Tapestry, Inc. (TPR) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day. And welcome to this Tapestry Conference Call. Today's call is being recorded. Later, we will conduct a question-and-answer session. At this time, for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations at Tapestry, Christina Colone.
Christina Colone:
Joanne Crevoiserat: Good morning. Thank you, Christina. And welcome, everyone. As you read in our press release, Tapestry's second quarter results significantly outpaced our expectations, driven by the successful execution of our Acceleration Program. Our sharpened focus on the consumer fueled new customer acquisition across all brands, supporting notable sales gains in digital and China. For the second consecutive quarter, we generated strong operating income growth, both compared to prior year and to fiscal year ‘19, supported by a reduction in promotional activity and higher AUR, as well as disciplined inventory and expense management.
Andrea Shaw Resnick: Thanks, Joanne. And good morning, everyone. I hope this finds you all safe and well. Before I begin, please keep in mind that my comments are based on non-GAAP results. Corresponding GAAP results and the related reconciliation can be found in the earnings release posted on our website today. As Joanne mentioned, our holiday quarter results were well-ahead of our expectations, as we continue to drive operating income growth in an unprecedented environment. Total sales declined 7% from prior year, representing a significant sequential improvement across all brands. Importantly, we successfully implemented our strategy to elongate the holiday shopping period, pulling forward demand ahead of the peak Thanksgiving week to allow the customer to start their shopping experience earlier. By region, North America, though still pressured versus last year, led the sequential improvement driven by better in-store trends and a higher penetration of the fast growing digital business. In Asia, growth remained positive, aided by 30% plus revenue gains in Mainland China, along with a return to year-over-year growth in Korea. Across the balance of Asia, sales remained below last year, specifically in Japan and Malaysia, as lockdown measures were reinstated. Europe, though a small portion of our total sales, experienced a material slowdown in the business, given a significant increase in lockdown accordance with local government restrictions. By channel, as Joanne noted, performance was driven by another quarter of triple digit growth in digital, as we leaned into the opportunity to meet the customer where they want to shop. In our global bricks-and-mortar channel, revenue continued to decline due to materially lower traffic compared to last year, partially offset by increases in AUR and conversion. In wholesale, while the channel remained below prior year, trends improved, reflecting, in part, a significant growth in our duty-free business in China's Hainan province. Importantly, top line trends in the month of January met our internal projections, reflecting a further sequential improvement from Q2, as we remain on track for sales to inflect in the third quarter. Moving down the P&L, we realized another quarter of excellent gross margin expansion compared to prior year, with all brands exceeding our expectations. Tapestry's gross margin rose 290 basis points year-over-year, as we successfully executed our strategy to maintain price discipline and leverage data analytics to tailor our product assortment and marketing messaging to the consumer. Coach drove the increase in the quarter with gross margin expanding 340 basis points compared to last year, driven by lower levels of promotion, resulting in higher AUR, along with the reduction in SKU counts as planned. At Kate Spade, gross margin increased 110 basis points, which included a benefit from channel mix, reflecting a strategic pullback and lower margin disposition sales. This was partially offset by the final quarter of negative impact related to bringing the brand's footwear business in-house. Kate Spade gross margin was significantly ahead of expectations due to lower levels of promotional activity in the North America value channels. In addition, SKU count began to decline. For Stuart Weitzman, the brand's gross margin rose 40 basis points due to a benefit from FX. SG&A declined 9% year-over-year, primarily reflecting effective expense management and the previously announced actions to transform the company's operating model. In addition, and as projected, SG&A in the quarter benefited from wage subsidies, risk concessions and a gain associated with the deferred purchase price of the Kate Spade China joint venture. These items were partially offset by reinvestments in the business, notably higher marketing spend and an increase in accrued annual incentive plan expense, given our outperformance year-to-date. Overall, we drove strong operating income and margin expansion