Please stand by. Our program is about to begin. [Operator Instructions]

Good day, and welcome to the Tapestry Conference Call. Today's call is being recorded. After the speaker's opening remarks, there will be a question-and-answer period. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Global Head of Investor Relations at Tapestry, Christina Colone. Please, go ahead.

Good morning and thank you for joining us. With me today to discuss our Fourth Quarter and full-year results, as well as our strategies and outlook, Joanne Crevoiserat, Tapestry Chief Executive Officer, and Scott Roe, Tapestry Chief Financial Officer and Head of Strategy.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. These includes projections for our business and the current or future quarters or fiscal years. Forward-looking statements are not guarantees and our actual. Along with [Indiscernible] by 22. Scott will continue with our financial results and priorities 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 CEO.

Good morning. Thank you, Christina, and welcome everyone. We delivered standout results in Fiscal 2021, a transformational year for Tapestry. We are a fundamentally different Company today than we were just one year ago.Through our acceleration program, we reached new customers in new ways, and effectively adapted to a rapidly changing environment. Our success is a testament to our powerful brand and talented teams. We achieved many strategic milestones this year which have strengthened our organization.We've sharpened our focus on the consumer and clarified the unique positioning of each of our brands. This drove improvements in key customer metrics, including recruitment, retention, and reactivation. We enhanced our digital capabilities highlighted by our global e-commerce channel, a margin [Indiscernible] business for Tapestry, reaching approximately $1.6 billion in revenue.Nearly doubling versus prior-year, and over $1 billion ahead of pre-pandemic level. This was fueled by the acquisition of nearly 4 million new customers in North America alone including a growing number of millennial and Gen Z consumers and we sustained double-digit e-commerce sales growth in the fourth quarter even as we lapped more difficult comparisons online. At the same time, we drove continued sequential sales improvement for our global store fleet with operating margins that were once again above pre-pandemic levels.We further strengthened our positioning in China, which still has tremendous runway supported by the growth of the rising middle-class. In fact, Tapestry's business in Greater China reached $1.1 billion in sales this fiscal year, led by over 60% growth on the Mainland.And at the same time, we grew our business with Chinese consumers globally, increasing at a high single-digit rate as compared to pre-pandemic levels. We successfully leveraged data and analytics, embedding capabilities across the Company to enhance our understanding of the customer, increased responsiveness, and drive faster, more effective decision-making.This is underpinned our ability to optimize the assortment planning process, lower SKU counts by 40% to 45%. And reduced promotional activity supporting higher AUR and gross margin, as well as improved inventory turns. We also embrace new ways of working with a leaner operating model and more empowered teams.This resulted in $200 million of gross expense savings in fiscal year 21, which funded investments in areas such as digital and marketing to fuel our continued growth as well as our purpose-led initiatives to accelerate and amplify our work within our social fabric to affect positive change for our industry and stakeholders. Importantly, the traction of our strategy is clearly evidenced by our financial performance including the achievement of record operating margin is Tapestry Inc., as well as operating income in EPS growth versus both FY20 and FY19 in each quarter of the year.We also exceeded pre-pandemic sales in the fourth quarter, representing an important financial milestones. In addition, we generated $1.2 billion of free cash flow and ended the year in a strong cash position, while reducing our leverage through organic profit growth, and the paydown of the companies revolver.Given our strong financial position and underlying business trends, our Board of Directors approved the reinstatement of our capital return programs with a plan to return over $750 million to shareholders through both dividend and share repurchases in fiscal year 22. These actions underscore our conviction in Tapestry's ability to drive long-term growth along with our commitment to enhancing value for our stakeholders.Scott will discuss our capital allocation priorities in more detail, shortly. Now, let me touch on our results and strategies for Coach, Kate Spade, and Stuart Weitzman. Coach, our largest brand led Tapestry outperforming in each quarter of the year.The brand fueled momentum through innovation across consumer touchpoints, driving engagement with new and existing customers. During the fourth quarter, Coach revenue rose 117% versus prior year, outpacing pre-pandemic level of sales by 2%. A meaningful achievement given the [Indiscernible] backdrop.In addition, we delivered significant profitability enhancements during the fiscal year resulting in operating income increases of 67% on a one-year basis, and 14% on a two-year basis. This outstanding performance was the result of both gross margin expansion and SG&A leverage, reflecting strategic actions and structural changes we've made to sustain long-term growth. Throughout the fiscal year, we made significant progress at Coach against the pillars of our multi-year growth agenda.First, we deepened our engagement with consumers by leaning into our brand values of inclusivity and authenticity. To drive increased recruitment and reactivation. In addition, through the launch of our loyalty program in North America, and more targeted marketing, we drove significant gains in the number of repeat transactions.Second, we created innovative, unique, and compelling products to meet the needs of our target consumer segment. We're building enduring icons that create a foundation for our product pipeline and future seasons.This was evidenced by the recent success of newness within the Tabby family, including our Pillow and Mini versions. In addition, we saw a continued strengthen in our Signature platforms across an expanded assortment of refresh styles, highlighting desirability for the brand. Third, we drove triple-digit sales growth in our digital channels on both the 1 and 2-year basis led by new customer recruitment.During the fiscal year, we acquired nearly 2.5 million new Coach customers through our digital channels in North America alone, a meaningful increase versus prior year. Importantly, we sustained strong momentum in the fourth quarter, even as we comped our digital initiatives in the initial uplift in e-com sales that occurred during the pandemic in the prior year, highlighting continued opportunity in the channel.Fourth, we accelerated growth in China by leveraging our foundation in the country which resulted in over 60% revenue growth on the Mainland in FY21 with strength across channels. This performance reflected our integrated and comprehensive brand-building strategies, including investments in marketing, innovative product, and a continued focus on digital channels. Most recently, we hosted our live streams fashion show in Shanghai, which was extremely well received and highlights our commitment to the Chinese consumer.Finally, we enhanced profitability to realize an operating margin of over 31%. This performance was driven by a higher gross margin, which reached nearly 74% through a focus on streamlining our offering, sharpening our merchandising efforts in reducing SKU counts by approximately 45%. These initiatives resulted in global handbag AUR growth in each quarter of the fiscal year.In fact, in the Fourth Quarter, our handbag AUR rose high single-digits globally, led by particular strength in North America. In addition, we made structural changes to SG&A including our fleet