And there’s a little bit of noise on tax based on some timing issues in the second half.

Joanne Crevoiserat: And I’ll pick up the second part of your question, Alex. Our business is strong and growing. And we’ve been growing through what I would call a dynamic landscape. So to your point, what we’re seeing in the in the background or in the market more generally is that the category, the handbag category inflected to growth in the last quarter. And so there is a more constructive backdrop developing, particularly in places like China, where we saw it also inflect to growth with 1% growth in the market, we estimate. And we welcome a more constructive environment, but that doesn’t define our actions. We laid out a very compelling plan going forward and how we’re building our business with this strong — building on the emotional connection consumers have in the category, but building those emotional connections to our brands.

And that’s what’s driving and powering our growth. You saw us grow through really difficult when the market was down. We were putting up substantial growth, and we’re continuing to outperform the market very consistently. So we’re seeing a customer who is resilient — they are being choiceful and cautious as we’ve talked about before, but they’re active around the world. And where we’re delivering innovation and emotion, we are winning. And again, that’s success attracting more young consumers to the brand. They’re coming in, in a healthy way. And we’re actually seeing them come back with more frequency. Our retention rates are higher among Gen Z, but they’re also higher and growing in non-Gen Z cohorts. And Coach is really firing on all cylinders.

Maybe I’ll toss it to Todd to give you some color on how he’s thinking about the market and our growth going forward.

Todd Kahn: Thanks, Joanne. I’d like to say we play our own game. We’re happy to see the category grow. That’s why we love this category. It’s the durability of it is fantastic. 1% globally, but we grew 21%. North America, we grew 26%. We think the category grew 4%. And it’s exactly what Joanne said. It’s about bringing new customers into the category. And we’re achieving this incredible top line growth at some of our best margins in history. I had to go back 20 years, and I still couldn’t find a better first quarter overall than what we delivered. So the good news is we’re playing our own game. We love our brand positioning. We’re bringing in new customers into the brand. That’s how we’re going to keep winning.

Operator: Our next question is from Adrienne Yih of Barclays.

Adrienne Yih-Tennant: Let me add my hearty congratulations to the entire team throughout. Joanne and Todd, kind of more of a kind of thematic question on the European market. Europe has historically been kind of extremely discerning, hard to penetrate. You really seem like you’re at kind of a tipping point in the positive direction. Todd, what is going on in terms of kind of the brand positioning, the younger audience? And how much of the marketing are you spending in Europe? What’s the kind of potential kind of penetration there? And then, Scott, can you just kind of talk about Kate’s merchandise margin progress, excluding the tariff impact? We seem to have seen some stabilization in promotional activity, at least at the markdown side of things. I’m wondering if that’s an accurate reflection of the merch margin there.

Todd Kahn: Great. Thanks for the question. You’re right. We’ve seen to materially inflect in Europe, and I love seeing that 39% growth in the quarter. And what’s really working is what’s working globally. Our value proposition and our purpose campaigns are cutting through. And again, what I said earlier, we’re playing our own game. We’re not just chasing a traditional European model. We are building this through customer acquisition, youth, incredible value. We’re opening stores, not just on high streets where we look for adjacencies. We’re building it digitally. We’re building it where the customer is. So we feel very good. We have a lot of potential in Europe. And again, we’re doing it at fantastic margins. So I feel — I don’t want to give you how big is big yet, but we feel very good about where we’re going and the opportunities. And what I often say is a great bag is a great bag, and it’s a great bag in London, Shanghai or New York.

Scott Roe: Adrienne, I’ll address your question on Kate Spade. I’m glad that you asked it that way because, yes, we’re taking care to reduce discounting in the Kate Spade brand. We know that has an impact on the top line, but we also know that’s the formula for long-term sustainable growth. So we are making progress. We’re early days. And when you look at the margin pressure, it’s really 2 things, right? It’s the tariffs, which were even more disproportionately an impact at Kate, and it’s, frankly, the investments we’re making in customer engagement and all of these factors together are focused on long-term growth at Kate.

Operator: Our next question is from Michael Binetti of Evercore.

Michael Binetti: I want to ask you on the AUR versus units. You touched on this a little bit. Thanks for the detail. It was notable that this was the first quarter where the units really seem to have inflected relative to the total growth at Coach, 21% for Coach, mid-teens AUR. As you build to the rest of the year, should — and the comments that you gave us for the rest of the year, Scott, should we think about continuing that wider spread of Coach total growth AUR, so a similar big unit spread like that? Is that — and is that truly incremental upside to the revenue that you were planning earlier in the year? And then I’d love to just ask on Kate Spade. What’s driving the sequential improvement in North America? I thought it was notable that you just said you are accelerating revenues there while reducing promos a little bit. How long does that promotional holdback continue? Is there a scenario where Kate North America could return to positive quarter this year?