compared to both FY ‘20 and FY ‘19 for the second consecutive quarter. We're extremely proud of these stand-out results which we delivered in the phase of unprecedented COVID-related external headwinds. As you will recall, we anticipated FY ‘21 would be a year of efficiency led profit growth and that our ability to drive increases in gross margin and reductions in SG&A would be the initial indicators of progress along our multi-year growth journey. Further, as expected, the outperformance of our margin accretive businesses, notably digital, across brands and China are supporting our significant margin expansion. The strength of the first half is a clear indication that our foundational changes and the strategies of our Acceleration Program are taking hold, reflecting the potential to fully unlock the flywheel and drive sustainable long-term growth. Earnings per diluted share for the quarter was $1.15 as compared to $1.10 a year ago, representing an increase of 5%. As anticipated, these results included a negative impact from a higher tax rate compared to last year due to the geographic mix of earnings, along with an increase in interest expense, primarily associated with the drawdown on our revolver. Now moving to distributions. For Tapestry, we closed a net of 18 locations globally in the first half, including three net closures in Q2, representing a net of 84 closures as compared to the prior year, as we continue to optimize our global fleet. Turning to a discussion of our balance sheet and cash flows. We ended the quarter in a strong position with $1.6 billion in cash and equivalents and total borrowings of $1.8 billion. Consistent with our stated near term priorities, we utilized free cash flow to pay down $500 million of the $700 million revolver drawdown during the quarter, with a $200 million balance paid down just last week. Therefore, at this time there are no longer any borrowings under our revolver. Total inventory ended the quarter 16% below last year, reflecting in part deliberate actions to reduce SKU counts and prioritize inventory turns. The ending inventory balance was below our expectations due to our sales outperformance in the quarter. Today, like many others across all industries, we are experiencing some distribution network disruptions related to COVID-19, resulting in shipping capacity constraints and port congestion globally. As a result, we anticipate longer lead times, which will delay the timing of receipts and limit our ability to chase higher levels of demand should it materialize. In addition, we expect the Kate Spade business to be affected by the widely reported Maersk Essen and ONE Apus cargo ship incidents, which will impact the brand's spring delivery. These factors have been contemplated in our outlook, which I will address shortly. CapEx for the quarter was $24 million, a decline of 52% versus prior year, as we continue to prioritize investments in high return projects, notably in digital, while tightly controlling overall spend and reducing our outlay for new stores. We now expect CapEx to be in the area of $135 million for FY ‘21 based on our favorable first half actualization. Free cash flow for the quarter was an inflow of $633 million, as opposed to $506 million last year. On a year-to-date basis, free cash flow was an inflow of $697 million. Our strong cash flow generation underscores the resilience and effective management of our brands and business. Now touching on our capital allocation priorities. As noted, the strength of our business and resulting free cash flow generation positioned us to fully pay down our revolver as of January. In the near term, we will continue to preserve our cash on hand, while reinvesting in the business. Longer term, our objectives remain unchanged. Our strategic intent is to return to sustainable top and bottom line growth, driving continued strong free cash flow generation, which will enable us to pay down debt, as well as return capital to shareholders. Turning to our outlook. As noted in our release, we are not providing detailed guidance for the fiscal year at this time due to lack of visibility. However, given our strong performance in the first half and assuming a continuation of the recovery from the pandemic in the second half, we are now projecting revenue to increase at a high single digit rate on a 52 week basis and in the area of 10% on a 53 week basis for the fiscal year. We continue to expect revenue to inflect in the second half, as we begin to anniversary the meaningful headwinds associated with the start of the global pandemic last year. This includes the expectation for sales to increase at a low double-digit rate in the third quarter. We are planning realistically, as we continue to monitor the external environment in light of the recent resurgence of cases across the globe and the noted supply chain and logistics challenges impacting receipts. We remain focused on controlling the controllables and are