TAPESTRY, INC. Q2 FY2025 earnings call

• Global Growth: Total revenue up 5% outpacing guidance; international revenue up 7% at constant currency, North America up 4%.
• Customer Acquisition: Coach welcomed ~2.7 million new customers in North America, over half Gen Z and millennials; Gen Z retention rate high.
• Omnichannel: Digital grew high single digits, brick and mortar sales had low single-digit growth with strong profitability.
• Coach's Success: 10% constant currency revenue growth, gross margin expanded 270 basis points, operating margin up 210 basis points; new product families like Tabby, New York, and Coach Originals driving growth.
• Kate Spade's Reset: Streamlining product assortment, reducing promotional activity, investing in marketing to drive customer acquisition, rebuilding brand relevance.
• Stuart Weitzman's Focus: Fueling brand relevancy, driving customer engagement, despite net sales decline.

Coach: Record quarterly revenue with 10% constant currency revenue growth, gross margin expanded 270 basis points, operating margin up 210 basis points. Drove new customer acquisition, especially Gen Z, with strong performance in leather goods and footwear. Kate Spade: Revenue declined 10%, but focused on rebuilding brand with emotional storytelling, streamlining product assortment, and reducing promotional activity. Stuart Weitzman: Net sales decreased 16% at constant currency, primarily due to softness in Greater China and North America direct channels, though POS trends remained strong.

• Raised fiscal year 2025 revenue outlook to over $6.85 billion, growth ~3% reported, including expected currency headwind of over 50 basis points.
• Operating margin expected to expand ~100 basis points; EPS raised to $4.85-$4.90, up 13-14% y-o-y.
• Adjusted free cash flow expected ~$1.2 billion; CapEx and cloud computing cost expected ~$170 million.

• Tariffs on goods imported from China could impact results, though limited manufacturing exposure to China.
• Resetting Kate Spade is a multi-quarter journey, risks to not achieving expected growth.

Q: Bob Drbul on Coach's success sustainability and Kate Spade's future A: Joanne Crevoiserat and Todd Kahn discuss Coach's sustainable growth pillars (culture, consumer insights, customer acquisition, handbags/leather goods) and Kate Spade's reset strategy with focus on streamlining, marketing, and rebuilding relevance Q: Ike Boruchow on Coach's product families contribution and margin expansion A: Todd Kahn and Scott Roe talk about Coach's product families like Tabby, New York contributing to growth and margin expansion drivers including AUR, AUC, and supply chain advantages Q: Adrienne Yih on Kate Spade's target consumer and Coach's AUR A: Joanne Crevoiserat, Scott Roe, and Todd Kahn discuss Kate Spade's target younger consumer focus and Coach's AUR growth, value proposition, and market opportunity in Europe and China Q: Matthew Boss on Coach's new customer acquisition and earnings sustainability A: Joanne Crevoiserat and Scott Roe discuss Coach's new customer acquisition, particularly Gen Z, and confidence in earnings sustainability through brand building investments and strong cash flow Q: Lorraine Hutchinson on balancing handbag franchise success and pipeline A: Todd Kahn talks about Coach's innovation pipeline, balancing current product success with future innovation by enhancing existing families like Tabby and New York Q: Brooke Roach on China momentum and brand execution A: Joanne Crevoiserat and Todd Kahn discuss Greater China's return to growth, brand building strategies working globally, and long-term opportunity in China Q: Michael Binetti on AUR, unit growth, and SG&A flow through A: Joanne Crevoiserat and Scott Roe discuss AUR as a driver of growth with opportunity for unit growth, and SG&A priorities focusing on strategic investments while maintaining financial discipline