optimization efforts. Looking ahead to FY 22, our goals are to increase market share in our core handbag and small leather goods categories through a combination of AUR and in China, with key initiatives to capitalize on market trends of the emerging middle-class, and increased digitalization.And grow [Indiscernible] by expanding lifestyle, building brand awareness and increasing our presence in Asia, in keeping with our ambition to deliver over $1 billion in revenue in this category over our planning horizon. In summary, Coach is both a remarkable 80-year history and a bright future. We are confident that the deliberate actions we've taken to improve the foundation of the brand, including the realization of higher AUR and stronger margin are sustainable over the long term as revenue continues to inflect.We're continuing to improve on the momentum we've built to drive market share gains, its sustainably high margins in Fiscal 22 and beyond. Now moving to Kate Spade, throughout the year, the brand delivered consistent improvement on the top line, resulting in fiscal year 21 sales growth of 3% compared to prior year, or 13% decline compared to pre-pandemic revenue levels. In the most recent quarter, sales increased 95% versus prior year and were 4% below fiscal year 19.Direct sales in the Fourth Quarter, excluding wholesale, increased on a two-year basis. In addition, for both the quarter and fiscal year, operating income rose meaningfully with margin expansion compared to prior year on both a stronger gross margin and SG&A leverage. We were pleased with Kate Spade 's progress across its growth strategy, which highlights the traction we're making to build stronger connections with consumers.In fiscal 21, we crystallize the brand's purpose, returning to its roots of unique and best-in-class storytelling and fulfilling its promises, a lifestyle brand representing joy, optimism and color. During the most recent quarter, we continued to reengage lapsed customers at an increasing rate as we reactivated 550,000 customers through our North America digital channels, an increase of nearly 35% compared to prior year, demonstrating our focus on building lasting relationships with our customers. Second, we embedded a laser focus on the customer by harnessing the power of the broad and loyal Kate Spade community to engage consumers in new and exciting ways.This was evidenced by our viral Happy Dance campaign on Tick - Tock, which has over 11 billion views and counting. Third, we re-energized our core handbag offering by introducing innovative and universal brand elements. We're seeing traction in leather with the introduction of the Knot which has already grown to approximately 20% of our retail assortment, proving its position as a key family in the assortment going forward.In addition, our new signature branding, the Spade Flower, continues to perform while the re-imagined Sam and Nylon has outpaced expectations. These platforms represent strong foundations for future growth. Fourth, we leaned into our digital strength, delivering approximately 35% growth compared to prior year across our e-commerce channels, reaching 35% of sales for the fiscal year.This growth was driven by both the acquisition of nearly 1.4 million new customers through our North America digital channels, as well as the engagement of existing customers. Fifth, we improved profitability by focusing on acquiring, re-engaging, and retaining customers to drive top and bottom-line growth. Through the use of data, we adjusted our assortment and pricing strategies which resulted in approximately 40% lower SKU count and disciplined promotional activity.This ultimately drove overall handbag AUR growth, which increased mid-single-digits in both the Fourth Quarter and for the fiscal year. Finally, we've continued to focus on talent and culture. This year, we reorganized our creative structure with the formation of the cross-functional ideation studio.Spanning across our brand creative, design, merchandising, and marketing teams. This is increased collaboration and cohesion to drive more impactful and consistent storytelling. As we head into fiscal '22, we are building on the strong foundation we've established with a goal to deliver profitable and sustainable global growth.To achieve this, we will maintain a consumer-centric approach across all aspects of the business, amplify recent product introductions while continuing to build out our core handbag platforms, continue to engage newly acquired, reactivated and existing customers to drive higher lifetime value, drive brand heat through marketing focused on our Kate Spade community, particularly in social channels. Maximize lifestyle positioning by strengthening the foundation of ready-to-wear jewelry and footwear, and improve the global omni-channel experience and drive continued growth in digital.Overall, we're pleased with Kate Spade execution and the traction we gained with consumers in Fiscal 2021, including AUR improvement and strong customer engagement. This progress is reflected in Kate Spade out-performance versus internal expectations, reinforcing our confidence in the brand's potential.Kate Spade is a unique, yet universal brand and our teams are galvanized around driving our clear strategy. We continue to believe in a significant runway ahead and our ability to achieve $2 billion in revenue and enhance profitability in the future. Turning now to Stuart Weitzman.Throughout the fiscal year, the brand progress on its growth strategies. Specifically, we continue to renew the brand's reputation for fit, comfort, and quality by listening and responding to customer needs. During the Fourth Quarter, we were pleased to see a significant increase in demand for dress styles as much of the world began to reopen, and the events and in-person socialization returns.Second, we grew our key categories by building strength in boots, booties, and sandals through fashion innovation, highlighted by the continued success of our iconic 50-50 land and nudist families, which brought in new and younger customers. We also expanded the casual assortment, including a broader sneaker offering and the recently introduced on-trend jelly styles. At the same time, we dramatically simplified the product assortment with SKU counts declining approximately 45%.Third, we focused our distribution on markets and channels of greatest opportunity to create a foundation to return to profitability as revenues inflect. This included the exit of unprofitable markets across the globe and rightsizing of the fleet in North America.At the same time, momentum continued for our China business in fiscal '21 with revenue on the Mainland increasing over 35% compared to prior year, or nearly 50% on a two-year basis. We kept the Chinese consumer at the forefront of our strategy, highlighted by our tailored product offerings featuring capsule collections, relevant marketing with key opinion leaders and continued out-performance across digital channels.China remains an important area of long-term opportunity for Stuart Weitzman as structurally higher margins. For us, we strengthened our relationship with wholesale partners by providing relevant products, and faster, more consistent execution.As previously shared, we re-entered 90 Nordstrom doors in the year, fueling North America wholesale revenue ahead of pre-pandemic levels in the fourth quarter with a focus on must-have launches featuring icons, key items, and capsule collections, as well as [Indiscernible] -- differentiated platform. Although, the environment remains volatile, we see a strong consumer who is ready to shop and continuing to engage with our brand.We entered fiscal year 22 with a solid foundation, improved capabilities, and increasing momentum. From this position of strength, we are confident in our ability to win with consumers and capture market share accelerating growth and profitability across our portfolio, long-term enhancing value for all stakeholders. With that, I'm pleased to welcome Scott Roe, who many of you know, to discuss our financial results, capital allocation priorities in fiscal 22 outlook, Scott?

