Joanne Crevoiserat
Chief Executive Officer at Tapestry
Good morning. Thank you, Christina, and welcome, everyone. As noted in our press release, our third quarter earnings results outperformed expectations, reflecting an unwavering commitment to disciplined brand building and operational excellence. Our talented global teams continued to advance our long-term initiatives, fueling innovation and consumer connections, while successfully harnessing the power of our customer engagement platform to navigate the dynamic backdrop with focus and agility.
Touching on the highlights for the quarter. First, we delivered total revenue, in line with the prior year on a constant currency basis, consistent with the low-end of our guidance range. These topline results were led by international growth of 3% at constant currency, which included increases of 19% in Europe, 15% in other Asia and 2% in Japan, with each region expanding versus the prior year, fueled by traction with tourists.
In Greater China as anticipated, sales declined 2% against last year's strong revenge spending. We remain confident in the long-term opportunity in China despite a more gradual recovery in the region than originally expected, and we continue to invest in our brands, teams and platforms to support our growth.
Finally, in North America, revenue declined 3% compared to last year amid a challenging consumer backdrop. Importantly, we are continuing to drive a healthy business, underscored by significant gross margin expansion compared to last year and our plan.
Second, we continued to put the consumer at the center of everything we do to drive engagement and emotional connections with our brands. In the quarter, we acquired approximately 1.2 million new customers in North America alone, of which over half were Gen Z and Millennials, consistent with our strategy to recruit younger consumers to our brands. And we continue to see new customers transact at higher AUR than the balance of our customer base. At the same time, we improved lapsed customer reactivation in North America.
Third, we delivered unique omnichannel experiences with a focus on driving brand desire, consumer connections and cultural relevance. We launched immersive retail experiences across brands globally, with highlights that include the continued rollout of the Coach play concept and Kate Spade's successful renovation of the Gotenba outlet in Japan. And just last month, we introduced the Stuart Weitzman shopping shop in Nordstrom in New York City. We believe these locations drive awareness and customer acquisition, notably with younger cohorts.
Further, we maintained our strong digital positioning, with sales more than three times above pre-pandemic levels, which represented over 25% of revenue. Importantly, our digital business is underpinned by Tapestry's data rich platform and leading capabilities, which has enabled us to seamlessly meet consumers where and how they're shopping across their purchase journey.
Fourth, we fueled fashion innovation and product excellence by delivering compelling assortments to consumers with particular success at Coach, where we drove handbag AUR gains at constant currency. Importantly, this focus also continued to drive operational gross margin expansion, helping to fuel our highest third quarter gross margin in nearly two decades. We understand innovation wins with consumers, and we are committed to bringing creativity, quality, and compelling value to customers around the world.
Overall, we generated third quarter operating income and earnings above expectations, driven by stronger-than-anticipated margins, highlighting the power of brand building, consumer centricity and operational agility. We achieved these results while making strategic investments in our brands to support healthy, sustainable growth into the future.
Now turning to highlights across each of our brands, starting with Coach. Our team delivered another strong quarter with the power of the brand's unique expressive luxury positioning once again on display. We continued to infuse innovation across all customer touch points, driving engagement, cultural relevance and emotional connections with customers globally. Importantly, the success of our strategies, together with consistent execution is evident in our financial results with revenue growth at constant currency, significant gross margin expansion and profit gains, with further runway ahead.
Now touching on some details of the third quarter. We continued to drive growth in our handbag offering, led by our iconic platforms. The Tabby family delivered another quarter ahead of expectations and nearly doubled versus last year. The introduction of our Quilted Tabby was an incredible success, fueled by the top selling black Tabby with brass hardware at a premium AUR of $550. At the same time, core Tabby styles remain strong, and we see further opportunity ahead across the entire family. While we continue to animate this family, we're leaning into key styles, including Quilted Tabby, and see further opportunity ahead.
