Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company's financial condition and results of operations should be read together with the Company's condensed consolidated financial statements and notes to those financial statements included elsewhere in this document. When used herein, the terms "the Company," "Tapestry," "we," "us" and "our" refer to Tapestry, Inc., including consolidated subsidiaries. References to "Coach," "Stuart Weitzman," "Kate Spade" or "kate spade new york" refer only to the referenced brand.

EXECUTIVE OVERVIEW

Tapestry, Inc. (the "Company") is a leading New York-based house of modern luxury accessories and lifestyle brands. Our global house of brands unites the magic of Coach, kate spade new york and Stuart Weitzman. Each of our brands are unique and independent, while sharing a commitment to innovation and authenticity defined by distinctive products and differentiated customer experiences across channels and geographies. We use our collective strengths to move our customers and empower our communities, to make the fashion industry more sustainable, and to build a company that’s equitable, inclusive, and diverse. Individually, our brands are iconic. Together, we can stretch what’s possible.

The Company has three reportable segments:

Coach - Includes global sales of Coach products to customers through Coach operated stores, including e-commerce sites and concession shop-in-shops, and sales to wholesale customers and through independent third party distributors.
Kate Spade - Includes global sales primarily of kate spade new york brand products to customers through Kate Spade operated stores, including e-commerce sites, sales to wholesale customers, through concession shop-in-shops and through independent third party distributors.
Stuart Weitzman - Includes global sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores, including e-commerce sites, sales to wholesale customers and through numerous independent third party distributors.

Each of our brands is unique and independent, while sharing a commitment to innovation and authenticity defined by distinctive products and differentiated customer experiences across channels and geographies. Our success does not depend solely on the performance of a single channel, geographic area or brand.

Acceleration Program

The guiding principle of the Company’s multi-year growth agenda under the Acceleration Program is to better meet the needs of each of its brands' unique customers by:

Sharpening our Focus on the Consumer:** Operating with a clearly defined purpose and strategy for each brand and an unwavering focus on the consumer at the core of everything we do
Leveraging Data and Leading with a Digital-First Mindset:** Building significant data and analytics capabilities to drive decision-making and increase efficiency; Offering immersive customer experiences across our e-commerce and social channels to meet the needs of consumers who are increasingly utilizing digital platforms to engage with brands; Rethinking the role of stores with an intent to optimize our fleet
Transforming into a Leaner and More Responsive Organization:** Moving with greater agility, simplifying internal processes and empowering teams to act quickly to meet the rapidly changing needs of the consumer

In the third quarter of fiscal 2022, the Company continued to make meaningful progress against its Acceleration Program to sharpen its focus on the consumer, leverage data to lead with a digital-first mindset and transform into a leaner and more responsive organization:

Recruited over 1.4 million new customers across channels in North America**, representing a mid-teens increase versus prior year, with growth in both stores and online;
Maintained a consumer-centric lens and fostered emotional connections with our customers, resulting in higher average spend, increased repeat transactions and the continued reactivation of lapsed customers across brands;
Realized another quarter of global average unit retail ("AUR") gains at Coach, Kate Spade, and Stuart Weitzman in each brand's respective core category,** reflecting strong brand momentum, the increasing traction of product offerings, and price increases on select items, as well as the continued benefits from structural changes to lessen promotional activity;
Advanced Digital capabilities through significant investments in the channel, including in talent, to improve the customer experience and drive conversion; and
Remain on track to realize gross run-rate savings of $300 million in fiscal year 2022**, which is funding investments in brand-building activities**.**

Recent Developments

Covid-19 Pandemic

The disruptions related to Covid-19 have materially adversely impacted our operations, cash flow, and liquidity. The virus has impacted all regions around the world, resulting in restrictions and shutdowns implemented by national, state, and local authorities. These requirements resulted in closures of our directly operated stores globally, as well as our wholesale and licensing partners, causing a significant reduction in sales starting in the third quarter of fiscal 2020. While the vast majority of the Company's stores and locations of our wholesale and licensing partners have reopened, certain have experienced temporary re-closures or are operating under tighter restrictions in compliance with local government regulations. The Company's performance in the third quarter of fiscal 2022 was adversely impacted as a result of infections due to variants of Covid-19 in certain regions, most notably in Greater China, which resulted in disruptions in business performance including a decline in demand in the region. The Company expects these trends to continue in the near term, however, if infection rates or government restrictions continue to persist over the long-term, the Company's financial results will be negatively impacted from that which is currently expected.

Furthermore, Covid-19 has and may continue to cause disruptions in the Company’s supply chain within our third-party manufacturers and logistics providers. The Company manufactures a significant amount of its products from Southeast Asia. During the first quarter of fiscal 2022, certain of the Company’s third-party manufacturers, primarily located in Vietnam, experienced ongoing and longer-than-expected government mandated restrictions, which resulted in a significant decrease in production capacity for these third-party manufacturers. In response, the Company took deliberate actions such as shifting production to other countries, adjusting its merchandising strategies, where possible, and increasing the use of air freight to expedite delivery. Based on these actions, and the improved production levels since the first quarter, the Company expects that it will be able to meet anticipated levels of demand.