building a strong foundation for profitable expansion over the planning horizon. This includes continuing to take deliberate actions to lower promotional activity, increase AURs across brands, as demonstrated in the first half and to drive gross margin expansion for the fiscal year. As previously announced, we're taking steps to aggressively control our SG&A spend to implement structural changes to drive increased efficiency. Through these initiatives, we continue to estimate that we will realize approximately $300 million in gross run rate expense savings, including approximately $200 million in gross savings in FY ‘21 alone. However, with a higher level of variable costs associated with the higher sales forecast and reinvestments in our business, we would naturally expect our net savings dollars to be somewhat lower than originally anticipated. Looking ahead, we believe that we are creating a virtuous cycle of flywheel that should, as revenues inflect, drive bottom line growth, well in excess of top line gains over our planning horizon. In closing, we're very pleased with our strong half results, which demonstrate the bold actions we are taking under our Acceleration Program, the strength of our iconic brands and the resilience of our teams around the world and Tapestry's long-term potential to create value for all stakeholders. Looking ahead, we will continue to focus on those factors within our control as we navigate the uncertain environment in the near term. Importantly, our view of the long-term opportunities for Coach, Kate Spade and Stuart Weitzman is unchanged. Our brands continue to get benefit from Tapestry's enabling platform with the potential to achieve greater size and share than they could on their own. We remain steadfast in our strategic intent to drive organic growth and profitability and look forward to keeping you posted on our progress. I'd now like to open it up to Q&A.
Operator: Thank you. The floor is now open for questions. Our first question comes from the line of Bob Drbul of Guggenheim Securities.
Bob Drbul: Hi. Good morning. Congratulations.
Joanne Crevoiserat: Good morning, Bob.
Andrea Shaw Resnick: Thanks, Bob.
Bob Drbul: Thanks. I have two questions for you. I think the first one, how sustainable are these strong profit margin results? And then the second one is, when do you expect EPS to return to pre-pandemic levels? Thanks.
Joanne Crevoiserat: Thanks Bob. I'll take those one at a time. Two great questions. First, on the sustainability of the results, when we developed our Acceleration Program, it was with an eye on foundational changes that we needed to make, to be ready for what we were calling at the time, the new world of retailing. And the trends that we saw over a year ago have only accelerated through COVID, as you know, and that's given us stronger conviction to move quickly. These are foundational changes. They are embedded in our business. Some of those changes include, having a sharper focus on the customer. We're using more consumer data and research to inform our plans and our execution. We're leaning into digital, really leveraging the Tapestry platform to engage customers in a different way. We're making real headway here with triple-digit growth in digital, over the past two quarters. We're maximizing the opportunity with the Chinese consumer, as evidenced by the 30% growth we showed in Mainland China this past quarter. And we're leveraging data for decision making. And that means really embedding these tools in our decision making framework and our processes, which is supporting our approach to things like disciplined promotions, our SKU reductions, inventory control. And we're also delivering gross SG&A savings, as Andrea mentioned, which is about streamlining our operating model. It's about taking layers out and empowering our teams, so that we can drive agility and speed. And at the same time, we're investing in capabilities to reach customers in new ways. And I would say, finally, we're focused on driving more productivity and profitability from our fleet. I mean, these are sustainable actions. And they're embedded in our operating model as we move forward, and we expect to drive accelerated revenue and profit growth across brands. I think year-to-date, our performance shows the actions are taking hold. We achieved strong operating income growth and operating margin expansion despite the pressured revenue year-to-date. To the second part of your question, with our first half outperformance, our fiscal year ‘21 outlook implies a return to high teens operating margin, despite the external environment. And it also implies that in this fiscal year, we'll be approaching pre-COVID earnings on a 52 week basis despite the lower sales. So it really speaks to the success of our Acceleration Program and honestly, the strength of our team's execution.
Bob Drbul: Thank you.
Operator: Our next question comes from the line of Ike Boruchow of Wells Fargo.
