Joanne C. Crevoiserat
President, Chief Executive Officer and Director at Tapestry
Good morning. Thank you, Christina, and welcome, everyone. Our third quarter results were well ahead of our expectations, despite the challenging environment. We drove increased customer demand across our portfolio, resulting in double-digit top line growth at Coach, Kate Spade and Stuart Weitzman, and EPS well ahead of our outlook. Our continued outperformance demonstrates the vibrancy of our brands, the power of our digitally-enabled platform and the successful execution of our strategy by our talented teams around the world. Importantly, our progress reinforces the significant runway we have ahead of us as we harness our unique blend of magic and logic. The combination of iconic brands amplified by an agile and data-rich operating model creates tremendous opportunity. Our brands are at the heart of our company. They occupy distinctive positions in the attractive and resilient accessories market. Each has a rich heritage and substantial potential for growth. This is evidenced by the strengthening brand heat we're seeing through meaningful new customer acquisitions as well as growth with existing customers across our portfolio.
We are focused on building lasting relationships with our customers to increase lifetime value through continuous innovation in both our product and the experiences we offer throughout the purchase journey. The opportunities for our brands are enhanced by our platform, which has been transformed to power them to move at the speed of the consumer. We are leaning into our digital leadership, meeting consumers where they want to shop and providing exceptional experiences when they get there. We're also leveraging our rich consumer data and sophisticated analytics to establish and enrich our customer connections, augmenting our creative processes with a deep understanding of our customers, while bringing faster and more consistent execution to bear. The benefits of investments in digital and data analytics are highlighted by our results over the last two years, and we're still in early innings in terms of unlocking this potential. Our platform also affords the benefits of scale, shared learnings and talent mobility. These advantages are increasingly important in today's rapidly evolving landscape and allow us to have a greater positive impact on our customers, our people and the world at large.
Before moving to our recent highlights, I want to recognize those that are being impacted by conflict in Ukraine and by the ongoing ravages of COVID-19 in China and elsewhere. Our hearts go out to them during this turbulent time. Now turning to Tapestry's performance in the third quarter. First, we maintained a consumer-centric lens by leveraging the magic of our brands and our powerful customer data and analytics capabilities to drive improvements in key customer metrics. We acquired over 1.4 million new customers, who transacted with our brands across channels in North America, a mid-teens increase compared to the prior year, with continued growth in both stores and online. Since the start of the Acceleration Program 21 months ago, we have brought in nearly 13 million new customers to our brands. Importantly, these customers purchased at higher AURs and have already returned to shop again at a higher frequency than the average. At the same time, we continue to effectively reactivate lapsed customers, while realizing increased average spend, highlighting our focus on driving lifetime value to fuel sustained growth.
Overall, the underlying momentum across customer metrics drove our standout performance in North America in the quarter. Second, we continue to lead in digital, driven by the investments we've made in our capabilities online. In the quarter, we delivered sales growth of over 20% in the channel, which represented approximately 30% of our total business. As consumers remain extremely engaged in shopping online, we continue to expect to achieve $2 billion in revenue in digital in fiscal '22 with further runway ahead. Third, we continue to see pricing power across the portfolio and realized another quarter of global AUR gains in each brand's core category. Importantly, we have seen no negative impact on customer demand from these price increases, highlighting our value proposition, brand relevance and the increasing traction of our product offering. And fourth, touching on China, our business was impacted by COVID-related restrictions in the quarter. Although we expect these headwinds to continue in the near term, we remain optimistic given the proven resilience of the Chinese consumer and the long-term opportunity for growth.
Overall, brand awareness and handbag purchase intent in China remains high, reflecting the quality of our efforts to build brand equity with Chinese consumers. In summary, we continue to make meaningful progress supported by the Acceleration Program, and we are confident in our ability to drive sustainable growth going forward. I will now touch on third quarter highlights for each of our brands, starting with Coach. We drove another quarter of top and bottom line outperformance, achieving a sales increase of 11% compared to prior year, including a nearly 20% gain in North America. This continued growth reflects our consumer-centric strategy and agile execution and underscores the significant potential ahead for the brand. During the quarter, Coach continued to advance its strategic initiatives. First, we delivered a focused and compelling product assortment across categories. Our iconic leather goods families are the foundation of our assortment and fuel consistent growth. Tabby, Rogue, Field and Willow were our top-selling groups in the quarter, driving half of retail's handbag revenue.