Scott Roe: Yes. I would say, tactically on the first question, we’ve said as part of our guidance that we expect a balance between AUR and units. I would say that the magnitude of the inflection in Q1 is significant and is a good indicator of the potential for improved outlook on the second half. So it’s a very encouraging sign that points in the right direction. We haven’t fully baked in that level of inflection for our guide, but should that continue, then that would be a good thing for us.

Joanne Crevoiserat: And on Kate, Michael, the actions to reset the brand are underway. Our focus is on resetting our foundation for durable and profitable growth going forward. As you noted, reducing our discounting footprint is an important part of that. And where we focused our strategy and investments this quarter, we did drive progress. We saw a lift in consideration from our fall campaign. We saw improvement in Gen Z acquisition trends driven by handbags. And our handbag blockbusters are outperforming at higher AUR. And importantly, we are seeing an improvement in full price sell-through as well, and that’s helping with the improvement. But we know turnarounds take time. And so we are confident in our path forward. We expect to deliver sequential improvement in the back half of this fiscal year, while holiday will be impacted by our reduction of discounting. And then a return. We expect to return to profitable growth in fiscal year ’27.

Operator: Our next question is from Bob Drbul of BTIG.

Robert Drbul: Just a couple of questions on the product side. Just the footwear business in Coach and then the Charms business, are those consistent globally as well? Just curious on the penetration with both of those categories.

Todd Kahn: Bob, thank you. Yes, is the short answer. We — our more mature markets, China and North America, we have more space for footwear. And — but we’re seeing particularly our focus on sneakers is winning globally, and it’s winning across both genders. So we feel very good about that. And the long-term value of that customer acquisition, we know if they come to the brand through footwear, we tend to get them as a multiple purchase across multiple categories. So we love that. We love the bag charms. You’ll see us have a fulsome presentation for the holidays, everything from the beloved cherry to our plushie bag charms, whether it’s a mini Rexy, a carrot or other things that I don’t fully understand, but the young consumer does, which is much more important.

So we feel very good about those add-ons, and they’re meaningful. And what we love about it is while it may not always be a UPT driver at the point of sale when they buy the bag, they’re often coming back a week or 2 later to buy the charm to buy something else. So that gives us another bite at the apple. And what I love is our salespeople know how to convert if we get them back a second time.

Operator: Our next question is from Aneesha Sherman of Bernstein.

Aneesha Sherman: I want to dig into the topic of AURs a little bit more and more focused on the short term. So you did — you’ve talked about the long-term opportunity to keep raising AURs at your Investor Day, and that makes sense. But more short term, you did a mid-teens AUR raise led by North America specifically, and now North America is coming up against those tougher compares with mid-teens for Q2 to Q4. I know you don’t specifically target AUR, but how are you thinking about the risk of that AUR growth in North America starting to moderate into these tougher compares and more difficult consumer sentiment environment? And then perhaps the second part of this, perhaps for Scott. AUR is the single biggest driver of your gross margin guidance. So if you were to see that AUR growth come in a little bit lower than expected, are there other levers on margin that you can lean on to maintain your margin guidance? Or could it be a risk to gross margins as well?

Joanne Crevoiserat: Maybe I’ll kick it off, Aneesha, and start with just the big picture here. Our AUR growth is driven from our understanding of the consumer, the balance of magic and logic. There are a lot of factors that go into our ability to drive this AUR growth. The creativity that our teams are bringing, it’s not just knowing the consumer, but it’s what you do with that information and bringing the creativity together, understanding the consumer and delivering incredible innovation into the marketplace is driving our AUR growth. Also, what’s driving it is our ability to step away from discounting and the way we use data to make better, higher-quality decisions contributes to our better management of inventory, which contributes to a cleaner presentation for the consumer, and they start to build on each other.

So that is the more functional, I guess, description of our AUR growth and the disciplines that underpin our AUR. Maybe I’ll send it over to Todd to talk about the more emotional, the magic side of the business and how we’re thinking about driving AUR growth, both from the innovation we’re delivering, but also how we’re managing the brand across channels. Todd?

Todd Kahn: Thanks, Joanne. And Joanne, really focused on the big drivers. The only — and it is an emotional business, and we have that opportunity to continue to engage emotionally with our customer. One of the structural changes here, which we talked about at our Investor Day that is going to be a driver for AUR even when we comp the comp in a meaningful way is our One Coach strategy. Remember what we introduced, we talked about bringing collection product into some of our largest stores globally. So if we can get them, and we’re seeing it win, we’re seeing the consumer trade up because the consumer comes in, whether it’s a Woodbury Common, at Sawgrass, Bicester Village, they want to come. And when they’re in those magnificent outlet stores that have the service levels of any Coach store globally, they want to buy the Tabby bag.