Ike Boruchow: Hey. Good morning, everyone. I just wanted to dig on the…
Joanne Crevoiserat: Good morning, Irwin.
Ike Boruchow: Good morning. On the quarter-to-date and the third quarter outlook for revenue growth was really strong, especially in light of some peers of yours of what they've guided. Just curious if you could kind of dig into that a little bit more. I'm curious, what's going on in China. We've heard more channel restrictions and caseloads, so, curious if you're seeing volatility there? And then, in the North America market, specifically for Coach, how are you doing there? Is there a chance that you're back to positive comp there? Thanks.
Andrea Shaw Resnick: So maybe what I'll do is I'll start off with the China month-to-date comment. Obviously, as we spoke to on the call, we had very strong results in China during the quarter, up 30% across brands, up 35% in Mainland China for the Coach brand. And Todd can get into that a little bit more. Quarter-to-date, in Northern China, we've seen some resurgence in COVID cases. And we have a few temporary store closures, literally a handful. And we've seen some impact to traffic. But they do appear to be easing, as we move into the important China New Year - Chinese New Year holiday, which I think you know probably starts on February 12. So we're monitoring the trends. But as I said, things appear to be getting better. And we recognize that this is a near term dynamic. We're still as bullish as ever on the long-term prospects for our brands and business in China, especially in light of our second quarter results. Todd, I'll turn it around to you, what you're seeing in Coach.
Todd Kahn: Thank you, Andrea. We were really pleased with our second quarter results. And, in fact, in North America, the Coach brand was - we did comp positively in North America. So we're coming off of that. We're pleased with where we are quarter-to-date. As you can - as you know, for the brand, comp in the next two months gets very wonky as we have closures in China, and then we have closures in the US. But in terms of where we're at, again, we had positive comp in this quarter, and we like what we're seeing in the future.
Ike Boruchow: Okay. Thank you.
Todd Kahn: Welcome
Operator: Our next question comes from the line of Erinn Murphy of Piper Sandler.
Erinn Murphy: Great. Thanks. Good morning. My question is around digital. I think it's been three consecutive quarters that you've seen triple-digit growth. Can you just share with us, as the world reopens, where do you see the digital mix settling out? And if you can kind of help us through the P&L of that. I believe it's margin-accretive, but any other kind of details on kind of the longer term impact you see from that on the P&L? Thank you.
Joanne Crevoiserat: Yes. Good morning, Erinn. We are really pleased with our digital business. Another quarter of triple-digit growth, as you said. And as we look at it, we're in the middle of our fiscal year. But if you look on a trailing 12 month basis, our digital business has grown to $1.3 billion. So we're achieving significant scale. It's more than double where we were a year ago at this time. We ramped up quite quickly. And we're getting much better at engaging consumers on these platforms through e-commerce and social platforms. In fact, our digital business has been a great source of recruitment. We recruited over 1.5 million new customers in North America through digital channels, just this last quarter alone, across all of our brands. It is an important channel. We do see it continuing to grow. These digital shopping behaviors, we think, will be sticky, and we're well-positioned to continue to invest in and engage consumers here. And to your point, our digital margins are accretive versus their brick-and-mortar counterpart. So as we grow this and continue to grow this channel and meet our customers where they want to shop, it also is a tailwind from an operating margin perspective as we move forward.
Erinn Murphy: Great. Thank you.
Andrea Shaw Resnick: And just to add a little bit of context on that. And Erinn, I think you know this, but we have a relatively high AUR compared to your average retailer or e-tailer, should I say. And we have a fairly low rate of return, because we don't have size inventory for the most part. Most of our goods are leather goods. So at that, it takes that and then understand that we have the lower cost structure having been in fulfilling orders since we were - Coach was a catalog company. Our digital margins are well higher than those of the B&M channel, brick-and-mortar channel. And therefore, as we continue to grow in digital, that is going to support both the higher level of sales and a tailwind to operating margins.
Erinn Murphy: Great. That's all I have. Thank you.
