Tapestry (NYSE:TPR) Q1 2026 Earnings Call November 06, 2025 08:00 AM ET Company ParticipantsTodd Kahn - CEO and Brand President of CoachIke Boruchow - Managing DirectorChristina Colone - Head of Investor RelationsJoanne Crevoiserat - CEOBrooke Roach - VP of Equity ResearchMichael Binetti - Senior Managing DirectorScott Roe - CFO and COOConference Call ParticipantsAdrian Yee - Director and Senior Equity AnalystAlex Stratton - Research Director and Senior AnalystAneesha Sherman - Senior AnalystBob Drbul - Man ...

Tapestry's 2025 Investor Day Summary Company Overview - **Company**: Tapestry Inc. - **Brands**: Coach and Kate Spade - **Revenue**: $7 billion across 60 countries with nearly 1,300 directly operated stores worldwide [4][10] Core Points and Arguments Business Momentum and Growth Strategy - **CEO's Statement**: Tapestry is positioned for sustained growth, focusing on amplifying its growth agenda [2][10] - **Consumer-Centric Approach**: The company has shifted to a consumer-obsessed model, emphasizing emotional connections and brand building [6][7] - **Financial Performance**: Over the last three years, Tapestry has recruited over 20 million new customers in North America, achieving a 10% top-line growth and nearly 50% growth in earnings per share [9][10] Brand Positioning - **Coach's Ambition**: Coach aims to reach $10 billion in annual revenue with world-class margins, focusing on emotional connections with consumers [48][49] - **Kate Spade's Growth**: Efforts are underway to reignite growth at Kate Spade, leveraging its iconic status [3][12] Market Opportunities - **Target Demographics**: Focus on the 18-27 age group as a key market entry point, with 25 million women entering this demographic annually [24][26] - **Market Penetration**: Tapestry currently holds a 7% share in a $100 billion market for handbags, small leather goods, and footwear, with significant growth potential [22][41] International Expansion - **Geographic Focus**: Growth strategies will prioritize North America, Greater China, and Europe, with plans for 125 new store openings globally [40][41] - **China's Potential**: The company sees substantial opportunities in China, particularly in cities with large university populations like Wuhan [50][40] Additional Important Insights Consumer Engagement - **Data-Driven Decisions**: Tapestry emphasizes the importance of data and consumer insights in shaping its marketing and product strategies [8][30] - **Emotional Storytelling**: The company aims to create compelling narratives around its products to foster brand loyalty [56][58] Marketing Investments - **Increased Marketing Spend**: Marketing investment has risen from 4% to 11% of revenue over the past few years, totaling $1.8 billion [35][36] - **Brand University**: Tapestry is establishing a brand university to ensure all employees understand brand growth capabilities [36][41] Future Outlook - **Financial Projections**: Tapestry expects mid-single-digit revenue growth, operating margin expansion to over 22%, and low double-digit growth in earnings per share annually for fiscal years 2026-2028 [18][19] - **Shareholder Returns**: Plans to return $4 billion to shareholders over the next three years, reflecting confidence in the company's intrinsic value [18][19] Conclusion - **Long-Term Vision**: Tapestry is committed to building a consumer-centric, emotionally connected brand portfolio that drives sustainable growth and shareholder value [19][41]