They want to buy Brooklyn and they’re buying them. So that has a wonderful effect of lifting our overall AUR globally. Additionally, as something Joanne highlighted, we are far less promotional than ever before. And that raises the floor. So we don’t have to give up the sweet spot of that $200 to $500 to still have massive AUR growth in the quarters and years to come. What we have to do is just do what we’re delivering now. On Coach, lower discounting, continue to innovate.

Scott Roe: Yes. And I think, Aneesha, you had a question for me about margin, sustainability of AUR, et cetera. So first of all, just an observation, this is a team that really is focused on gross margin in case you haven’t noticed. This is the vernacular of our organization. We talk about it a lot and growth is #1, but gross margin is right behind it. And I think you see that in the results. And we’re looking at it very carefully. And a question we frequently get asked is kind of the opposite side of this is given the size of the AUR, should we even take more? I’d say we’re getting it pretty right. When you look at the inflection of units and a 15% or mid-teens AUR growth, we’re looking very carefully and listening to our consumers, they ultimately decide what they’re going to pay.

And I think we’re getting it fairly right, right? When you look at the inflection of the business, we’re finding ways to grow AUR, but we’re also growing units. This is our moment, right? We’re grabbing significant share, and we’re looking at this very carefully. So do we have other levers? Yes, we do. We didn’t even talk about AUC. We’ve got the best supply chain in the business. We’re always fighting for cost opportunities very closely with the merchants and the brand teams, and we are finding those opportunities, right? we’re driving efficiency throughout the business. So we have a lot of levers to protect our gross margin over time. But the most important thing is making sure that what Todd mentioned, that value equation that the consumer sees and is relating to is in balance and that we’re delivering innovation and superior product, which they’re willing to pay for it.

That’s number one, and that’s the thing that we’re maniacally focused on right now.

Operator: Our next question is from Brooke Roach of Goldman Sachs.

Brooke Roach: Joanne, Scott, Todd, I was hoping you could speak to customer acquisition and retention that you’re seeing across various income cohorts. Are you seeing the same strength with a value-sensitive customer across the portfolio, particularly in outlets beyond the success that you’re seeing in the collection strategy?

Joanne Crevoiserat: Yes. Great question, Brooke. I know on everybody’s mind. And what’s been powerful about our model is we are seeing strong customer acquisition, strong retention across not only Gen Z, but all age groups, and we’re not seeing any meaningful difference between income cohorts and the performance of our business and our brands. So the platform that we have, we reach a broad cross-section of consumers with our brands, and we’re winning with all consumers right now.

Operator: Our next question is from Mark Altschwager of Baird.

Mark Altschwager: I wanted to follow up on the One Coach topic. Just any more color that you can share on the performance of the collection product in outlet? Where is that mix? Where do you think it can go? And just relatedly, on the real estate pipeline, just given the One Coach initiatives here, maybe speak to where you see the opportunity regionally and how you’re thinking about different store formats.

Todd Kahn: Great. We’re really pleased. I mean we’re only about a year in to introducing for the first time last summer — a year ago summer, we introduced Tabby in some outlets. Today, it’s more than just Tabby. It’s really talking about the full lifestyle of Coach. So you see us then followed up with One Coach strategy in sneakers. You’re going to see us do similar things with some of the tertiary categories. Jewelry this spring will become more and more One Coach price points. So you’re going to see us penetrate quite substantially. I don’t want to put a number out there yet. Let’s deliver it, but we feel very good that this is going to be a meaningful contributor to growth. On real estate, what we said to you in September at our Investor Day is we see a lot of growth coming from international.

70% of our future growth is going to come from international. We have inorganic growth, particularly in China. We’re going to launch probably close to 100 stores in the next 3 years. Remember, Scott, forewarn, if you model it, these are going to be some smaller format stores. But what I love about our strategy, which is very different from our historic norms is this idea, we have the right to win in places and neighborhoods and locations we had never played before. And that’s a global phenomenon. So you’re going to see us introduce stores and new store formats and food and beverage, particularly Coach coffee shops and outlets. Those are all going to be incremental to our growth, and we’re going to do a lot of experimenting. But one thing you can bank on from this team, we fundamentally — and I think Joanne and I both said this 4 or 5 years ago, we believe that stores are profit centers, not marketing activities.

So our stores are going to open. They’re going to be profitable. They’re going to be engaging and they’re going to attract a new consumer.

Operator: Thank you that concludes our Q&A. I will now turn it over to Joanne Crevoiserat for some concluding remarks.

Joanne Crevoiserat: Thank you, Leo. As we shared this morning, this quarter’s outperformance reinforces that our Amplify strategies are not only working, they’re winning. And I want to again thank our talented global teams for their creativity, discipline and relentless drive. These standout results are yours. Looking forward, with strong fundamentals and momentum, we are focused and committed to delivering sustainable growth and lasting shareholder value. Thank you for your continued interest in Tapestry and for joining us today.

Operator: This concludes Tapestry’s earnings conference call. We thank you for your participation.

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