Operator: Our next question comes from the line of Alexandra Walvis of Goldman Sachs.
Alexandra Walvis: Good morning, everyone. Thanks so much for all the color. Thanks for taking my question. I had a question about new customers. You shared a few details on those new customers. I think you mentioned they were younger. I think you mentioned they spent more. I wonder if you could go into that in a little bit more detail. Are those customers distinct from the customers that were shopping in your stores previously? What sort of age range are they? And then how are they spending? Is the higher spending rate because they're buying more expensive products? Is it because they're buying more product? Any further comments on that would be super interesting. Thank you.
Joanne Crevoiserat: Yeah. I'll take the big picture and then pass it to Todd to give you some input on what we're seeing in Coach specifically. But overall, our focus through our Acceleration Program is to sharpen the focus on the consumer. And as we do that, we're looking at ways that we can engage consumers with our brands. Some of that is on digital and social channels, and we're building the tools and capabilities to be able to engage more consumers in our brands. We're gaining a lot of traction. We've added a lot of customers to our brands. When I talk about recruiting 1.5 million new customers, these are customer’s who are new to the brand overall. So these are not customers who are just migrating from brick-and-mortar into digital. We are seeing some of that behavior naturally with the lower traffic to our stores. But these are new to brand customers. And as you mentioned, they're increasingly younger. We're acquiring younger customers at an increasing rate as we engage in e-commerce channels and digital channels and through social media, which is great for the long-term health of our brands. And I'll kick it to Todd to give you a little bit more color on what you're seeing at Coach.
Todd Kahn: Thank you, Joanne. We are so pleased with this. Not only did we have 1 million new customers in the quarter. But if you think about year-to-date, we added 2.5 million new customers to the brand, mostly through digital. So that's exciting. We are seeing them – you know, almost half being younger, Gen Zs and millennials. We're not seeing them buy necessarily higher priced product. But since the brand overall is less promotional, we're seeing that lift of AUR, it's winning across every demographic. Lastly, its early days, but we're seeing a fairly high repeat purchase rate. So that's very exciting to see that maintaining a relatively high repeat purchase rate on such a higher base is very exciting. And so we see this continuing. We're really looking at our data, all of the consumer insight to understand what's going to appeal to them, what's the medium, what's the messaging that we're going to continue to use, and it influences our design. So again, I think you've heard Joanne talk about the benefits of the flywheel. This is one where it comes into life.
Alexandra Walvis: Thanks for the color.
Todd Kahn: You are welcome.
Operator: Our next question comes from the line of Mark Altschwager of Baird.
Mark Altschwager: Good morning. Thank you for taking my question and congrats on the progress so far. I was hoping to dig into the performance at Kate Spade a bit more, and really, your assessment of the progress with the strategic changes that you're making. If asked another way, trying to get a better sense of the cyclical recovery that may be emerging here versus some of the course corrections of the brand missteps in the recent past. And then it's separate, but also related to Kate. You called out a reduction in wholesale disposition as a headwind there. Maybe just where are you in terms of your level of exposure to that channel versus where you plan to be on a go-forward basis? Thank you.
Joanne Crevoiserat: Hey. Mark, good morning. Regarding Kate Spade, as we mentioned, we are really pleased with the progress we're making in that brand. And we have a number of promising greenshoots. I would say we're still early days in terms of the actions we're taking to restore the brand, to help and drive the brand to its fullest potential. And we are really encouraged by the greenshoots that the team is taking. We're seeing operating margin expansion, improvement in the topline, and that's being driven by our focus on our assortment and the product is resonating with our consumer. We've talked about our handbag assortment and stabilizing and reenergizing our core handbag assortment. We're seeing traction behind key elements of that assortment and talk about the Spade Flower and the all-day tote that we released in last quarter, all performing. So that's a greenshoot. We're recruiting new customers, which is important to the brand, so that we can continue to expand the Kate Spade community. But we're also increasingly reactivating lapsed customers, which says that as we get back to the fundamental elements of the brand, we're resonating with our core customer base. So that was another greenshoot in the quarter. And I would say, finally, our global handbag AUR grew in the quarter, which is - has been really nice progress, and I think speaks to the relevance of the product as we're delivering it. So we feel really good about the progress we're making in the Kate Spade brand. As it relates to Dispo, obviously - maybe not obviously, that is a channel that we're trying to minimize, and we've made tremendous progress on that over the past few quarters. So we continue to focus on driving our business through our value channels, to our consumers, as well as through specialty. And we're making, as I said, really good progress. And really, the great news for us is that we're only just beginning. We see a tremendous amount of potential for the Kate Spade brand as we move forward.
