Tapestry(US:TPR)2024-05-09 13:44Financial Data and Key Metrics Changes - The company reported total revenue in line with the prior year on a constant currency basis, consistent with the low end of guidance, with international growth of 3% at constant currency [13][57] - Gross margin expanded significantly, achieving the strongest third quarter gross margin in nearly two decades, 190 basis points above last year, driven by lower freight expenses and operational outperformance [59][60] - Operating income rose 6% compared to the prior year, with EPS of $0.81 beating expectations by approximately $0.15 [61][66] Business Line Data and Key Metrics Changes - Coach brand delivered strong performance with handbag AUR gains at constant currency, particularly with the success of the Tabby family, which nearly doubled revenue compared to last year [22][24] - Kate Spade faced challenges in top line results but exceeded profit expectations due to gross margin expansion and disciplined expense management [32][34] - Stuart Weitzman experienced pressure in key markets, but the brand remains focused on product and marketing investments for long-term growth [41][42] Market Data and Key Metrics Changes - In North America, revenue declined 3% amid a challenging consumer backdrop, while international markets showed growth, with Europe up 19% and Other Asia up 15% [15][54] - Greater China sales declined 2% against last year's strong spending, but the company remains confident in long-term opportunities in the region [14][55] - The company acquired approximately 1.2 million new customers in North America, with over half being Gen Z and millennials, indicating a successful strategy to attract younger consumers [16][29] Company Strategy and Development Direction - The company is focused on disciplined brand building and operational excellence, with a commitment to innovation and consumer engagement [11][20] - The acquisition of Capri is seen as a strategic opportunity to expand the brand portfolio and enhance competitive positioning in the luxury market [48][49] - The company aims to maintain strong gross margins while investing in brand building and marketing to drive long-term growth [66][75] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving fiscal 2025 EPS targets despite a challenging environment, emphasizing the strength of the Coach brand and its ability to attract younger consumers [80][85] - The company is navigating a cautious consumer backdrop in North America but remains focused on innovation and brand building to drive engagement and growth [97][106] - Management highlighted the importance of emotional connections with consumers and the resilience of the luxury category during economic downturns [106][108] Other Important Information - The company declared a quarterly cash dividend of $0.35 per common share, representing $80 million in dividend payments for the quarter [65] - Free cash flow for the quarter was an inflow of $79 million, with inventory levels at quarter end 12% below the prior year [63][64] - The company expects to return approximately $325 million to shareholders through dividends for the fiscal year, reflecting a 17% increase compared to last year [65] Q&A Session Summary Question: Confidence in FY 2025 EPS target - Management reiterated confidence in achieving the FY 2025 EPS target of $5, citing strong performance and brand strength [80][81] Question: Q4 expectations for Coach in North America and China - Management indicated expectations of down double-digits for China in Q4, while Coach is expected to continue growing with a focus on disciplined customer acquisition [92][94] Question: North America demand progression for Coach - Management noted that consumer confidence is low, but innovation is driving higher gross margins and new customer acquisition [97][98] Question: Long-term outlook for Coach gross margin - Management expressed confidence in sustaining gross margin growth through investments in product quality and marketing [131][132] Question: Pricing and elasticity concerns - Management emphasized the importance of emotional connections and innovation in maintaining pricing power and AUR growth [116][118]