Thanks, Joanne, and good morning, everyone. I'm thrilled to be with you today after joining Tapestry just a few months ago. While I'm still relatively new, I can already see that this is a truly unique Company with strong, and engaged talent.Great brands that are well-positioned in attractive market spaces, and a distribution model that allows us to directly own our consumer relationships coupled with advanced digital and analytics capabilities. As we move forward, my focus is to work alongside our management team to align business, and financial strategies, to drive sustainable, long-term growth which profits shareholders and all stakeholders alike.Looking back at FY21, it was a transformational year for the organization as Joanne mentioned. We effectively executed our acceleration program against the difficult backdrop, created a foundation for sustainable growth.Specifically, we increased the penetration of our margin accretive, digital and China businesses, which led overall growth in the fiscal year. We expanded gross margins primarily through higher AURs driven by lower levels of promotional activity.We grew operating margin by 300 basis points versus FY19, reaching peak levels with Tapestry. This despite significant investments in talent, digital capabilities, and marketing, which were more than funded by gross profit gains and $200 million in gross SG&A savings delivered through the acceleration program.And we further strengthened our financial position through tight inventory management and a reduction in debt levels while achieving $1.2 billion in free cash flow, resulting in an ending cash position of approximately $2 billion. Turning to the details of the Fourth Quarter, total sales rose a 126% versus prior year on a 14-week basis, or a 113% on a 13-week basis outpacing pre-pandemic levels, an important milestone.These results were led by strength at Coach while Kate Spade and Stuart Weitzman delivered material sequential improvements in trends. By region, North America led the overall growth rising approximately a 150% versus FY20 and a high single-digit percentage versus FY19., fueled by digital and a continued improvement in our brick-and-mortar businesses. In mainland China our strong momentum continued, as revenue increased approximately 60% on a one-year basis and over 40% compared to pre-pandemic levels.Across the balance of Asia, sales rose materially compared to the prior year, the remain below pre-pandemic levels with notable pressure in Japan, given the continued state of emergency and lack of tourist sales. And Europe, while a small portion of our total sales, experienced a sequential improvement in trends on both a one-end to your basis as locked down measures were lifted.And while revenue remained well below Fiscal 19, given the lack of tourist travel, our local demand did rise in the quarter. By channel, we maintained strengthened digital, which grew more than 35% compared to prior year, reaching 30% penetration. That's three times 2019 levels.While our stores remain pressured, slightly better traffic drove a sequential improvement for the channel. And at wholesale, while revenue remained below FY19, trends improved with particular strength in duty-free growth in China. Moving down to P&L, we realized another quarter of overall gross margin expansion compared to prior year and FY19, with all brands exceeding expectations. We continued to successfully execute our strategy to maintain price discipline, reduced SKU counts, and leverage data analytics to more effectively tailor our product assortment and marketing messaging to the consumer. As anticipated, SG&A rose significantly given the prior year's atypical comparison due to the impact of COVID-19.At a two-year basis, the increase in SG&A was attributable to higher marketing spend of almost $100 million compared to Q4 - Fourth Quarter '19, and an increase in our annual incentive plan given our out-performance this year. In addition, our expenses for the quarter included the $25 million contribution towards the endowment of the newly established Tapestry Foundation.Taken together, we achieved our fourth consecutive quarter of operating income growth and margin expansion compared the pre-pandemic levels. Earnings per diluted shares for the quarter was $0.74 on a 14-week basis or $0.65 on a 13-week basis, a significant increase compared to a loss in the prior year, and 7% ahead of pre-pandemic EPS levels.Now moving to distribution. We continued to optimize our global fleet to prioritize profitability. For Tapestry, we closed a net of 59 locations globally in FY21, including 10 net closures in the fourth quarter. As compared to Fiscal 19 year-end, we have closed a net of 90 locations across our brands.Turning to a discussion of our balance sheet and cash flows, we ended the quarter in a strong position with $2 billion in cash and equivalents and total borrowings of $1.6 billion. Total inventory at quarter-end was approximately in line with last year and 6% below FY19, reflecting in part deliberate actions to reduce SKU counts and prioritize inventory turn.And we generated $1.2 billion in free cash flow in FY21 versus $202 million in the prior year and $518 million in Fiscal19. This included CapEx of $116 million, a decline of 44% versus prior year, as we prioritize investments in high return projects, notably in digital, while tightly controlling overall spend and reducing our outlay for new stores.Now touching on our capital allocation priorities. First, we continue to prioritize investments in the business to support strong returns and long-term profitable growth. Second, we're committed to returning capital to shareholders through both dividend and share repurchases.In keeping with this strategy, we are pleased to announce today a plan to return over $750 million to shareholders. Specifically, the board declared a quarterly cash dividend of $0.25 with an anticipated annual dividend rate of a dollar per share.Over time, our intent is to increase the dividend at a faster rate than earnings growth. We also expect to repurchase approximately $500 million worth of stock in FY22 under our current authorization. Importantly, once we have more visibility and do a normalization in the external environment, we expect over time to more aggressively return cash to shareholders.Finally, in keeping with our objective to reduce leverage, we expect to repay our July 2022 bonds, totaling $400 million at the end of this fiscal year. So when considered together, the dividend share repurchase and debt repayment are intended to approximately equal our projected free cash