The Company has been experiencing other global logistics challenges, such as delays as a result of port congestion, vessel availability, container shortages for imported products and rising freight costs. These challenges are expected to persist throughout fiscal 2022 and into fiscal 2023. To mitigate delays, the strategic use of air freight was used with greater frequency than in the past. Due to these logistical challenges, during the three and nine months ended April 2, 2022, the Company recognized within Cost of sales $62.9 million and $142.6 million, respectively, of incremental freight costs compared to the three and nine months ended March 27, 2021, in order to maintain product flow to meet consumer demand.

There is still uncertainty associated with the duration of these disruptions and the possibility of other effects on the business. We will continue to monitor the rapidly evolving situation pertaining to the Covid-19 outbreak, including guidance from international and domestic authorities and adjust our operating plan as needed. Refer to Part II, Item 1A. "Risk Factors" herein and as disclosed in our Annual Report on Form 10-K for the year ended July 3, 2021.

The Company continues to take strategic actions in response to the current environment. The Company remains committed to driving SG&A savings, including actions taken under the Acceleration Program. The Company will continue to consider near-term exigencies and the long-term financial health of the business as clear steps are taken to mitigate the consequences of the Covid-19 pandemic.

Crisis in Ukraine

In the third quarter of fiscal 2022, a humanitarian crisis unfolded in Ukraine, which has created significant economic uncertainty in the region. The Company does not have directly operated stores in Russia or Ukraine and has a very minimal distributor and wholesale business which was less than 0.1% of the Company’s total Net sales for fiscal 2021. Starting in the third quarter of fiscal 2022 the Company paused all wholesale shipments to Russia and Ukraine. The Company's total business in Europe represented less than 5% of its fiscal 2021 total Net sales.

Acceleration Program

The Company has implemented a strategic growth plan after undergoing a review of its business under the Acceleration Program, resulting in certain costs to date reflecting: (i) actions to streamline the Company's organization; (ii) select store closures as the Company optimizes its fleet (including store closure costs incurred as the Company exits certain regions in which it currently operates); and (iii) professional fees and compensation costs incurred as a result of the development and execution of the Company's comprehensive strategic initiatives aimed at increasing profitability. Including charges taken in fiscal 2020 and fiscal 2021, the Company expects to incur total pre-tax charges of approximately $215 million - $220 million related to the Acceleration Program. The Acceleration Program is expected to be substantially complete by the end of fiscal

The Company achieved approximately $200 million of gross run rate expense savings in fiscal 2021 and remains on track to realize gross run-rate savings of $300 million. Refer to Note 5, "Restructuring Activities," and the "GAAP to Non-GAAP Reconciliation," herein, for further information.

Current Trends and Outlook

The environment in which we operate is subject to a number of different factors driving global consumer spending. Consumer preferences, macroeconomic conditions, foreign currency fluctuations and geopolitical events continue to impact overall levels of consumer travel and spending on discretionary items, with inconsistent patterns across channels and geographies.

The outbreak of a novel strain of Covid-19 continues to impact a significant majority of the regions in which we operate, resulting in significant global business disruptions. The widespread impact of Covid-19 resulted in temporary closures of directly operated stores globally, as well as at our wholesale and licensing partners starting in fiscal 2020. Since then, certain directly operated stores and the stores of our wholesale and licensing partners have experienced temporary re-closures or are operating under tighter restrictions in compliance with local government regulation. The Company's performance in the third quarter of fiscal 2022 was adversely impacted as a result of infections due to variants of Covid-19 in certain regions, most notably in Greater China, which resulted in disruptions in business performance including a decline in demand in the region. Covid-19 has also resulted in ongoing supply chain challenges, such as logistic constraints, the closure of certain third-party manufacturers and increased freight costs. Refer to "Recent Developments," herein, for further information.

The global Covid-19 pandemic is continuously evolving and the extent to which this impacts the Company - including unforeseen increased costs to the Company's business - will depend on future developments, which cannot be predicted, including the ultimate duration, severity and geographic resurgence of the virus and the success of actions to contain the virus, including variants of the novel strain, or treat its impact, among others.

Several organizations that monitor the world's economy, including the International Monetary Fund, continue to forecast growth in the global economy. However, some of these organizations have recently revised the forecast downward since the second quarter of fiscal 2022 primarily to reflect the global economic impact of the crisis in Ukraine. Inflation is expected to remain elevated for longer than in previous forecasts. Additionally, although many parts of the world appear to be moving past the acute phase of the Covid-19 crisis, frequent and wider-ranging lockdowns in Greater China have weighed on private consumption.

Certain markets around the world have been faced with labor shortages, which have not impacted the Company's operations to date. If these trends continue or worsen, it could potentially affect the Company's ability to attract and retain employees for its retail and fulfillment locations in the future.

Furthermore, currency volatility, political instability and potential changes to trade agreements or duty rates may contribute to a worsening of the macroeconomic environment or adversely impact our business. Since fiscal 2019, the U.S. and China have both imposed tariffs on the importation of certain product categories into the respective country, with limited progress in negotiations to reduce or remove the tariffs. Additionally, the Company has historically benefited from duty-free imports on certain products from certain countries pursuant to the U.S. Generalized System of Preferences (“GSP”) program. The GSP program expired in the third quarter of fiscal 2021, resulting in additional duties and negatively impacting gross profit. The Company expects the GSP program to be renewed and made retroactive. However, the timing of such renewal is uncertain and not guaranteed. If this renewal does not occur, it will continue to have a negative impact on our results.