To continue to spark consumer interest, we've animated these families with new colorways, fabrics and embellishments. Outside of our core styles, the Studio bag, featuring a push lock C closure, resonated with consumers, while the launch of the new Hero shoulder bag, posting a Horse & Carriage snap closure, outpaced our expectations. In our lifestyle categories, we're driving outsized growth, yet remain underpenetrated versus the market. In both footwear and ready-to-wear, customers are embracing our highly branded pieces, reinforcing Coach's desirability and the incremental commercial opportunities these categories represent currently and over the long term. Second, we continue to build brand awareness within men and delivered over 20% growth in the quarter, led by strength across backpacks, ready-to-wear and footwear. Importantly, given the success, we expect to approach $950 million in revenue this fiscal year, closing in on our near-term target to reach $1 billion in sales. Third, our product offering was further enhanced by the use of data, which provides customer insights and analytics to support new, more agile ways of working and higher SKU productivity.
Together, this supported a significant pullback in promotions and drove full-price selling, resulting in an increase in global handbag AUR. In North America, handbag AUR rose at a high single-digit pace, marking 12 consecutive quarters of gain. Our momentum and the customer's response to the style and craftsmanship of our product reinforces Coach's pricing power and a further opportunity to increase prices to offset inflationary cost pressures. While we have raised prices selectively over the last quarter, the majority of the benefit will be realized at Coach beginning in fiscal year '23. Fourth, we drove customer engagement through 360-degree marketing activations. We amplified our spring product introductions on social platforms, notably TikTok, targeting Gen Z and millennial consumers. Additionally, building on the success of the brand's February fashion show, themed Somewhere in America, we created localized, immersive experiences through a collection of pop-ups across the globe, including a Coach laundromat, convenience store and bagel shop. These fun and unexpected venues enabled us to attract new customers and expand the way our brand is perceived.
We also emphasized our values through the Coach ReLoved Program, an opportunity to engage with the customer in different ways by offering circular pathways for our products, whether through upcrafting, restoring or remaking. Given the success of the program thus far, we've expanded its reach across our North America retail stores. Overall, the combination of these actions drove further improvements in customer metrics, including the acquisition of over 800,000 new customers transacting in North America channels. At the same time, purchase frequency again rose, and we reactivated lapsed customers at an increasing rate. Fifth and finally, we again drove outsized revenue growth in the digital channel, which rose nearly 25% compared to last year or more than five times where we were three years ago. In the quarter, e-commerce represented nearly 30% of sales. In closing, Coach is consistently building momentum, reflecting the new and innovative ways we're engaging with consumers. Based on our underlying growth, we continue to expect the brand to approach $5 billion in revenue this fiscal year, while maintaining exceptional margins despite the COVID-related challenges we're facing.
Looking ahead, we have significant runway to drive growth across our product offering by enhancing our leadership position in leather goods and delivering outsized gains in men's and our lifestyle categories. Additionally, we see meaningful long-term potential across high-growth channels and geographies, such as digital and China, given consumer demand and the brand's value proposition. Taken together, we remain confident in Coach's ability to gain market share, given increasing brand heat and the relationships we're fostering with our growing customer base. Now moving to Kate Spade. Sales and operating income significantly outperformed expectations once again this quarter. Revenue rose 19%, which included a 25% increase in our North America business. The brand continues to gain momentum as we forge connections with our customers by leaning into Kate Spade's unique positioning within the market. Overall, our strong results year-to-date speak to the relevance and clarity of our brand purpose and underscore that we have the right strategy in place to drive sustainable growth over the long term.
Turning to progress against our strategic priorities in the third quarter. First, we amplified key platforms as we continue to build and innovate our core product offering, while infusing newness in our novelty platform. Within handbags, success was balanced across our core styles and new introductions. The Knott remained our number one collection, which we expanded to include a crossbody tote. At the same time, recently launched styles, such as the Carlyle and Avenue, outperformed expectations. Further, we invested in novelty introductions that demonstrate the brand's unique personality and play a key role in storytelling to drive interest and engagement with consumers. This quarter's offering featured handbag shaped as flowers, tennis balls and butterflies. These styles won with our highest-value customers, and they carry AUR well ahead of the average. Importantly, this strong performance as well as deliberate actions to decrease promotional activity and strategically raise prices resulted in nearly 20% global handbag AUR growth. Second, we drove brand heat by engaging the consumer through emotional storytelling and a community-driven approach in keeping with our DNA. Our floral-focused spring campaign reinforced our brand purpose by evoking the color and joy that Kate Spade is known for.
We delighted our community with the opening of an experiential Kate Spade townhouse in New York City, which was met with a line of enthusiasts nearly two city blocks long. This pop-up embodied the full brand expression as we offer custom experiences pulled from the pages of our new Kate Spade book and also included a preview of our upcoming fall collection. Digitally, we increased our reach on social channels, notably TikTok, where we're engaging with a younger and more diverse audience. Importantly, our successful execution of these brand-building activities is underscored by a 3-point sequential increase in brand awareness per surveys hosted in the U.S. by YouGov. Third, we strengthened the foundation of our lifestyle positioning through a focused assortment across ready-to-wear, footwear and jewelry. These categories help boost customer acquisition and engagement and they remain an important driver of purchase frequency. Lifestyle currently represents over 20% of total sales. And looking forward, we see opportunity to grow these categories to serve all customers, boost lifetime value and fuel global expansion.