Across the balance of the assortment, our timeless Willow and Rogue families remain foundational volume drivers, and we augmented our offering to build relevance with younger consumers, including the Coach original Swing Zip, which has gone viral on social media, as well as the Ace Tote, both of which over index with Gen Z customers. Overall, our creative and innovative products supported an increase in global handbag AUR at constant currency, including growth in North America. Looking forward, we see continued runway longer term, given our innovation pipeline and brand heat. At the same time, we advanced our focus on building out the lifestyle assortment to expand the brand's reach with consumers with the goal of powering customer recruitment, purchase frequency, and ultimately customer lifetime value.
In footwear, sales rose against last year, reflecting success in our core styles, notably the lowline sneaker as well as strength in newness, including our brin sandal. In men's, the Gotham Charter and recently launched Hall families led in the quarter. And in ready to wear, we debuted classic denim styles, contributing to the strong success of denim across all categories, in keeping with market trends.
Next, we created purpose-led storytelling, building meaningful emotional connections with the brand. We again blended purpose and product with our spring Find Your Courage campaign, inspiring consumers to embrace confident self expression. The campaign takes place between the physical and virtual worlds, brought to life with the help of members of the Coach family, including Little Nas X, Camilla Mendes, Youngji Lee, and Wu Jinyan, as well as our newest member, Ema, a virtual model and digital creator.
Further, we launched deeply unique and immersive retail experiences across the globe, engaging the consumer across all five senses. We took Coach play to Tokyo, opening our largest concept store yet on Cat Street, which celebrates the brand's heritage, self expression and local Japanese culture. Importantly, the store resonates with younger consumers and has outperformed expectations.
In March, we launched the brand's first full-service restaurant at the Grand Indonesia Mall in Jakarta, highlighting Coach's expanding presence in Southeast Asia and our strategy to connect with consumers through experiences beyond product. Overall, the brand's marketing and focus on omnichannel experiences help to drive new customer acquisition, including nearly 800,000 new customers in North America, of which nearly 60% were Gen Z and Millennials, and we've seen gains in unaided brand awareness in the U.S. per our brand tracking work, underscoring that our investments in brand building are working.
Finally, we continued to build our sub brand, Coachtopia, our reimagination of the product creation process to evolve our vision of circularity, which has driven incremental brand relevancy and desire. During the quarter, we launched the Road to Circularity, a Coachtopia docuseries that explores how we're reimagining waste is a valuable raw material. And in April, we unveiled Coachtopia inaugural store in Hainan, an initiative that combines our mission of sustainability and our commitment with investing in brand building in China, and with Chinese consumers. While Coachtopia remains a small portion of the assortment, we're excited by the momentum we're building, specifically with younger audiences. In closing, Coach is fueling consumer desire, bringing expressive luxury to life while driving sustainable, healthy profit growth that funds investments in brand building. We are confident in the future and the tremendous potential for this iconic brand.
Now moving to Kate Spade. During the quarter, while topline results were challenged as anticipated, profit exceeded expectations in prior year, led by continued gross margin expansion and disciplined expense management. Importantly, we advanced our strategic agenda, sharpening our execution to bring enhanced innovation to consumers. And where we've offered newness, we've seen our customer respond. This progress reinforces our path forward as we build a more profitable business, while remaining focused on driving the topline growth required to realize the long-term potential of the brand.
Now touching on our strategic priorities and results in more detail. First, we remain focused on strengthening the brand's core handbag foundation, a requirement to win in today's dynamic consumer backdrop. During the quarter, we broadened the core assortment across channels through new introductions, including the suite work Tote, Phoebe and Spade flower signature programs. Importantly, newness drove higher customer recruitment, AUR and gross margin versus the balance of the offering. At the same time, the performance of newness also reinforces our sense of urgency to refresh our carryover families, which remain pressured. To this end, the pipeline of handbag newness will continue to increase into fiscal year '25, building on the progress we're seeing today and supporting the brand's runway for enhanced revenue and profitability. And as we innovate our core handbag offering, we will also continue to deliver emotional lifestyle assortments, a differentiator for the brand. During the quarter, we delivered growth in jewelry, which is a key recruitment vehicle and profit driver for the brand.