Furthermore, certain tax legislation contemplated by the Biden Administration, the Organization for Economic Co-operation and Development, and certain foreign countries would have an adverse impact on our tax rate and financial results if passed as currently communicated.

We will continue to monitor these trends and evaluate and adjust our operating strategies and cost management opportunities to mitigate the related impact on our results of operations, while remaining focused on the long-term growth of our business and protecting the value of our brands.

For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, see Part II, Item 1A. "Risk Factors" herein and as disclosed in our Annual Report on Form 10-K for the year ended July 3, 2021.

THIRD QUARTER FISCAL 2022 COMPARED TO THIRD QUARTER FISCAL 2021

The following table summarizes results of operations for the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021. All percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers.


	Three Months Ended
	April 2, 2022				March 27, 2021				Variance
	(millions, except per share data)
	Amount		% of net sales		Amount		% of net sales		Amount		%
Net sales	$	1,437.5	100.0	%	$	1,273.3	100.0	%	$	164.2	12.9	%
Gross profit	1,005.1		69.9		911.9		71.6		93.2		10.2
SG&A expenses	835.6		58.1		795.2		62.5		40.4		5.1
Operating income (loss)	169.5		11.8		116.7		9.2		52.8		45.1

Interest expense, net	14.8		1.0		16.9		1.3		(2.1)		(12.9)
Other expense (income)	3.0		0.2		4.4		0.4		(1.4)		(33.6)
Provision (benefit) for income taxes	29.0		2.0		3.7		0.3		25.3		NM
Net income (loss)	122.7		8.5		91.7		7.2		31.0		33.7
Net income (loss) per share:
Basic	$	0.47			$	0.33			$	0.14	43.1
Diluted	$	0.46			$	0.32			$	0.14	43.9

NM - Not meaningful

GAAP to Non-GAAP Reconciliation

The Company’s reported results are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The reported results during the third quarter of fiscal 2022 and fiscal 2021 reflect certain items which affect the comparability of our results, as noted in the following tables. Refer to "Non-GAAP Measures" herein for further discussion on the Non-GAAP measures.

Third Quarter Fiscal 2022 Items


	Three Months Ended April 2, 2022
			Items Affecting Comparability
	GAAP Basis (As Reported)			Acceleration Program		Non-GAAP Basis (Excluding Items)
	(millions, except per share data)
Cost of sales
Coach	780.0			—		780.0
Kate Spade	189.4			—		189.4
Stuart Weitzman	35.7			—		35.7
Gross profit(1)	$	1,005.1		$	—	$	1,005.1

SG&A expenses
Coach	494.5			1.5		493.0
Kate Spade	179.1			0.7		178.4
Stuart Weitzman	42.0			(0.1)		42.1
Corporate	120.0			4.2		115.8
SG&A expenses	$	835.6		$	6.3	$	829.3

Operating income (loss)
Coach	285.5			(1.5)		287.0
Kate Spade	10.3			(0.7)		11.0
Stuart Weitzman	(6.3)			0.1		(6.4)
Corporate	(120.0)			(4.2)		(115.8)
Operating income (loss)	$	169.5		$	(6.3)	$	175.8



Provision for income taxes	29.0			7.3		21.7
Net income (loss)	$	122.7		$	(13.6)	$	136.3
Net income (loss) per diluted common share	$	0.46		$	(0.05)	$	0.51

(1)Adjustments within Gross profit are recorded within Cost of sales.

In the third quarter of fiscal 2022 the Company incurred charges as follows:

*•*Acceleration Program - Total charges incurred under the Acceleration Program are primarily share-based compensation and professional fees incurred as a result of the development and execution of the Company's comprehensive strategic initiatives. Refer to the "Executive Overview" herein and Note 5, "Restructuring Activities," for further information.

These actions taken together increased the Company's SG&A expenses by $6.3 million and increased Provision for income taxes by $7.3 million, negatively impacting Net income by $13.6 million or $0.05 per diluted share.

Third Quarter Fiscal 2021 Items


	Three Months Ended March 27, 2021
			Items Affecting Comparability
	GAAP Basis (As Reported)			Acceleration Program		Impairment		Non-GAAP Basis (Excluding Items)
	(millions, except per share data)
Cost of sales
Coach	718.0			—		—		718.0
Kate Spade	160.2			—		—		160.2
Stuart Weitzman	33.7			—		—		33.7
Gross profit(1)	$	911.9		$	—	$	—	$	911.9

SG&A expenses
Coach	466.6			4.7		20.4		441.5
Kate Spade	168.9			0.9		19.3		148.7
Stuart Weitzman	51.2			3.4		6.1		41.7
Corporate	108.5			11.4		—		97.1
SG&A expenses	$	795.2		$	20.4	$	45.8	$	729.0

Operating income (loss)
Coach	251.4			(4.7)		(20.4)		276.5
Kate Spade	(8.7)			(0.9)		(19.3)		11.5
Stuart Weitzman	(17.5)			(3.4)		(6.1)		(8.0)
Corporate	(108.5)			(11.4)		—		(97.1)
Operating income (loss)	$	116.7		$	(20.4)	$	(45.8)	$	182.9



Provision for income taxes	3.7			(3.2)		(9.8)		16.7
Net income (loss)	$	91.7		$	(17.2)	$	(36.0)	$	144.9
Net income (loss) per diluted common share	$	0.32		$	(0.06)	$	(0.13)	$	0.51

(1)Adjustments within Gross profit are recorded within Cost of sales.

