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Text: This includes projections for our business in the current or future quarters or fiscal years.
In addition, as we continue to anniversary the onset of the COVID-19 pandemic last year, we will be providing financial information compared to FY '19 or pre-pandemic and FY '20 where applicable.
For a full reconciliation of corresponding GAAP financial information, please visit our website, www.
Now let me outline the speakers and topics for this conference call.
Joanne will begin with highlights from the fiscal year for Tapestry and each of our brands.
She will also provide an overview of the progress we've made on our Acceleration Program, along with goals for FY '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.
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 brands and talented team.
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 accretive business for Tapestry, reaching approximately $1.6 billion in revenue, nearly doubling versus prior year and over $1 billion ahead of pre-pandemic levels.
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.
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 has 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 embraced 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 effect 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 at Tapestry Inc. as well as operating income and earnings per share growth versus both FY '20 and FY '19 in each quarter of the year.
We also exceeded pre-pandemic sales in the fourth quarter, representing an important financial milestone.
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 pay down of the company's 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 and 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 touch points, driving engagement with new and existing customers.
During the fourth quarter, Coach revenue rose 117% versus prior year, outpacing pre-pandemic levels of sales by 2%, a meaningful achievement given the volatile 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've 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 product to meet the needs of our target consumer segment.
We are 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 continued strength 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 one and two 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 and 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 fiscal year '21 with strength across channels.
This performance reflected our integrated and comprehensive brand building strategy, including investments in marketing, innovative product and a continued focus on digital channels.
Most recently, we hosted our live stream 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 higher gross margin, which reached nearly 74% through a focus on streamlining our offering, sharpening our merchandising efforts and 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 fiscal year '22, our goals are to increase market share in our core handbag and small leather goods categories through a combination of AUR and unit growth by continuing to develop the brand's iconic families, approachable and inclusive messaging and consistent global positioning, invest and grow in digital while delivering differentiated and compelling omnichannel experiences, continue to drive growth in China with key initiatives to capitalize on market trends of the emerging middle class and increased digitalization and grow men's 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 has 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 margins 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 at 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 are pleased with Kate Spade's progress across its growth strategies, which highlight the traction we're making to build stronger connections with consumers.
In fiscal '21, we crystallized the brand's purpose, returning to its roots of unique and best-in-class storytelling and fulfilling its promise as a lifestyle brand, representing joy, optimism and color.
During the most recent quarter, we continued to rereengage lapsed customers and 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 TikTok, which has over 11 billion views and counting.
Third, we reenergized 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 reimagine 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, reengaging 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 has 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 the 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 omnichannel experience and drive continued growth in digital.
Overall, we are pleased with Kate Spade's execution and the traction we gained with consumers in fiscal '21, including AUR improvement and strong customer engagement.
This progress is reflected in Kate Spade's outperformance 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 the significant runway ahead and our ability to achieve $2 billion in revenue and enhanced profitability in the future.
Turning now to Stuart Weitzman.
Throughout the fiscal year, the brand progressed on its growth strategies.
Specifically, we continued 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 events and in person socialization returned.
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 5050 Land and Nudist families, which brought a new and younger customers.
We also expanded the casual assortment, including a broader sneaker offering in 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 offering featuring capsule collections, relevant marketing with key opinion leaders and continued outperformance across digital channels.
China remains an important area of long-term opportunity for Stuart Weitzman at structurally higher margins.
Fourth, we strengthened our relationship with wholesale partners by providing relevant products and faster more consistent execution.
As previously shared, we reentered 90 Nordstrom doors in the year, fueling North America wholesale revenue ahead of pre-pandemic levels in the fourth quarter.
Finally, we made progress in establishing a robust digital presence and drove approximately 30% e-commerce growth during the fiscal year, including continued strength in the fourth quarter, even as store trends improve.
In fiscal '22, our overarching goal is to return to profitability.
We will recruit and engage customers through products that sparks desire with a focus on must-have launches featuring icons, key items and capsule collection as well as [Technical Issue] drive brand heat with a digital-first drumbeat of relevant romantic storytelling; fuel continued growth in China, including an expanded footprint and further investment in digital; elevate the omnichannel customer journey, including delivering a best-in-class digital experience and accelerate wholesale partnerships with an expanded footprint in key accounts globally.
Overall, I'm pleased with the progress we've made at Stuart Weitzman and we remain focused on restoring the brand's profitability.
In closing, we are focused on driving our next phase of growth supported by our clear strategy, compelling brands and differentiated platform.
Although the environment remains volatile, we see a strong consumer who is ready to shop and continuing to engage with our brands.
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.
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 fiscal year '21, it was a transformational year for the organization, as Joanne mentioned.
We effectively executed our Acceleration Program against a 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 FY '19, reaching peak levels of 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 126% versus prior year on a 14-week basis or 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 150% versus FY '20 and a high-single-digit percentage versus FY '19, 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, but remained below pre-pandemic levels with notable pressure in Japan given the continued state of emergency and lack of tourists sales.
In Europe, while a small portion of our total sales experienced a sequential improvement in trends on both a one and two year basis as lockdown measures were lifted and while revenue remained well below the fiscal '19.
Given the lack of tourist travel, our local demand did rise in the quarter.
By channel, we maintained strength in digital, which grew more than 35% compared to prior year, reaching 30% penetration, that's three times 2019 level.
While our stores remain pressured, slightly better traffic drove a sequential improvement for the channel.
And in wholesale, while revenue remained below FY '19, trends improved with particular strength in duty-free growth in China.
Moving down the P&L, we realized another quarter of overall gross margin expansion compared to prior year and FY '19 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.
On a two year basis, the increase in SG&A was attributable to higher marketing spend of almost $100 million compared to Q4 '19, and an increase in our annual incentive plan given our outperformance this year.
In addition, our expenses for the quarter included the $25 million contribution toward the endowment of the newly established Tapestry Foundation.
Taken together, we achieved our fourth consecutive quarter of operating income growth and margin expansion compared to pre-pandemic levels.
Earnings per diluted share 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 earnings per share 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 FY '21, 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 FY '19, reflecting in part deliberate actions to reduce SKU counts and prioritize inventory turn.
And we generated $1.2 billion in free cash flow in FY '21 versus $202 million in the prior year and $118 million in fiscal '19.
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 the strategy, we're pleased to announce today our 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 $1 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 fiscal '22 under our current authorization.
Importantly, once we have more visibility into a normalization in the external environment, we expect over time, to more aggressively returning cash to shareholders.
And 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 outlook.
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 in our just 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 and 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 is 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 will 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 will continue to increase AURs as price is a lever to counter some of the additional cost pressures.
Of course, we'll continue to monitor the impact of the new developments on our outlook over time.
Now turning to the details of our FY '22 outlet.
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 FY '21, 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 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 $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, 4 percentage points compared to FY '19.
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 in 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 earnings per share 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 the 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 United States.
Finally, we expect inventory levels to be up meaningfully throughout the year as we pulled forward receipts to match strong demand and faced 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 forecasted 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 earnings per share growth in the first half versus prior year, particularly in Q1.
So in closing, we drove strong results in FY '21.
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 brands.
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 of brands.
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 enhancing value for all stakeholders.
I'd now like to open it up for Q&A.

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q4 revenue rose 126 percent to $1.62 billion.

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