flow in the fiscal year.And as Joanne mentioned, these actions demonstrate our confidence in the underlying strength of our business, as well as our commitment to driving total shareholder returns. Now moving to our Fiscal 22 outlet. Before touching on the specific details, it's important to note the paradigm shift compared to just a year ago.Entering COVID, there was a macro demand concern and we took bold actions to adjust supply in order to preserve liquidity. As you can see on our adjust reported results, we were very successful in achieving our goals while continuing to accelerate investments to drive increasing momentum in our brands. Today, we find ourselves in a dynamic where the consumer demand backdrop is strong, while supply chain remains challenging.So I want to emphasize the underlying strength in trend of our business and separate that from the uncertainty in the macro-environment, primarily due to COVID-related impacts, which are largely out of our control. Therefore, the outlook we're giving you as a reflection of what we know as of today.It's a point in time. While we have visibility into the risks that we see on the horizon, we're not trying to predict that, which is unknowable. We have taken the position that we'll be aggressive on protecting the momentum of the business, by securing significant expedited deliveries at an additional cost in order to mitigate the impact of supply chain disruptions, at least through the holiday period.Further we'll continue to increase AUR as prices are levered to counter some of the additional cost pressures. Of course, we'll continue to monitor the impact of the new development on our outlook over time. Now, turning to the details of our FY22 outlook.Please note that all growth rates as compared to prior year, are on a comparable 52-week basis. We expect revenue to increase at a mid-teens rate versus FY21 resulting in approximately $6.4 billion in sales which would mark a record for the Company.This includes the expectation for a continuation of strong growth in digital and Greater China as well as improving global trends in stores. While we expect stores to show improvement, revenue is currently planned to remain below a pre-pandemic levels. Turning to gross margin, we expect to sustain the Company's strong margins through continued AUR improvements and lower promotional activity.Our outlook also incorporates the expectation for GSP's renewal, for the retroactive benefit in the second fiscal quarter, which is currently planned to partially mitigate the negative impact associated with higher freight costs currently embedded in our plan. Touching on SG&A, we expect expenses to grow relatively in line with sales for the year.We continue to estimate that we will realize approximately $300 million in structural gross run rate expense savings, including a $100 million of incremental savings from the prior year. We are utilizing these savings to fund investments in the business, including $50 million of planned higher marketing spend, which is expected to represent approximately 7% of sales in fiscal '22, up roughly 75% or 3 full percentage points compared to FY19.We're also investing in our teams, adding talent to growing areas of the business such as digital. And we're focused on continuing to retain and develop these strong teams as evidenced by our recently announced commitment that all U.S.Tapestry employees will earn at least $15 per hour. Operating income is expected to increase at a mid-teens rate, resulting in operating margin modestly ahead of prior year, and an increase of over 300 basis points versus 2019. Net interest expense for the year is expected to be $65 million, and the tax rate is estimated at 18.5%, assuming a continuation of current tax laws.Weighted average diluted share count is forecasted to be in the area of 283 million shares. Approximately even with last year with share repurchase activity expected to offset dilution. We anticipate EPS to be in the range of $3.30 to $3.35, reflecting leverage to the bottom line.CapEx for the year is projected to be about $220 million. We anticipate approximately 40% of the spend to be related to store development, primarily in China with a balance dedicated to our digital and IT initiatives, including the initial investments related to build-out our new distribution center.Specifically, as our digital business continues to grow, we've recognized the opportunity to sharpen our focus on the consumer by expanding our distribution capabilities. We recently signed a lease for a new distribution facility based in Las Vegas, which we believe will allow us to better serve our customers in the western part of the U.S..Finally, we expect inventory levels to be up meaningfully throughout the year as we pull forward receipts to match strong demand in phase elongated lead times from supply chain pressures due to COVID disruptions. Given the dynamic environment and last year's atypical comparisons, we, again, expect significant variability by quarter.Revenue growth versus prior year is expected to be front-half weighted, given relatively easier compares due to lapping COVID impacts, with the first quarter foretasted to increase more than 20%. Earnings growth in the first half is expected to be somewhat pressured due to incremental SG&A investments, along with last year's unusual compare, including lower expenses due to compensation reductions, lease abatements, and the timing of government assistance. That said we still expect EPS growth in the first half versus prior year, particularly in Q1.So in closing, we drove strong results in FY21 by our significant progress is a testament to the successful execution by our passionate teams, the power of our brands, and our competitive advantages including our differentiated platform. The bold and deliberate actions we've made under Tapestry's acceleration program has transformed our organization.These changes are foundational, and will continue to be a meaningful point of difference for our brand. As we look ahead with regard to those things, we can control, we're continuing to build momentum and we are confident in our ability to leverage the solid foundation to drive sustainable top and bottom-line growth across our portfolio brand.And with respect to those things we can't control, we've taken aggressive actions to protect our strong momentum, and mitigate those macro challenges we see today. Our conviction is underscored by our capital allocation actions, highlighting our optimism for the future and commitment to an enhancing value for all stakeholders. I'd now like to open it up for Q&A.