In the third quarter of fiscal 2021, the Company incurred charges as follows:

Acceleration Program - Total charges incurred under the Acceleration Program are primarily professional fees incurred as a result of the development and execution of the Company's strategic initiatives, as well as actions to streamline the Company's organization, which include severance. Refer to the "Executive Overview" herein and Note 5, "Restructuring Activities," for further information.
Impairment - Total charges are primarily due to impairment charges on lease right-of-use ("ROU") assets. Refer to the "Executive Overview" herein and Note 12, "Fair Value Measurements," for further information.

These actions taken together increased the Company's SG&A expenses by $66.2 million and reduced Provision for income taxes by $13.0 million, negatively impacting Net income by $53.2 million or $0.19 per diluted share.

Tapestry, Inc. Summary – Third Quarter of Fiscal 2022

Currency Fluctuation Effects

The change in net sales and gross margin for the third quarter of fiscal 2022 compared to the third quarter of fiscal 2021 has been presented both including and excluding currency fluctuation effects. All percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers.

Net Sales

In addition to comparisons to fiscal year 2021 results, the Company has provided comparisons to certain fiscal year 2019 results, which the Company believes is useful to investors and others in evaluating the Company’s results, due to the significant impact of the Covid-19 pandemic on the Company’s operations and financial results, which started in the second half of fiscal year 2020.


	Three Months Ended				Variance
	April 2, 2022		March 27, 2021		Amount		%		Constant Currency Change		% Change versus FY19
	(millions)
Coach	$	1,072.4	$	963.5	$	108.9	11.3	%	12.5	%	11.1	%
Kate Spade	301.5		252.4		49.1		19.4		20.6		7.3
Stuart Weitzman	63.6		57.4		6.2		10.9		10.5		(25.4)
Total Tapestry	$	1,437.5	$	1,273.3	$	164.2	12.9		14.0		8.0

Net sales in the third quarter of fiscal 2022 increased 12.9% or $164.2 million to $1.44 billion. Excluding the effects of foreign currency, net sales increased by 14.0% or $178.2 million.

Coach Net Sales increased 11.3% or $108.9 million to $1.07 billion in the third quarter of fiscal 2022. Excluding the impact of foreign currency, net sales increased 12.5% or $120.1 million. This increase in net sales was primarily due to an increase of $83.6 million in the net global retail sales driven by an increase in North America e-commerce sales and global store sales with the exception of a decrease in store sales in Greater China due to Covid-19 related disruptions. This increase in net sales was also partially attributed to a $37.7 million increase in wholesale sales.

*•*Kate Spade Net Sales increased 19.4% or $49.1 million to $301.5 million in the third quarter of fiscal 2022. Excluding the impact of foreign currency, net sales increased 20.6% or $52.1 million. This increase in net sales was primarily due to an increase of $38.4 million in net retail sales driven by higher store sales and e-commerce sales in North America. This increase in net sales was also partially attributed to a $15.4 million increase in wholesale sales.

*•*Stuart Weitzman Net Sales increased 10.9% or $6.2 million to $63.6 million in the third quarter of fiscal 2022. Excluding the impact of foreign currency, net sales increased 10.5% or $6.0 million. This increase was due to a $8.0 million increase in wholesale sales offset by a $2.0 million decrease in net retail sales, which was attributed to a decrease in store sales in Greater China due to Covid-19 related disruptions, partially offset by an increase in store sales in North America and Europe as well as an increase in global e-commerce sales.

Gross Profit


	Three Months Ended
	April 2, 2022				March 27, 2021				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	780.0	72.7	%	$	718.0	74.5	%	$	62.0	8.6	%
Kate Spade	189.4		62.8		160.2		63.5		29.2		18.2
Stuart Weitzman	35.7		56.1		33.7		58.9		2.0		5.7
Tapestry	$	1,005.1	69.9		$	911.9	71.6		$	93.2	10.2

Gross profit increased 10.2% or $93.2 million to $1.01 billion in the third quarter of fiscal 2022 from $911.9 million in the third quarter of fiscal 2021. Gross margin for the third quarter of fiscal 2022 was 69.9% as compared to 71.6% in the third quarter of fiscal 2021. Gross margin decreased 170 basis points and was not materially impacted by foreign currency.

The Company includes inbound product-related transportation costs from our service providers within Cost of sales. The Company, similar to some companies, includes certain transportation-related costs due to our distribution network in SG&A expenses rather than in Cost of sales; for this reason, our gross margins may not be comparable to that of entities that include all costs related to their distribution network in Cost of sales. The Company incurred incremental freight costs in fiscal 2022 compared to fiscal 2021 in order to maintain product flow to meet consumer demand. Refer to "Recent Developments," herein, for further information.