Financial Data and Key Metrics Changes - The company reported record third quarter results with total revenue gains of 8% at constant currency, exceeding expectations [6][29] - Earnings per share (EPS) increased by 27% compared to the prior year, reaching $1.30, which also exceeded guidance [10][34] - Gross margin reached 76.1%, the highest quarterly gross margin in over fifteen years, reflecting operational outperformance [32][93] Business Line Data and Key Metrics Changes - Coach brand achieved a 15% increase in revenue, driven by strong consumer demand and brand positioning [6][11] - Kate Spade experienced a revenue decline of 12% at constant currency, indicating ongoing challenges in brand repositioning [20][21] - Stuart Weitzman is in the process of being sold to Caleres, with the transaction expected to close soon [26] Market Data and Key Metrics Changes - North American revenue increased by 9%, with significant growth in customer acquisition, particularly among Gen Z and Millennials [7][30] - European revenue rose by 35%, driven by increased local consumer spending and strong new customer acquisition [30] - In Greater China, revenue growth accelerated to 5%, supported by long-term investment strategies [7][30] Company Strategy and Development Direction - The company aims to build strong emotional connections with consumers, focusing on brand heat and innovation [51][52] - There is a commitment to invest in brand building and innovation to drive long-term sustainable growth [19][27] - The strategy includes reducing promotional activity to enhance brand health and customer experience [24][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving fiscal year 2025 earnings of approximately $5 per share, consistent with previous targets [11][38] - The external environment is described as increasingly complex, but the company believes it can adapt and thrive [27][46] - Management highlighted the importance of maintaining strong fundamentals and competitive advantages in navigating market challenges [45][46] Other Important Information - The company generated over $1 billion in adjusted free cash flow year-to-date [29] - Inventory levels were reported to be 6% above the prior year, indicating a well-positioned supply chain [37] - The company is focused on maintaining a solid investment grade rating and a long-term gross leverage target of below 2.5 times [36] Q&A Session Summary Question: What is driving the strong performance at Coach? - Management attributed the success to strong emotional connections with consumers, high margins, and an agile supply chain [50][52] Question: Can you provide insights on the impact of tariffs for 2026? - Management indicated that they have taken actions to mitigate tariff impacts and will provide guidance at the end of the next fiscal year [57][58] Question: Can you elaborate on new customer acquisition and retention metrics? - Management emphasized the focus on acquiring younger consumers, which is driving brand relevance and higher retention rates among Gen Z [71][75] Question: How is the merchandising strategy positioned to capture market share? - Management noted that the brand is taking market share across demographics, with a focus on compelling value and innovation [79][80] Question: What are the drivers behind the recent gross margin performance? - Management highlighted operational improvements and AUR gains as key contributors to the strong gross margin [88][93]

Financial Data and Key Metrics Changes - The company reported total revenue gains of 8% at constant currency, with record third quarter earnings per share increasing by 27% compared to the prior year [5][10][29] - Gross margin reached 76.1%, the highest quarterly gross margin in over fifteen years, reflecting operational outperformance [32][92] - Operating margin increased by 140 basis points, driving profit expansion ahead of expectations [33] Business Line Data and Key Metrics Changes - Coach brand delivered a standout performance with 15% top line growth, driven by strong demand and effective brand positioning [11][30] - Kate Spade experienced a revenue decline of 12% at constant currency, while profit met expectations due to gross margin expansion [20][21] - Stuart Weitzman is in the process of being sold to Caleres, with the transaction expected to close in the summer [25] Market Data and Key Metrics Changes - International revenue rose 8%, led by a 35% increase in Europe, while North America saw a 9% revenue increase [6][30] - In Greater China, revenue growth accelerated to 5%, indicating strong consumer engagement in the region [6][30] - The APAC region overall saw a 4% sales increase, with specific growth in Australia, South Korea, and Thailand [6][30] Company Strategy and Development Direction - The company is focused on building strong emotional connections with consumers and enhancing brand relevance through innovative product offerings [50][72] - There is a commitment to reducing promotional activity to build a healthier brand and improve gross margins [23][24] - The strategy includes leveraging a diversified and agile supply chain to navigate external challenges and maintain competitive advantages [51][45] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving fiscal year 2025 earnings in the area of $5 per share, consistent with previous targets [11][46] - The company acknowledges the increasingly complex external environment but remains focused on its competitive advantages and long-term growth strategies [27][46] - Management highlighted the importance of capturing new and younger consumers, particularly Gen Z and Millennials, to drive sustainable growth [7][72] Other Important Information - The company plans to return over $2 billion to shareholders in fiscal 2025 through dividends and share repurchase programs [34] - Adjusted free cash flow for the third quarter was reported at $135 million, with expectations of approximately $1.3 billion for the fiscal year [37][41] - The company is committed to maintaining a solid investment grade rating and a long-term gross leverage target of below 2.5 times [36] Q&A Session Summary Question: What is driving the strong performance at Coach? - Management attributed the success to strong emotional connections with consumers, high margins, and an agile supply chain that allows for quick responses to market demands [48][50] Question: Can you provide insights on the impact of tariffs for 2026? - Management indicated that they have taken actions to mitigate tariff impacts and emphasized their focus on maintaining innovation and quality [57][59] Question: How is new customer acquisition impacting growth? - The company highlighted that acquiring new and younger consumers is crucial for long-term growth, with a focus on emotional connections to enhance customer retention [67][72] Question: What is the strategy for Coach's performance across different channels? - Management discussed the "One Coach" strategy, which integrates full-price products into outlet channels, enhancing consumer experience and maintaining brand value [101][103]