[Operator Instructions]. And we will take our first question from Robert Drbul with Guggenheim, please go ahead. Your line is open.

Good morning. And Scott, welcome and congratulations. My question I have generally, Joanne, you mentioned improving consumer demand and continued momentum into FY22. What signs give you confidence in the strong trajectory that you guys do have planned? Thanks. [Indiscernible].

Joanne, start again. I think your mic was off.

I'm sorry. Can you hear me?

Yes

Yes, I can.

Okay. Sorry about that, Bob. You would think we get the mute button down by now. Good morning. I would say that our confidence begins with the standout results we delivered this fiscal year. Fiscal '21 was a year of successful transformation for the Company, and it was capped by a strong fourth quarter. We saw sales trends improve every quarter of the year and exceeded pre-pandemic levels in the fourth quarter. For the year, we delivered record operating income and record operating margin as a multi-brand Company, despite the challenging backdrop. And we see momentum building as we enter Fiscal '22. And you can see that in the outlook we shared. We expect to reach a record level of revenue for Fiscal '22 at $6.4 billion on mid-teens growth. And we see further uncapped potential longer term, particularly in digital and China, and those represent sustainable top and bottom-line growth vehicles going forward. I think importantly, we're investing in long-term growth drivers, we're investing in marketing and we're investing in digital and our people. And while we've made significant progress this past year, we're just getting started. As Scott said, we're operating from a position of strength as a fundamentally different Company today. We're reaching through our acceleration program, we took bold actions and we're now reaching new customers in new ways as a more agile organization. The actions we took not only delivered a strong year but positioned us to thrive on the other side of the pandemic. We're better equipped as a Company, I would say, to pull these levers, growth levers going forward. We have new capabilities to engage consumers and drive higher lifetime value. And we have 4,000,000 new consumers that we acquired in the last year alone who are increasingly younger. We have -- we're delivering really strong gross margins at increasing AUR, showing pricing power in our brand, and we have a direct-to-consumer model building strength in digital and China with significant runway ahead. And Scott also mentioned we have a strong team, and we continue to invest in our team to secure that competitive advantage. So I would say, overall, we're operating from a position of strength. We're building momentum and we see significant runway ahead for all of our brands.

Great. Thank you very much. Good luck.

Thanks, Bob.

Then we will take our next question from Ike Boruchow with Wells Fargo. Please, go ahead. Your line is open.

Thank you. Good morning. Congrats, everyone. I guess, Scott, welcome. Two questions for you. One quick one and then one more higher level. Just on the second quarter, you talked about the retroactive GSP benefit. Can you quantify that for us so we know what to expect on the gross margin line? And then, again, bigger picture having you join TPR. Clearly, we all know your background from VF portfolio optimization. I'm kind of curious when you look at TPR, do you see some of the same opportunities that you have at your prior Company? Do you see opportunities for creating a more efficient portfolio, potential divestitures? And then again, when you think about the M&A platform here versus your prior Company, do you see similarities over the next couple year that you can capitalize on? Thank you.

That -- Good to hear from you. That was quite a question, man. First of all, tactically, GSP, it's about 50 basis points from a margin standpoint. So, and you're right, I said in my prepared remarks second quarter. So that means a little bit of a drag in the first quarter as you're not seeing that take effect and our thought is that and hope is that it will be reestablished. I think 10 out of the last 14 times this has come up it's been approved, so we have solid basis for making that assumption, but it's not done until it's done. So we wanted to give you all visibility into that. Observations about Tapestry, I'm going to take it a little higher level. First of all, what a great team. I'd been so impressed by the people and the capabilities. This is a team that has taken bold action over the last -- we haven't wasted the pandemic and the focus around building those foundational platform capabilities is impressive. You see it in the numbers. You see evidence of that and we've got three great brands that are focused on attractive market spaces, and we've got a lot of work to do. So over time, I see -- I laid out capital allocation priorities, which are investing in our great brands. That's our highest return today. Number 2, the dividend, we -- you saw we reinstated that, and returning cash to shareholders. That's where our focus is right now. Longer-term, who knows what the future brings, but we've got really exciting opportunities with high returns right in front of us, and that's where we're going to be focused.

Great. Good luck.

Thanks, Ike.

Scott, I guess you answered all the questions.

Yeah after -- I could just went dead. We may be live.

Operator, we'll take the next question.

We appear to be having technical difficulties, everyone. Hang in there. Hopefully, we'll be able to take all your questions, and even if we have to spend a little more time on the other side of the hour.

Please standby as we're experiencing technical difficulties. We'll take our next question from Erinn Murphy with Piper Sandler. Your line is open.

Great, awesome, nice to be back into Q&A. So welcome, Scott and I can't wait to hear or see the man satchel you'll be sporting next time we all travel together. I guess, it's going to be an upgrade. So I guess my question is, on the Kate Spade margins. It's really good to see some of the green shoots that you have there now and the expansion relative to 2019, but they still trail the Coach brand by 20%. So just curious, I guess maybe Joanne and Scott for you, how you see that evolving over time? And really, what's the potential with the Kate Spade margin profile over time? And then if I can just have a clarification from Todd, the AUR for Coach, I believe you said was up high single-digit. How did that compare outlet versus full price in the quarter? Thank you.

Thanks, Erinn. This is Joanne. I'll jump right into the Kate Spade question. We are really pleased with our execution in Fiscal '21 and we made important progress. You noted the progress on margin, but we made important progress across the foundations of the brand. I'll just call out a few highlights. Kate is highly digitally penetrated. We showed continued strength in the digital channel. It now represents nearly 35% of sales for the brand. We're acquiring new customers, 1.4 million new customers during the year, and we're reactivating customers at a more frequent rate. So 550,000 customers reactivated, a 35% increase from last year, and some of those customers are deeply lapsed customers. So when we think about the Kate Spade brand and engaging consumers, and really building, rebuilding the brand, we made really important progress. And I would say that partly is due to the fact that we've re-energized our core handbag offering. [Indiscernible] and team have worked really quickly to build a stronger, more solid platform. We're seeing traction across our leather platform with the Knot. Our signature platform we've talked about with the Spade Flower, and our Nylon platform with the re-imagined sandbag. And what we're seeing is the customer reacting to those changes in our assortment with increased global handbag AUR. So with handbag AUR s moving higher, that's another sign of brand health. So longer term, we continue to have and see a path for Kate Spade to build to a $2 billion brand, and to your point, at significantly higher margins. We see a path to high teens margin opportunity. And as you compared versus Coach, Kate Spade is a true full lifestyle brand, and there are some differences to the Coach business today. Kate Spade has, as I said, more lifestyle categories. And right now, as a brand, it's centered more North America. And Japan [Indiscernible] have as developed an international business. But we see those as opportunities moving forward.