Andrea Shaw Resnick: And I would just add to that, Mark, that we are very pleased that our inventory position, they're very clean across Tapestry and at Kate Spade, in particular.
Mark Altschwager: Great. Best of luck.
Joanne Crevoiserat: Thank you.
Todd Kahn: Thank you.
Operator: Our next question comes from the line of Lorraine Hutchinson of Bank of America.
Lorraine Hutchinson: Thanks. Good morning. The shift to digital has been pretty sharp. Are there any big investments you need to support this strong growth? And then how does the shift change your thinking about the size of the fleet?
Joanne Crevoiserat: Hi, Lorraine. Thanks for that question. Yeah, the shift in digital has been rapid, and we've seen that more than doubled in the last 12 months, our total digital. I mentioned earlier, but $1.3 billion now business has reached sizable scale as well. And we have reacted quite quickly to support that business. We've added distribution square footage. We've added carrier partnerships and we continue to make the investments required to support that business on the distribution and fulfillment side, as well as investing in the platform and the data and technology and the tools that we need to manage that business. The teams have done a great job moving inventory around the world to ensure we're supporting demand where we see it. So we feel great about our position, our Tapestry platform and the scale that we bring to our digital business. And as it relates to the fleet, you know, our first focus is to sharp - is on the customer, right? We want to follow where the customers, we want to meet the customer where they are. And our shift into digital this year has really been to serve our customer where they and how they want to be served. And as we think about the fleet, we think about it through that same lens. We've talked about over the last couple of quarters, raising the thresholds of profitability and our expectations for the productivity and profitability for our fleet, and we continue to manage our fleet with those expectations, higher expectations for productivity and higher expectations for those - our brick-and-mortar stores to be profitable. Having said that, we also believe that there is a need for physical touch-point of the brand, stores matter. And we're investing in and ensuring that, that physical touch-point is the right experience for our consumer. And a great example of that is the store that we opened up in Shanghai and the IAPM Mall, it's a fully immersive digital store with floor-to-ceiling video walls that engage our consumer and let them engage with the video on the wall. So it's about the experience, but our - from a financial perspective and how we manage our business and our fleet, is with an eye on productivity and profitability.
Lorraine Hutchinson: Okay.
Todd Kahn: And the store that Joanne is referring to, I have to take a little pride is a Coach store. So we're - we love what we're seeing there. And it's something that I think we can adopt and have learning’s across the fleet, obviously, for Coach as well as the rest of our Tapestry brands.
Joanne Crevoiserat: Yes. Thanks, Todd. Didn't mean to steal your thunder.
Todd Kahn: You’re welcome. Okay. No, problem.
Operator: Our next question comes from the line of Oliver Chen of Cowen.
Oliver Chen: Hi. Thank you. You've made encouraging and innovative progress at Coach outlet and also broadcasting to that customer and being inclusive and offering value. Could you update us on that strategy and where it is? And how it may synergize with your greater ecosystem? And also, as we think about outlet, how is outlet running with respect to promotions and traffic? It sounds like you've had really encouraging AUR gains there as well? Thank you.