Coach Gross Profit increased 8.6% or $62.0 million to $780.0 million in the third quarter of fiscal 2022 from $718.0 million in the third quarter of fiscal 2021. Gross margin decreased 180 basis points to 72.7% in the third quarter of fiscal 2022 from 74.5% in the third quarter of fiscal 2021. Gross margin was not materially impacted by foreign currency. This decrease in gross margin was primarily due to higher inbound freight expense, unfavorable geography mix as well as unfavorable channel mix, partially offset by stronger-than-anticipated sell-throughs and reduced promotional activity.
Kate Spade Gross Profit increased 18.2% or $29.2 million to $189.4 million in the third quarter of fiscal 2022 from $160.2 million in the third quarter of fiscal 2021. Gross margin decreased 70 basis points to 62.8% in the third quarter of fiscal 2022 from 63.5% in the third quarter of fiscal 2021. Gross margin was not materially impacted by foreign currency. This decrease in gross margin was primarily due to higher inbound freight expense, unfavorable channel mix, unfavorable geography mix as well as higher duties, partially offset by reduced promotional activity, favorable pricing actions and product mix as well as stronger-than-anticipated sell-throughs.
Stuart Weitzman Gross Profit increased 5.7% or $2.0 million to $35.7 million in the third quarter of fiscal 2022 from $33.7 million in the third quarter of fiscal 2021. Gross margin decreased 280 basis points to 56.1% in the third quarter of fiscal 2022 from 58.9% in the third quarter of fiscal 2021. Gross margin on a constant currency basis decreased 10 basis points from the third quarter of fiscal 2021.

Selling, General and Administrative Expenses ("SG&A")


	Three Months Ended
	April 2, 2022				March 27, 2021				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	494.5	46.1	%	$	466.6	48.4	%	$	27.9	6.0	%
Kate Spade	179.1		59.4		168.9		66.9		10.2		6.1
Stuart Weitzman	42.0		66.0		51.2		89.4		(9.2)		(18.1)
Corporate	120.0		NA		108.5		NA		11.5		10.5
Tapestry	$	835.6	58.1		$	795.2	62.5		$	40.4	5.1

SG&A expenses increased 5.1% or $40.4 million to $835.6 million in the third quarter of fiscal 2022 as compared to $795.2 million in the third quarter of fiscal 2021. As a percentage of net sales, SG&A expenses decreased to 58.1% during the third quarter of fiscal 2022 from 62.5% during the third quarter of fiscal 2021. Excluding items affecting comparability of $6.3 million and $66.2 million in the third quarter of fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased 13.8% or $100.3 million to $829.3 million from $729.0 million in the third quarter of fiscal 2021. SG&A as a percentage of net sales increased to 57.7% as compared to 57.3% during the third quarter of fiscal 2021.

Coach SG&A Expenses increased 6.0% or $27.9 million to $494.5 million in the third quarter of fiscal 2022 as compared to $466.6 million in the third quarter of fiscal 2021. SG&A expenses as a percentage of net sales decreased to 46.1% during the third quarter of fiscal 2022 from 48.4% during the third quarter of fiscal 2021. Excluding items affecting comparability of $1.5 million and $25.1 million in the third quarter of fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased 11.6% or $51.5 million to $493.0 million during the third quarter of fiscal 2022; and SG&A expenses as a percentage of net sales increased to 46.0% in the third quarter of fiscal 2022 from 45.8% in the third quarter of fiscal 2021. This increase in SG&A expenses was primarily due to higher marketing spend, most notably in digital, an increase in variable distribution costs, and increased compensation costs.
Kate Spade SG&A Expenses increased 6.1% or $10.2 million to $179.1 million in the third quarter of fiscal 2022 as compared to $168.9 million in the third quarter of fiscal 2021. As a percentage of net sales, SG&A expenses decreased to 59.4% during the third quarter of fiscal 2022 from 66.9% during the third quarter of fiscal 2021. Excluding items affecting comparability of $0.7 million and $20.2 million in the third quarter of fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased 20.0% or $29.7 million to $178.4 million during the third quarter of fiscal 2022; and SG&A expenses as a percentage of net sales increased to 59.2% in the third quarter of fiscal 2022 from 58.9% in the third quarter of fiscal 2021. This increase in SG&A expenses was primarily due to higher marketing spend, most notably in digital, and an increase in compensation costs.
Stuart Weitzman SG&A Expenses decreased 18.1% or $9.2 million to $42.0 million in the third quarter of fiscal 2022 as compared to $51.2 million in the third quarter of fiscal 2021. As a percentage of net sales, SG&A expenses decreased to 66.0% during the third quarter of fiscal 2022 as compared to 89.4% during the third quarter of fiscal 2021. Excluding items affecting comparability of $(0.1) million and $9.5 million in the third quarter of fiscal 2022 and

fiscal 2021, respectively, SG&A expenses increased 0.9% or $0.4 million to $42.1 million during the third quarter of fiscal 2022; and SG&A expenses as a percentage of net sales decreased to 66.2% in the third quarter of fiscal 2022 from 72.8% in the third quarter of fiscal 2021.

Corporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment, increased 10.5% or $11.5 million to $120.0 million in the third quarter of fiscal 2022 as compared to $108.5 million in the third quarter of fiscal 2021. Excluding items affecting comparability of $4.2 million and $11.4 million in the third quarter of fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased 19.2% or $18.7 million to $115.8 million in the third quarter of fiscal 2022 as compared to $97.1 million in the third quarter of fiscal 2021. This increase in SG&A expenses was primarily driven by higher compensation costs, higher investments in information technology systems, and an increase in occupancy costs.

Operating Income (Loss)


	Three Months Ended
	April 2, 2022				March 27, 2021				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	285.5	26.6	%	$	251.4	26.1	%	$	34.1	13.5	%
Kate Spade	10.3		3.4		(8.7)		(3.4)		19.0		NM
Stuart Weitzman	(6.3)		(9.9)		(17.5)		(30.5)		11.2		64.0
Corporate	(120.0)		NA		(108.5)		NA		(11.5)		(10.5)
Tapestry	$	169.5	11.8		$	116.7	9.2		$	52.8	45.1

Operating income increased 45.1% or $52.8 million to $169.5 million in the third quarter of fiscal 2022 as compared to an operating income of $116.7 million in the third quarter of fiscal 2021. Operating margin was 11.8% in the third quarter of fiscal 2022 as compared to 9.2% in the third quarter of fiscal 2021. Excluding items affecting comparability of $6.3 million and $66.2 million in the third quarter of fiscal 2022 and fiscal 2021, respectively, operating income decreased 3.9% or $7.1 million to $175.8 million in the third quarter of fiscal 2022 from $182.9 million in the third quarter of fiscal 2021; and operating margin decreased to 12.2% in the third quarter of fiscal 2022 as compared to 14.4% in the third quarter of fiscal 2021.

Coach Operating Income increased 13.5% or $34.1 million to $285.5 million in the third quarter of fiscal 2022, resulting in an operating margin of 26.6%, as compared to $251.4 million and 26.1%, respectively, in the third quarter of fiscal 2021. Excluding items affecting comparability, Coach operating income increased 3.9% or $10.5 million to $287.0 million from $276.5 million in the third quarter of fiscal 2021; and operating margin was 26.8% in the third quarter of fiscal 2022 as compared to 28.7% in the third quarter of fiscal 2021.
Kate Spade Operating Income increased $19.0 million to $10.3 million in the third quarter of fiscal 2022, resulting in an operating margin of 3.4%, as compared to an operating loss of $8.7 million and operating margin of (3.4)% in the third quarter of fiscal 2021. Excluding items affecting comparability, Kate Spade operating income decreased 5.4% or $0.5 million to $11.0 million from $11.5 million in the third quarter of fiscal 2021; and operating margin was 3.6% in the third quarter of fiscal 2022 as compared to 4.6% in the third quarter of fiscal 2021.
Stuart Weitzman Operating Loss decreased 64.0% or $11.2 million to $6.3 million in the third quarter of fiscal 2022, resulting in an operating margin of (9.9)%, as compared to an operating loss of $17.5 million and an operating margin of (30.5)% in the third quarter of fiscal 2021. Excluding items affecting comparability, Stuart Weitzman operating loss decreased 19.1% or $1.6 million to $6.4 million, resulting in an operating margin of (10.2)%, as compared to operating loss of $8.0 million and operating margin of (13.9)% in the third quarter of fiscal 2021.

Interest Expense, net

Interest expense, net decreased 12.9% or $2.1 million to $14.8 million in the third quarter of fiscal 2022 as compared to $16.9 million in the third quarter of fiscal 2021. This decrease in interest expense, net was mainly due to lower interest expense on bonds as well as the repayment of borrowings on the Revolving Credit Facility during fiscal 2021.

Other Expense (Income)

Other expense decreased $1.4 million to an expense of $3.0 million in the third quarter of fiscal 2022 as compared to expense of $4.4 million in the third quarter of fiscal 2021. This decrease in other expense was related to a decrease in foreign exchange losses.

Provision (Benefit) for Income Taxes

The effective tax rate was 19.2% in the third quarter of fiscal 2022 as compared to 3.8% in the third quarter of fiscal 2021. Excluding items affecting comparability, the effective tax rate was 13.8% in the third quarter of fiscal 2022 as compared to 10.3% in the third quarter of fiscal 2021. This increase in our effective tax rate was primarily attributable to geographic mix of earnings.

Net Income (Loss)

Net income increased 33.7% or $31.0 million to $122.7 million in the third quarter of fiscal 2022 as compared to $91.7 million in the third quarter of fiscal 2021. Excluding items affecting comparability, net income decreased 6.0% or $8.6 million to $136.3 million in the third quarter of fiscal 2022 as compared to $144.9 million in the third quarter of fiscal 2021. This decrease was primarily due to lower operating income.

Net Income (Loss) per Share

Net income per diluted share increased 43.9% or $0.14 to $0.46 in the third quarter of fiscal 2022 as compared to $0.32 in the third quarter of fiscal 2021. Excluding items affecting comparability, net income per diluted share remained flat at $0.51 in the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021.

FIRST NINE MONTHS FISCAL 2022 COMPARED TO FIRST NINE MONTHS FISCAL 2021

The following table summarizes results of operations for the first nine months of fiscal 2022 compared to the first nine months of fiscal 2021. All percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers.