Just picking up on Coach. We were really pleased with the continued AUR growth we saw in handbags this quarter. In fact, it was the 9th quarter in a row that we increased our AUR and it really was led by North America. And we don't disaggregate AUR by channel, but I will tell you both channels had increases in AUR and we feel really pleased with what we're accomplishing and what we can accomplish in front of us.

Thank you, both.

And we will go next to Mark Altschwager with Baird. Your line is open.

Great. Good morning. Thanks for taking my questions and congrats on the solid results here. So to start off just with the top line guide for the year, the mid-teens sales growth, can you give us a bit more color on what outlook looks like by brand there? Any big differences in terms of the contribution of units versus AUR, as you look across the portfolio?

We don't break down the guides specifically by brand, but obviously with, by the way, record earnings -- record top-line estimated 6.4 billion and with Coach being roughly 3 quarters of the total. You can assume that very strong top-line growth [Indiscernible] in, and really sequential across all the brands, right? We're seeing the strong improvement that we saw last year continuing into this year. So growth in all, and I just know that you talked about top-line but we're also returning to profitability on Stuart(ph) next year is our expectation. So really, really strong continued momentum across all but of course, Coach just [Indiscernible] mathematics is driving the lion's share of that.

That makes sense. Thanks. And then, Scott, just following up on SG&A, it sounds like you plan to keep pace with SG&A spends to revenue this year as you reinvest. Can you just speak to the level of flexibility in those plans? I guess, asked another way, should we expect EBITDA growth, at least in line with sales regardless of how the operating environment evolves through the year? Thank you.

Yeah, sure, Mark. We've talked about next year that we're consolidating these record margins and even expect slight improvement next year. And as it relates to SG&A -- So that's the overall picture. As it relates to SG&A, remember what Joanne said. We're saying it's about flat or in the neighborhood as last year as a percentage of sales. But underneath that, there's a lot going on. We continue to invest in those platforms and growth drivers for the long term. Joanne mentioned marketing. I had it in my prepared remarks, our digital capabilities, analytics, etc. But underneath that, the acceleration program, and as the savings according or attendant to that have given us the ability to see leverage elsewhere. So some of these things are certainly variable, right? I mean, we can -- we flex and we do. Based on the data and analytics, and the insights that we see, we lean into marketing where we see that we have returns. Certainly, those are choices that we can make, and we do have some optionality, and variability in the model. But I got to tell you, we're seeing results from continuing to invest, creating that flywheel effect, and based on our confidence of reinvesting back in our business, it's our intent to continue to do so. As evidenced by the strong trend, leaving the fourth quarter and leading into the guidance we just talked about for next year.

That's great. Best of luck.

Thanks, Mark.

And take our next question from Oliver Chen with Cowen. Please, go ahead.

Hi, thank you. The average unit retail momentum has been impressive. What do you see ahead as you anniversary increases and as you seek to continue to offer value to the customer? Would also love your thoughts on the evolution of the Coach brand as a lifestyle brand. As you think about footwear and men's and other categories, what will be some priorities and how are you thinking about the handbag families, such as Tabby and others relative to how you thought about handbag family groups in the past? Thank you.

Good morning, Oliver. Let me jump on that and then I'll toss it to Todd to get into the details of Coach. As it relates to AUR, we've been really pleased with the AUR growth that we've seen across our brands in the past year and we've been focused on implementing, and embedding the structural changes in our organization to help us do that. We are getting closer to our consumers, certainly, which is helping us deliver great product that our consumers value. Embedding data and insights into our processes more but we're also leveraging data to better manage our assortments. And you've seen that in the SKU count reductions we've made, and the way we've managed inventory across the world in an environment that has a lot of choppiness to it. So those are structural changes that we've made and they have proven benefits on AUR and gross margin expansion over this year, and we expect that to continue. On your specific question on Coach, I'll let Todd talk about the success that he's seen.

Yes. Thank you. We are really pleased with how we've changed the brand very materially over the last year, partly because of the acceleration program and probably because we really changed the conversation with our customer from leaning in, and the call to action being around price and promotion, to move to value and values. And this has really fundamentally changed us, and there has really increased our AUR. Our approach to how we merchandise is fundamentally different. We have reduced our SKUs, but we've leaned into Icon and Stewart [Indiscernible] (ph) and the creative team have been getting data from the customer and really leaning in. So, you mentioned Tabby. Tabby is a brand -- is a collection we launched in June of 2019. By February of 2021, it would normally have been out of the mix. Instead, we doubled down, we re-launched it with Pillow Tabby. It became the number one bag. You saw this month we've launched Soft Tabby, and then we're going to see Pillow Tabby reemerge. So having these iconic styles that are not so pressured by short selling window, really materially changes our outlook. And then regarding lifestyle, one of the opportunities I think we have is, well we call it [Indiscernible]. Men's product is an all-gender product often. And one of the things we recognize is we can do better, not necessarily merchandising at exactly the same way we merchandise historically women's product. So you'll see us mix in more outerwear, more cut and sew opportunities. And it is really resonating with our customer. And then finally, I'm a big believer, and have been for many years, in the opportunities that we have with footwear. And you're seeing it as win in those category, both in our own stores, retail and outlet, but even in wholesale, which is obviously a very competitive environment, but is the most democratic environment. And when we're winning there, we know we actually are winning in the category.

But if you're a new customer acquisition, Joanne, you called it out and it's great to see that. What's your hypothesis for what might be really important to retain the new customers? How that relates likely to innovation and what you need to do to engage those new [Indiscernible], as well as maintain existing. Thank you. Best regards.