Todd Kahn: I guess, I'll take that. I mean, you hit - you read our playbook. It is all about innovation, about messaging beyond just the product. So we see that the consumer really cares. They are value and value-oriented. So - and we're going to continue to double down on that. And we see it resonate, not just in North America, but globally. In North America, traffic is down. We see that, and that's going to continue to be a headwind until we get to through COVID relief and vaccination. But we're optimistic that we'll see a return. And as Joanne just mentioned, there is going to be and continue to be a strong brick-and-mortar business at Coach, both in full price and in outlet. In terms of coachoutlet.com, our strategy remains, we're being very responsive to the consumer, providing the consumer with really innovative product that both has their - satisfied their emotional needs and their functional needs. And you're going to see continue really accelerated innovation in all channels for Coach. So we're very pleased. We are going to be very, very rigid on the promotionality of the brand and continue to provide value and promote value versus pure price.
Oliver Chen: Thank you. And Joanne, sustainability and ESG are big priorities for us in our research product and - and other. What are your thoughts in terms of key priorities for the organization? And what would you highlight as your focus areas as you approach these topics? Thank you.
Joanne Crevoiserat: Yeah. Thanks, Oliver. That's a great question. And ESG and sustainability, overall, is something that has been very important. It's important to each of our brands, and it's important to Tapestry as a company. In fact, as we were forming Tapestry as a company a few years ago, we talked about how ESG needed to be part of the fabric of our company. And we created our social fabric, which encompasses our ESG program, if you will our goals. And they're around people, communities and in our environment. And so, all three of those areas are focused areas of ours. As it relates to our people goals, it's about having more representation, across our organization and in leadership. And we continue to hold our teams accountable for progress. There's definitely more work we need to do there. But we remain very focused on it. And as it relates to communities, it's about how we impact our communities, as a company. And that's through our foundation and the work our foundations do, but also through volunteering efforts from our teams. And I would say, lastly, on the environment, we're very focused on our carbon footprint, and the impact and traceability of our supply chain. So those are some of the areas of focus. It is a very important element of our strategies going forward. And we're holding ourselves accountable to making progress on our goals.
Oliver Chen: Thank you very much. And best regards.
Joanne Crevoiserat: Thanks, Oliver.
Operator: Our next question comes from the line of Matthew Boss of JPMorgan.
Matthew Boss: Great, thanks. And congrats on the improvement.
Joanne Crevoiserat: Thanks for that.
Matthew Boss: Maybe on the topline inflection that you cited for the back half, could you speak from these indicators that provide your confidence in accessories to category growth coming out of the pandemic versus pre-pandemic? And then on the bottom line model flow through to exceed topline growth, as you cited, could you just speak to sustainability of Coach brand operating margins, here in the low 30s?
Joanne Crevoiserat: Yeah. Let me talk about - I'll take the category more broadly. And then, Todd and Andrea can talk about the sustainability of our margins. But as we think about the category, this - we have that small leather - has been a strong category, pre-COVID. For years, leading into the pandemic, the category was growing mid to high single digits. We've been incredibly pleased with the level of engagement that customers have had with the category, as we move through the pandemic. That's evidenced by our digital business, but also in areas in China, where the recovery is further along, we're seeing strong growth. So, continue to see consumers engage with the category. And we continue to hear, that handbags, these categories are emotional categories, that consumers love and they continue to purchase to treat themselves. They consider the purchase a treat. And so we've also done some research, in the middle of COVID about purchase intent going forward. And what we've heard from consumers is that, there continues to be strong purchase, intent for our categories. It ranks one of the highest categories for purchase intent in the coming 12 months. So we're pleased with the engagement in the category during the pandemic. We expect the category to continue to grow post pandemic. And as I think about it, as the vaccine rolls out and the world opens up again and people begin to connect in the physical world, we expect people to be going to events again and going out to eat, and we are very excited to be able to continue to grow our business, as we outfit our consumers, as their habits change going forward. So we see a lot of growth ahead as well. And Todd - in terms of sustainability margins, I addressed that a little bit in our - my first - the first question today, but our - the changes we're making in our organization are embedded in the organization. And we do think they're sustainable. But I'll pass it to Todd to take these.