Fourth, we drove strong trends in our e-commerce business, building on Kate Spade's already solid digital presence. Recently, we've implemented live streaming across social platforms to gain further reach for our pop-ups and events, including the Kate Spade townhouse experience. Through continued digital innovation, we fueled mid-teens growth in e-commerce, which was nearly double pre-pandemic fiscal year '19 levels. Fifth and finally, we maintained a consumer-centric approach and utilized data to gain a deeper understanding of customer preferences and purchase drivers. Our performance in the quarter was led by higher spend among our existing customer base, including those deeply lapsed. At the same time, our investments in the brand have resulted in continued customer acquisition, adding nearly 600,000 new customers this quarter in our North America direct channel. Stepping back, during the initial phase of Kate Spade's transformation, we focused on rebuilding the brand's foundation and clarifying our purpose. We kept our brand vision at the forefront of our strategy as we set out to reestablish our core products and customer base. Today, as a result of these efforts, we are clear in our positioning within the market with consistent results that indicate our increasing traction.
Looking ahead, our next phase is to weave the why of Kate Spade into our mission, expression and execution to connect more deeply with our community. We're harnessing the power of the brand to drive growth, enabled by diversified categories and a balanced global distribution. We also continue to be laser-focused on delivering higher AUR, building on our recent success. This will be a key element of capturing the significant margin potential we see in front of us. Overall, we remain incredibly excited for the opportunity ahead and remain confident in our ability to achieve $2 billion in revenue and a high-teens operating margin over the planning horizon. Turning to Stuart Weitzman. During the quarter, the brand continued to make progress against its growth strategies. First, we delivered significant operating margin expansion, reflecting the bold and nimble execution by the Stuart Weitzman team in the face of a challenging environment. Importantly, despite a deterioration in trends in China due to COVID, we remain confident in our ability to return to profitability this fiscal year.
We're leaning into the strength we're seeing in North America, notably in the wholesale channel, which is helping to offset the pressures in China. Second, we maintained a consumer-centric strategy by leveraging our data analytics capabilities to deliver a compelling assortment for our customers as we capitalize on the recent market shift toward occasion wear. Sandals fueled the quarter's demand as iconic styles, including the Nearlynude as well as new introductions, such as the Ryder Platform and Summer Wedge, resonated with customers, specifically millennials. In addition, we introduced the versatile and timeless Stuart Pump, which exceeded expectations and has been well received for return to work. Our streamlined and relevant offering, coupled with lower promotional activity and select price increases, drove AUR growth in the quarter. In fact, AUR rose over 20% in North America. Looking ahead, we see further opportunity to increase prices, while maintaining our positioning within the overall market.
Third, we fueled brand heat through focused narrative, backed by emotional and relevant marketing. Our spring campaign featured the mother-daughter duo of Kate Hudson and Goldie Hawn, wearing the Alina, Discoplatform and Stuart Pump, all of which became a top 10 style following the launch. Our engaging messaging helped to drive [Technical Issues] customers at a double-digit rate, while continuing to reengage and reactivate clients. Fourth, we gained momentum in the wholesale channel. Stuart Weitzman has now reestablished a presence in all Nordstrom full-price stores in North America, representing significant progress from where we were just one year ago. At the same time, we've added depth within our international luxury accounts across Europe. Fifth and finally, we continue to invest in digital and delivered a double-digit increase in demand. While digital now represents 20% of global sales, an increase of five points compared to fiscal year '19 prepandemic levels, we still see runway ahead.
Overall, Stuart Weitzman remains on track to deliver a profitable year in fiscal year '22 fueled by better-than-expected performance in North America. The brand's product and marketing initiatives, coupled with solid execution, continue to drive results. We are confident in our significant top and bottom line improvements long term as we build brand awareness globally and capitalize on the recovery in China, where Stuart Weitzman has a strong position. In closing, Tapestry is a powerful combination of iconic brands that offer tremendous value for our customers and a platform that has been transformed to drive innovation and customer engagement. Our foundation is solid and our brands are poised for growth. Further, we participate in advantaged categories that have increased at mid- to high single-digit rate over time and have proven resilient in the face of macroeconomic shocks and global crises. These categories serve an important emotional and functional need for consumers, which is as relevant today as ever before. With the resilient nature of our categories, the attractive positioning of our brands and the emotional connections we are building with our customers, we are confident in the significant runway ahead. We look forward to discussing each of these elements in more detail along with our road map for continued growth at our upcoming Investor Day in September.
With that, I'll turn it over to Scott, who will discuss our financial results, capital priorities and fiscal '22 outlook. Scott?