Thanks, Oliver. Driving engagement requires consistent and innovation. Innovation in products. We're learning a lot about those new customers and we're also engaging them in different ways. We're meeting our customers where they are and we're better capable to meet those customers and engage them with our data and analytics capabilities, with our increasing presence on social media, and the innovations we're bringing to life there. And at the end of the day, it's about delivering great products. So taking those insights, and really understanding our consumer at a deeper level. And that's a lot of the foundation that we built this past year. is how do we really, truly understand our customer, our consumer, and embed that consumer and those insights in the product development process where our creative teams bring their terrific product and creativity to bear against things that consumers value. And our focus, moving ahead, is with all this new customer acquisitions, driving higher lifetime value with our consumers going forward.

Thank you.

And we'll take our next question from Lorraine Hutchinson with Bank of America. Please, go ahead.

Thanks. Good morning. You talked about the expectation that store sales will remain below pre-pandemic levels. Have you been able to right-size the store-based cost structure, and how should we think about profitability of the fleet if this trend persists?

I'll start and maybe steal all of Scott's thunder here, but that has been -- we think stores matter. And as we focus on the consumer, it's about providing a seamless experience for our consumer regardless of where they choose to shop. And we've been incredibly successful at building a digital business and meeting our consumer on digital platforms. But the store platform and that physical touchpoint is still important. If you go back a year, what we said is -- or more than a year now, we said, while stores are still important, we have higher profitability expectations for our fleet and productivity thresholds. We've taken bold actions to structure our fleet in that way, but we're also investing to make sure that that represents the right experience and the right physical touchpoint. We're adding omnichannel capabilities for our consumers. And that's paying off. It's paying off on the top line but it's also because we've seen incremental growth in our brick-and-mortar fleet as the world recovers from the pandemic. But what we've also seen importantly, and here's where I'm stealing a little bit of Scott's thunders, is we've seen operating margins of our store fleet actually above pre-pandemic levels even right now on depressed volume and a depressed traffic. So Scott, I don't know if there's anything you want to add. But I'll throw it to you.

That's pretty comprehensive. The only -- it's really impressive. I just have to compliment the team on -- at the same time rationalizing and having topline, being down a little bit, the quality of the underlying remaining fleet in the profitability through pandemic is there's pretty impressive. The other thing I would just say is, as we think about the omnichannel journey that we're on, remember Joanne's comment, a billion dollars more in digital at the same time, we're rationalizing, getting more profitable and brick-and-mortar, we're reinforcing the Omni-experience and added $1.6 billion of sale. That's a billion dollars in 2 years. So it's not just one channel and increasingly it's how we meet that consumer where she is. And it's pretty impressive from my perspective, [Indiscernible] we've managed both of these channels, increasing profitability and at the same time, finding a foundation for future growth.

One thing and at the risk of piling on. What we've seen in North America, which really builds well for our store fleet is, with all of this digital growth, as we see a return to traffic in stores, in those areas, we have not seen our digital penetration, our digital sales in those areas shrink. So the wonderful thing, and this really brings home the point. It is an omni world. It's an not an or. We see our ability to continue to grow digital, while seeing very profitable interaction in our stores as traffic returns.

We'll take our next question from Michael Binetti with Credit Suisse. Please, go ahead.

Guys, let me add my congrats, Scott. Nice to hear you at another -- with another great team here.

Thanks, Michael.

I want to -- I guess, Scott, I'll ask you on Slide 17 here in the deck, you mentioned improving visibility could let you more aggressively return cash to shareholders. I'm just curious, maybe a thought there early on here is, how you think about leverage in the business, given what we know about the very strong cash flows of this business pre-pandemic and that it's improving now? I wonder how you think what the appropriate level is early on. And then, I'd also be curious on the SG&A guidance to follow up with Mark's question earlier. This will be the first year in a more normal environment, more normal after you to a big reset to the structure of SG&A last year. So, I know there's a lot more variability in there. Have you took some corporate costs out, you're generating really good ROIs on the market investments you've made, sounds like you still have good growth from high-margin drivers like AUR, Kate margin targets high-teens overtime versus the 10% exit rate this year. So I'm just wondering, it seems like a lot of good margin drivers in there to the extent that we do see revenues coming in above plan. How should we think about what flows through to earnings this year and an upside scenario for revenues?

First of all, Michael, good to talk to you again. As usual, very thorough and comprehensive on your insights here. So let's start with capital allocation and how we're thinking about. I think a little context first is important. First of all, don't lose the message here. The reinstatement of the dividend, the reinstatement of the repurchase program, $750 million intended return of cash is really a testament to our underlying confidence in the business. So that -- I think that's the important message here. And if you think about the journey over the last year, early on in COVID, given the massive uncertainty, and demand issues, we took a lot of actions to protect liquidity, to protect the enterprise with our rating agencies, bankers, bondholders, et cetera, there was a commitment on deleveraging in the glide path that we laid out. So the great news here is we're able to not only advance on that glide path and even be a little ahead of it -- You heard us mentioned paying off the $400 million of debt at the end of this fiscal year, which is our intent and reinstate the dividend. And we still have a strong balance sheet, and we still have ample cash. We're in between these two periods, right? Where we see much more confidence, and that's why we've stated the aggressive return to shareholder cash, returning cash to shareholders. But at the same time, we think it's prudent to take to keep a little elevated cash position given the uncertainty of the environment. So my comment was really intended to signal that while we're definitely in a more confident position, we're engaging and repurchases and dividends. we're still maintaining an elevated buffer until we get better line of sight on what COVID Delta variant, etc. beyond uncertainty, how that evolves. Once we have that confidence, there is no reason to that we wouldn't be -- go back to kind of normal levels and we have opportunities to be even a little more aggressive from a return of cash to shareholders. So that was the intent, right? To say, we're not going ditch to ditch here. Right? We've made progress, but we want to watch the uncertainty. As it relates to margin flows, again, I'd point you back SG&A, the picture there is the tale of two things. We have the benefits around acceleration, which are providing leverage throughout the P&L and allowed us to reinvest. Obviously, in a very -- we have variability and we're making choices. Those choices are based on the insights and data that we have. And we've seen it pay off, right? So that's why we've given guidance that says we do expect to expand margins next year. Should we get more upside? Would some of that flow through? Depends, yes, likely, but we're also going to look at where we can lean in and advance our platforms and capabilities for the future. But we expect expanding margins and you should expect that some of that would flow through as we see upside.