	Nine Months Ended
	April 2, 2022				March 27, 2021				Variance
	(millions, except per share data)

	Amount		% of net sales		Amount		% of net sales		Amount		%
Net sales	$	5,059.6	100.0	%	$	4,130.9	100.0	%	$	928.7	22.5	%
Gross profit	3,531.2		69.8		2,915.8		70.6		615.4		21.1
SG&A expenses	2,603.9		51.5		2,207.5		53.4		396.4		18.0
Operating income (loss)	927.3		18.3		708.3		17.1		219.0		30.9
Loss on extinguishment of debt	53.7		1.1		—		—		53.7		NM
Interest expense, net	46.8		0.9		55.0		1.3		(8.2)		14.9
Other expense (income)	8.3		0.2		(1.8)		—		10.1		NM
Provision for income taxes	151.0		3.0		20.7		0.5		130.3		NM
Net income (loss)	667.5		13.2		634.4		15.4		33.1		5.2
Net income (loss) per share:
Basic	$	2.47			$	2.29			$	0.18	8.2
Diluted	$	2.42			$	2.25			$	0.17	7.3

NM - Not meaningful

GAAP to Non-GAAP Reconciliation

The Company’s reported results are presented in accordance with GAAP. The reported results during the first nine months of fiscal 2022 and fiscal 2021 reflect certain items which affect the comparability of our results, as noted in the following tables. Refer to "Non-GAAP Measures" herein for further discussion on the Non-GAAP measures.

First Nine Months of Fiscal 2022 Items


	Nine Months Ended April 2, 2022
			Items Affecting Comparability
	GAAP Basis (As Reported)		Debt Extinguishment		Acceleration Program		Non-GAAP Basis (Excluding Items)
	(millions, except per share data)
Cost of sales
Coach	2,689.2		—		—		2,689.2
Kate Spade	696.6		—		—		696.6
Stuart Weitzman	145.4		—		—		145.4
Gross profit(1)	$	3,531.2	$	—	$	—	$	3,531.2

SG&A expenses
Coach	1,564.7		—		4.0		1,560.7
Kate Spade	565.4		—		4.2		561.2
Stuart Weitzman	139.9		—		3.2		136.7
Corporate	333.9		—		20.3		313.6
SG&A expenses	$	2,603.9	$	—	$	31.7	$	2,572.2

Operating income (loss)
Coach	1,124.5		—		(4.0)		1,128.5
Kate Spade	131.2		—		(4.2)		135.4
Stuart Weitzman	5.5		—		(3.2)		8.7
Corporate	(333.9)		—		(20.3)		(313.6)
Operating income (loss)	$	927.3	$	—	$	(31.7)	$	959.0

Loss on extinguishment of debt	53.7		53.7		—		—

Provision for income taxes	151.0		(12.9)		(0.7)		164.6
Net income (loss)	$	667.5	$	(40.8)	$	(31.0)	$	739.3
Net income (loss) per diluted common share	$	2.42	$	(0.15)	$	(0.11)	$	2.68

(1)Adjustments within Gross profit are recorded within Cost of sales.

In the first nine months of fiscal 2022 the Company incurred charges as follows:

*•*Debt Extinguishment - Debt extinguishment charges relate to the premiums, amortization and fees associated with the $500 million cash tender of the Company's 2027 Senior Notes and 2025 Senior Notes in the second quarter of fiscal 2022. Refer to Note 11, "Debt," for further information.

These actions taken together increased the Company's SG&A expenses by $31.7 million, increased Loss on extinguishment of debt by $53.7 million and decreased Provision for income taxes by $13.6 million, negatively impacting Net income by $71.8 million or $0.26 per diluted share.

First Nine Months of Fiscal 2021 Items


	Nine Months Ended March 27, 2021
			Items Affecting Comparability
	GAAP Basis (As Reported)		CARES Act Tax Impact		Acceleration Program		Impairment		Non-GAAP Basis (Excluding Items)
	(millions, except per share data)
Cost of sales
Coach	2,251.0		—		—		—		2,251.0
Kate Spade	547.4		—		—		—		547.4
Stuart Weitzman	117.4		—		—		—		117.4
Gross profit(1)	$	2,915.8	$	—	$	—	$	—	$	2,915.8

SG&A expenses
Coach	1,317.6		—		21.2		20.4		1,276.0
Kate Spade	474.1		—		4.3		19.3		450.5
Stuart Weitzman	123.0		—		(1.3)		6.1		118.2
Corporate	292.8		—		44.5		—		248.3
SG&A expenses	$	2,207.5	$	—	$	68.7	$	45.8	$	2,093.0

Operating income (loss)
Coach	933.4		—		(21.2)		(20.4)		975.0
Kate Spade	73.3		—		(4.3)		(19.3)		96.9
Stuart Weitzman	(5.6)		—		1.3		(6.1)		(0.8)
Corporate	(292.8)		—		(44.5)		—		(248.3)
Operating income (loss)	$	708.3	$	—	$	(68.7)	$	(45.8)	$	822.8



Provision for income taxes	20.7		(95.0)		(15.4)		(9.8)		140.9
Net income (loss)	$	634.4	$	95.0	$	(53.3)	$	(36.0)	$	628.7
Net income (loss) per diluted common share	$	2.25	$	0.27	$	(0.15)	$	(0.10)	$	2.23

(1)Adjustments within Gross profit are recorded within Cost of sales.