Todd Kahn: Thanks, Joanne. We do see significant potential to grow topline. We said, and we said this now repeatedly over a number of quarters, our goal is to capture market share. And we think we can do that at higher levels of profitability. What you see some of the key drivers are digital, obviously, China and just driving higher gross margin and reducing our fixed cost base, particularly with the discipline on promotions and the increase in AUR. So we're pleased where we're at, and we see a lot of runway.
Andrea Shaw Resnick: And just to round it out on total Tapestry, as Joanne mentioned, based on our FY '21 outlook, you can imply a return to high teens operating margin, even on a 52 week basis, which is above our prior peak at Tapestry rate at 17% despite the external environment. And as Joanne mentioned, it does imply that EPS will hit or approach, I should say, pre-COVID FY '19 type of level. But importantly, we see continued opportunity from here, supported by continued revenue growth and operating expansion across brands. I think we have significant opportunity at both Kate Spade and at Stuart Weitzman to improve their gross margins. And obviously, we'll see the flow through on the higher level of revenues. And if you look in the next a couple of quarters, obviously, third quarter, we'll still see a very good increase in gross margin, led by Coach. Fourth quarter will be slightly pressured in terms of gross margin. And then in terms of SG&A, we would expect SG&A dollar growth to be down in the third quarter slightly, even though we'll have that nice gain, low double-digit in sales. And then in the fourth quarter, we would expect SG&A dollar growth to be up significantly on a year-over-year basis as - given last year's closures, et cetera, et cetera. Going forward, we still think there's significant opportunity for Tapestry's overall operating margin.
Matthew Boss: Congrats again.
Andrea Shaw Resnick: Thanks, Matt.
Todd Kahn: Thank you.
Operator: And ladies and gentlemen, we have time for one more question. Our final question will come from the line of Omar Saad of Evercore.
Omar Saad: Thanks for squeezing me in and thanks for all the information. Really, I just wanted to ask about the digital outlet strategy. What you're seeing there, any updates around that? Obviously, your e-commerce business is doing well. So I assume that's doing well. Are you seeing new customers come in through that channel? Are you seeing people cross-shop that channel? As you engage more digitally in that channel, I'd love to see what you're learning about the customers there? Thanks.
Todd Kahn: Yes. Thank you, Omar. We are seeing a new customer. And as we said, it is both in digital - both in outlet and in full price. It's a younger customer. They're value-oriented, and we see potential for a lot of crossover. So we're excited about this. Again, we recognize that the value customer is an omni-customer. And so we want to be there for that customer. So again, early days we're going to see a lot of growth here. We're going to lean in on this opportunity across the globe. So this is not just a North American opportunity. I see this opportunity present itself in a lot of our territories of the future.
Omar Saad: Thanks. Best wishes. Thank you.
Todd Kahn: Thanks, Omar.
Joanne Crevoiserat: And before we close...
Christina Colone: I'll turn it over to Joanne for some closing remarks.
Joanne Crevoiserat: Thank you, Christina. I just want to thank everyone for joining us today. We are pleased with our outperformance to-date in a uniquely challenging environment, and it underscores the progress we're making through our Acceleration Program. I do want to take a moment to thank our talented teams around the world who move mountains to deliver for our customers this past quarter. The challenges will speak, but their passion, energy and ingenuity made these results possible. Our performance this quarter reinforces our competitive advantages of our talented global teams, our great brands and Tapestry enabling platform and gives us confidence in our long-term strategy and ability to create value. And I believe we're positioned to emerge from the pandemic stronger with the ability to capture market share at higher levels of profitability. And I look forward to keeping you posted on our progress in the coming quarters. Thank you.
Operator: Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.