Now turning to our second strategic focus area, powering the omnichannel experience to drive customer engagement. As you know, we recently launched a dedicated Kate Spade outlet.com site, replacing the brand surprise site and providing a more seamless way for outlet consumers to discover and shop the brand online. As a result of this effort, our outlet, omnichannel customer penetration increased in the quarter and remains an opportunity to drive customer lifetime value over time. Further, by bringing a more unified experience to consumers across all brand touch points, we can continue to more efficiently scale our marketing and merchandising efforts, supporting our goal of driving sustainable, direct-to-consumer growth.
Third, we are focused on creating emotional marketing that fuels brand relevance and heat. During the quarter, we launched a new global campaign, Time to Spring, anchored in the brand codes of joy, color in New York City, which garnered significant media impressions and strong engagement on social platforms. Our marketing investments supported the acquisition of approximately 400,000 new customers to the brand in North America. Moving forward, we will continue to distort our marketing efforts to top and mid-funnel activations that support brand building and growth. And finally, we will maintain a commitment to operational excellence, positioning the brand for long-term success. This focus has underpinned the brand's meaningful gross margin and profit expansion this year and is embedded in our strategies and ways of working for the future. Overall, we continue to advance our long-term strategies with the relentless focus on accelerating our progress. Our path forward is clear and our vision for the brand and its potential is unchanged.
Turning to Stuart Weitzman. Results in the quarter were pressured, reflecting headwinds in the brand's two key markets of North America and Greater China. Despite the challenged financial performance, we remain focused on supporting brand health by investing in product and marketing to drive growth and profitability long term.
Touching briefly on these focus areas. During the quarter, we expanded our assortment of casual styles in keeping with market trends. This included new block heels, wedges, ballet flats and loafers, which are performing particularly well across key full-price wholesale accounts, supporting strong sales gains at POS in North America. Further, our fall and pre-spring wholesale bookings are up meaningfully, reflecting our progress in delivering product innovation and relevancy. Further, we continued to build out new categories with the launch of the brand's men's collection and an expanded sneaker assortment. At the same time, our handbag collection, while still a small portion of the assortment, drove growth at high aur.
Now turning to marketing. During the quarter, we drove relevance by tapping into cultural moments to amplify our key product strategies. For example, we launched our pre-spring collection with the backdrop of Palm Beach and leveraged a multifaceted influencer approach to reinforce our recently launched sneaker offering, with Sofia Richie Grainge, Suki Waterhouse and Jenna Dewan showcasing Stuart Weitzman trainers. As a result of these efforts, U.S. Google search queries for the brand increase, while consideration also rose in the U.S. per YouGov. Overall, the Stuart Weitzman team is leaning in to accelerate progress and enhance profitability longer term through relevant, differentiated product and emotional marketing to fuel brand desire.
In closing, Tapestry delivered third quarter earnings ahead of expectations, successfully advancing our strategic agenda to power our iconic brands to move at the speed of the consumer in an everchanging environment, while investing in our future. We remain confident in our vision and the significant long-term opportunity to drive sustainable, organic top and bottom line gains and meaningful shareholder value.
Before turning the call over to Scott to discuss our financial performance and outlook in more detail. I'd like to provide an update on our pending acquisition of Capri. First and foremost, we remain excited by the opportunity to expand our house of powerful brands, positioning Tapestry as a leader in innovation. The combined company will bring significant benefits to customers, employees, partners and shareholders around the world. By investing in and growing Capri's brands, we will bring more innovation to more consumers globally, positioning us to better compete within the growing over $200 billion global luxury market for handbags, accessories, footwear and apparel. Further, through this combination, we will be a home and incubator for talent, driving our purpose-led and people-centered mission and continuing to elevate employee and consumer experiences.
With regard to the transaction time lines, following unconditional approval from the European Commission and regulatory approvals in China and Japan, the FTC filed the suit on April 22nd to block the proposed acquisition. We remain confident in the merits and pro competitive, pro consumer nature of this transaction and look forward to presenting our strong legal arguments in court. Our timeline always contemplated the potential for litigation, and we continue to expeditiously work to close the transaction in calendar year 2024. In the meantime, and as always, we remain focused on continuing to execute on our current business and strategic growth agenda.
I'll now turn it over to Scott.