Thanks a lot.

Our next question from Brooke Roach with Goldman Sachs. Please go ahead. Your line is open.

Good morning. Thanks so much. And thanks for taking the question, and Scott welcome.

Thanks, Brooke.

I wanted to ask two quick questions. First with -- Joanne, can you talk to the plan step-up in marketing investments this year. Where those investments will be most focused in your excitement on brand-building into FY22? And then for Scott, I wanted to get your thoughts on industry-wide supply chain and freight costs. How is Tapestry managing through some of these challenges? Can you provide any additional color on the impact of these industry-wide challenges that are embedded into your margin outlook for the fiscal year? Thank you.

Thanks Brooke. I'll start with our marketing spend. And I would say that we, as part of our transformation, we have fundamentally restructured our P&L with a focus on, and we did that really with a focus on how we were going to engage consumers and needed to engage consumers and sort of the new world of retailing and a post-pandemic era. And we've made significant changes within the P&L. Scott called it out in his prepared remarks, but 3% higher investments in marketing, and we've done that with confidence because with our new data and analytics capabilities, we're better able to measure the return on our marketing investments. And our intention is to structure our business so that we can continue to engage consumers across all of our brands, and create that -- and continue to create and hop into growth. And we have seen tremendous traction over the past year based on these capabilities. The investments that we're making in marketing are across the funnel, and I think that's important to know too because as we get better at measuring our returns, we're getting better at measuring returns across the full funnel. So it's not only performance marketing, but it is about brand-building and measuring our returns on those brand-building investments we're making. Of course, digital is a priority, we're better able to engage consumers on many digital platforms, and we're driving innovation there. We've called out the work we've done on live streaming and TikTok with even organic and viral videos on TikTok. So we're continuing to innovate. We're investing across the funnel. And we think that is an important enabler as we look to unlock future growth.

And Brooke, as it relates to elevated costs that we're seeing, we are seeing some elevated costs primarily due to expedited freight, airfreight, essentially, as we absorb and deal with the supply chain disruptions that we see. And our outlook reflects additional airfreight really through the holiday period, which is as far as we can see in terms of getting the deliveries and trying to maintain the strong momentum we have. You heard Joanne say it, right? We've -- The great those here is demand for our brands is strong. And while we see some disruption, we're taking bold actions, and we got out ahead of this a little bit in terms of securing as much supply as we can to keep that strong momentum going. We talked about gross margins being roughly equal to this year. And then that means we're consolidating on record-high gross margins, up 300 basis points versus a couple of years ago. And underneath that, we have some elevated costs related expedited freight. We also see the continuing build in AUR pricing leverage less discount, and the general trend of the business which is helping us offset that. So those are the puts and the takes. I would say though by quarter, it's not necessarily going to be a straight line. We're going to see, as some of this freight cost turns into the P&L, it may not come exactly matched with some of the price increases, but overtime for the year that's the picture that we see.

Thank you.

We'll take our final question from Matthew Boss with JPMorgan. Please go ahead.

Hi, Good morning. This is Kevin [Indiscernible] for Matt Boss, congrats on the strong quarter. I wanted to ask about your inventory positioning, not flat relative to the prior year. I think that's a significant improvement versus the third quarter. I guess, how do you feel about your ability to chase demand into what is expected to be a pretty robust back-to-school and holiday season for retail, given some of the disruption that we're seeing in the supply chain today? Thanks.

Kevin, maybe I'll take that one or at least start. So first of all, yes, we had a great performance from an inventory standpoint. For all the reasons that have already been said and done versus last couple of years. This is part of a very focused effort and simplify, and reducing SKU and seeing real progress there, and it's one of the factors for cash flow. But as we look to next year, we are going to see elevated inventory positions, starting in the first quarter. And the reason for that is twofold. Number one, just supporting the growth of the business. Number two, we're expedited, as I said, what we can to bring in inventory, whether it be even by air or by sea. sea, we're getting inventory in as fast as we can reasonably do in order to keep the momentum of the business. And those factors together are going to be a slightly elevated increase in inventory, but I have no concerns about this at all. This is inventory that is supporting the trend of the business. And frankly, if we could get more, we probably would. So you're going to see that dynamic play out. It's not significant, but understand what's really driving it. And you asked about our ability to chase. Listen, we're doing what we can. I just told you, expedited air freight. We're looking to I think we were quick to get in front of our suppliers and we've secured what we can. So to the best of our ability, we will chase it. It's going to be a difficult environment to chase, frankly, given the dynamic in the short term. But we feel good about all the levers that are in our control to set us up as well as we can.

Got took the words out of my mouth. I would be happy to get whatever we can. We feel really, really good about our holiday offering. And again, going back to what we said before, our iconic styles really diminishes that sort of markdown risks that you think about in our space. And we feel exceptionally good about what we have coming and our ability to respond because again, the demand is there. We're seeing the demand. And that is the most important thing in our industry. And now, satisfying that demand in the ways that our customer wants to see us, whether that's brick-and-mortar or digital is how we're going to go about capturing it.

Okay. Thanks very much.

Thank you. And that concludes our Q&A. I will now turn the call over to Joanne Crevoiserat for some concluding remarks.

Thank you, everyone for joining us this morning and hanging in there through our technical difficulties. Fiscal '21 was a transformational year for Tapestry. And I want to extend a huge thanks to our teams around the world for their unwavering passion and dedication to our business. As we just talked about, the dynamics environment continues, but we're in a position of strength with a proven track record of success, and we have increasing conviction in our ability to accelerate top and bottom-line growth with a focus on delivering for all our stakeholders, our customers, our teams, our community, and our shareholders. I appreciate your interest in Tapestry. Have a great day.

Thank you, and this concludes today's program. Thank you for your participation. You may disconnect at anytime.