00:00One of the more interesting nuggets that came out of the investor day was just this phenomenal success that we've seen out of Coach.
00:05A brand, of course, that for people of a certain generation, Katie, not you, remember when it was the thing to have.
00:11It kind of fell out of favor, but we've seen a huge resurgence there.
00:14$5.6 billion in revenue in the most recent year.
00:17You're anticipating you can get that to $10 billion. How?
00:21Absolutely. Well, we're gaining momentum in our business, and we told that story today during our investor day.
00:26We really have transformed our company over the last five years, and we're expanding the reach of our brands to new geographies and new generations of consumers.
00:35And we're winning with a Gen Z consumer, which you mentioned.
00:38And we see tremendous opportunity for growth in all of our markets, but we have a focus on growing in North America, greater China, and Europe with tremendous runway.
00:48With the recent success of Coach, this is a loaded question.
00:52Was that something that you did or your team did, or was that just accidental that somehow, you know, a bunch of folks on social media decided Coach was a thing and now it's a thing?
01:01We've been very intentional and disciplined in how we've executed this growth, and it really has taken a team.
01:07Part of the transformation that we've executed over the last five years is to create a culture of consumer-obsessed brand builders.
01:15And we support that with an agile, data-driven operating model.
01:19So I could go into a lot of comments about how we leverage data and use data across our value chain to make and improve our business, and that allows us to invest in our brands.
01:29But it really starts with one fact.
01:31Our teams are insatiably curious about our target customer.
01:35And our target customer with Coach is a timeless Gen Z consumer.
01:39And as we mine those data and all those insights, we're embedding those insights into our organization, and they're taking action on them.
01:48So it's this translation of insight to action that is making a difference in our business.
01:53Well, Romain asked the question that it feels like every brand is trying to answer, and that is how do you sort of bring in that next generation of consumer?
02:01Clearly, you found an answer when it comes to Coach.
02:04But let's talk a little bit about Kate Spade, of course.
02:07Coach is the bright spot.
02:08Kate Spade has been struggling a little bit recently.
02:11I know that, you know, you laid out today that you expect Kate Spade to return to growth by fiscal 2027.
02:17What gives you the confidence to say that?
02:20Well, the good news is we have a playbook.
02:22And we have a playbook that's been incredibly successful with Coach.
02:26And we're applying that same playbook to Kate.
02:29And Kate Spade has something that's rare.
02:32Kate Spade is an iconic brand that lives in the hearts of consumers.
02:36And we know that because we do research.
02:38We are a data-led company.
02:40And the research we do shows us that Kate Spade is top five in terms of brand awareness.
02:46Consumers know Kate Spade.
02:48What we hear from those consumers is that they're not seeing product or experience that are relevant.
02:54So our opportunity is an execution.
02:56And, again, we have a coach playbook.
02:59We have a new leadership team.
03:00And we're getting started at applying that playbook and unlocking the vast potential we see for Kate Spade.
03:05So you've got the playbook in hand.
03:07But how do you adjust it to the environment that we're in right now?
03:11Obviously, inflation is top of mind for everyone.
03:14There's a lot of concerns about the labor market.
03:16And just this overarching concern that this economy is going to start weakening here and that people will have less money in their pocketbook to spend on pocketbooks.
03:25So how do you adapt?
03:27Well, you know, we've been hearing that for a while.
03:29And we have seen a market in a consumer that's been choiceful over the last several quarters.
03:35We've been talking about this.
03:37And where we're winning is where we're delivering innovation that is relevant to our consumers.
03:43So that circles back to knowing your consumer.
03:45So as we build the capabilities and understanding of our target consumer and deliver better marketing and better product behind those insights, we're winning with the consumer.
03:58And the way we do this is with disciplined.
04:00There's investment behind it, but it's disciplined business operations.
04:04So we've increased our marketing investment over the last five years from what was 4% of sales to now over 11% of sales.
04:12And in our investor day, we talked about growing that even further.
04:16So as we invest in marketing to tell our brand story, we're reaching these consumers, particularly younger consumers, on a consistent basis, cutting through all the noise and hitting them with more relevant messages.
04:30And they're responding.
04:31They're responding to our marketing investments.
04:34They're responding to the innovation that we're delivering in product, which is fantastic.
04:38So that's the playbook that we're going to execute.
04:40And we are already starting to execute with Kate Spade with increased investment so that we can cut through with our target consumer.
04:47And we're building product that is more responsive to what they need.
04:51Do you have any plans to add any brands beyond Kate Spade and Coach?
04:55Well, we did.
04:56I would say last year we had a big acquisition.
05:00I think we talked about it, Romain.
05:02And that was blocked by the FTC.
05:04But what has happened over the last three years is that we have seen our organic business, our coach business grow, and we now see even more opportunities.
05:14So we see a path for compelling financial returns with our organic business and compelling growth well into the future.
05:21But I am curious just about the structure of Tapestry.
05:24I mean, back in the day, this was Coach.
05:26Then you had Stuart Weitzman and Kate Spade.
05:29I can't remember the exact order.
05:30And then, of course, the deal for Capri that would have brought Michael Kors and Jimmy Choo and a few other brands under the house.
05:36The idea that there was some value in having a diversified portfolio of brands.
05:42Do you not feel that that would provide value for investors?
05:46Well, what we see today in our organic business is a tremendous runway for growth.
05:51And what we delivered today in our investor day was a picture of growth that delivers mid-single-digit growth.
05:57And we believe not just for these three years but well into the future, along with low-double-digit earnings growth compounding over time.
06:05And what that has meant for us, for Tapestry, it's a compelling capital return story.
06:11We generate incredible cash flow because we're consistently growing our earnings and our operating margins.
06:17Our operating margins closed at 20%.
06:20Our investor day targets have grown that by 200 basis points.
06:25So we're going to grow our operating margins to 22% or more.
06:29And that is an efficient model.
06:32While we invest back into our brands to allow our brands to reach more consumers, right, that's the flywheel.
06:39And with that cash, you talked about at the opening, the $3 billion share repurchase.
06:44We're going to return $4 billion to shareholders in the next three years through the dividend and share repurchase,
06:51which shows that we have conviction in the long-term runway and we see the intrinsic value in Tapestry stock.
06:58I am also curious to get your thoughts on how you approach marketing.
07:03We've touched on some of this already when it comes to attracting Gen Z and sort of engineering to reach that audience.
07:08But I keep going back to Sidney Sweeney and what we saw with American Apparel.
07:13Well, I know that selling jeans is different than selling handbags, but from where you're sitting as CEO,
07:18how do you approach some of those celebrity endorsements and those types of marketing campaigns?
07:23Because as we saw with Sidney Sweeney, obviously it can be a high-risk strategy to pull off.
07:30We have a very diversified strategy that's anchored in our consumer and our consumer's values.
07:37And we mine this data for our consumer so that we can understand what their values are and how they align with the values of the brand.
07:46And what we've been investing behind are our purpose campaigns.
07:51So at Coach, we talked about three years ago we launched Expressive Luxury.
07:55Based on the insight that Gen Z consumers don't think about luxury in the same way Gen X consumers may have.
08:03They're thinking about luxury differently.
08:05And luxury and confidence to them, they gain confidence through self-expression.
08:10So rather than talking to them about something that may be important to our brand or was important historically,
08:16we're talking to them about something that's important to them.
08:20But on that point, and that's a great point though,
08:21how do you sort of make that connection, that emotional connection with the consumer?
08:25Because it's one thing to say, okay, we're using data, which is by almost definition non-emotional.
08:30And then, of course, you have kind of the old school fashion houses where it was just the gut instincts of whoever the creative lead was.
08:37I mean, what's the balance between that old school way of doing fashion and the more data-driven way of doing it today?
08:44It's an and.
08:45And I'm glad you asked because it is true.
08:47We're at 85% direct-to-consumer companies, so we have a lot of data.
08:52And we've got really advanced analytics tools that are helping us evaluate, use that data, and make our business better.
08:59But we don't stop at the empirical data.
09:02And even consumer surveys, consumers can tell you things that, you know, they can say something,
09:07but they don't actually do what they say all the time.
09:10We're going one step further, and we're actually going into consumers' homes.
09:14We're talking to our target consumer, and we're not just doing this in the United States.
09:18We're not just doing this in New York.
09:19We're doing this around the world, and we're spending hundreds of hours in consumers' homes.
09:25They don't know where from Tapestry, Coach, Kate.
09:28I've been in consumers' homes in London, in China, talking to these young consumers, 26-year-old, 28-year-old,
09:35and learning about their life, learning about the tensions in their life, learning about the things they value.
09:41And we take those insights back into our business.
09:44And that's how we connect more authentically, both with our brand, but also with our target consumer.
09:50And we take those insights back into our business, and we take those insights back into our business.
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