In the first nine months of fiscal 2021, the Company incurred charges as follows:

CARES Act Tax Impact - Total amount relates to the income tax benefits under the CARES Act, most notably the Net Operating Loss ("NOL") carryback claim. Refer to Note 14, "Income Taxes" for further information.
Acceleration Program - Total charges incurred under the Acceleration Program are primarily professional fees incurred as a result of the development and execution of the Company's comprehensive strategic initiatives, as well as actions to streamline the Company's organization, which include severance. Refer to the "Executive Overview" and Note 5, "Restructuring Activities," herein for further information.
Impairment - Total charges are primarily due to impairment charges on lease ROU assets. Refer to the "Executive Overview" herein and Note 12, "Fair Value Measurements," for further information.

These actions taken together increased the Company's SG&A expenses by $114.5 million and decreased Provision for income taxes by $120.2 million, positively impacting Net income by $5.7 million or $0.02 per diluted share.

Tapestry, Inc. Summary – First Nine Months of Fiscal 2022

Currency Fluctuation Effects

The change in net sales and gross margin for the first nine months of fiscal 2022 compared to fiscal 2021 has been presented both including and excluding currency fluctuation effects.

Net Sales

The Company has provided comparisons to certain fiscal year 2019 results, which the Company believes is useful to investors and others in evaluating the Company’s results, due to the significant impact of the Covid-19 pandemic on the Company’s operations and financial results, notably in the second half of fiscal year 2020.


	Nine Months Ended				Variance
	April 2, 2022		March 27, 2021		Amount		%		Constant Currency Change		% Change versus FY19
	(millions)
Coach	$	3,712.3	$	3,064.2	$	648.1	21.2	%	20.9	%	16.9	%
Kate Spade	1,101.4		868.4		233.0		26.8		27.0		6.4
Stuart Weitzman	245.9		198.3		47.6		24.0		22.1		(19.1)
Total Tapestry	$	5,059.6	$	4,130.9	$	928.7	22.5		22.3		12.1

Net sales in the first nine months of fiscal 2022 increased 22.5% or $928.7 million to $5.06 billion. Excluding the effects of foreign currency, net sales increased by 22.3% or $920.5 million.

*•*Coach Net Sales increased 21.2% or $648.1 million to $3.71 billion in the first nine months of fiscal 2022. Excluding the impact of foreign currency, net sales increased 20.9% or $641.9 million. This increase in net sales was primarily attributed to a net increase of $547.1 million in net retail sales driven by higher e-commerce and store sales in North America, partially offset by a decrease in store sales in Greater China due to Covid-19 related disruptions. This increase in net sales was also partially attributed to a $92.0 million increase in wholesale sales.

*•*Kate Spade Net Sales increased 26.8% or $233.0 million to $1.10 billion in the first nine months of fiscal 2022. Excluding the impact of foreign currency, net sales increased 27.0% or $234.8 million. This increase in net sales was primarily attributed to a net increase of $195.1 million in net retail sales driven by higher store and e-commerce sales in North America. This increase in net sales was also partially attributed to a $43.6 million increase in wholesale sales.

*•*Stuart Weitzman Net Sales increased 24.0% or $47.6 million to $245.9 million in the first nine months of fiscal 2022. Excluding the impact of foreign currency, net sales increased 22.1% or $43.8 million. This increase in net sales was attributed to a $26.6 million increase in wholesale sales. This increase in net sales was also attributed to an increase of $17.1 million in net retail sales, primarily driven by higher store and e-commerce sales in North America, partially offset by a decrease in store sales in Greater China due to Covid-19 related disruptions.

Gross Profit


	Nine Months Ended
	April 2, 2022				March 27, 2021				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	2,689.2	72.4	%	$	2,251.0	73.5	%	$	438.2	19.5	%
Kate Spade	696.6		63.2		547.4		63.0		149.2		27.2
Stuart Weitzman	145.4		59.1		117.4		59.2		28.0		23.8
Tapestry	$	3,531.2	69.8		$	2,915.8	70.6		$	615.4	21.1

Gross profit increased 21.1% or $615.4 million to $3.53 billion during the first nine months of fiscal 2022 from $2.92 billion in the first nine months of fiscal 2021. Gross margin for the first nine months of fiscal 2022 was 69.8% as compared to 70.6% in the first nine months of fiscal 2021. Gross margin decreased 80 basis points in the first nine months of fiscal 2022 and was not materially impacted by foreign currency.

Coach Gross Profit increased 19.5% or $438.2 million to $2.69 billion in the first nine months of fiscal 2022 from $2.25 billion in the first nine months of fiscal 2021. Gross margin decreased 110 basis points to 72.4% in the first nine months of fiscal 2022 from 73.5% in the first nine months of fiscal 2021. Gross margin was not materially impacted by foreign currency. This decrease in gross margin was primarily attributed to higher freight costs, unfavorable geography mix as well as unfavorable channel mix, partially offset by reduced promotional activity and stronger-than-anticipated sell-throughs.
Kate Spade Gross Profit increased 27.2% or $149.2 million to $696.6 million in the first nine months of fiscal 2022 from $547.4 million in the first nine months of fiscal 2021. Gross margin increased 20 basis points to 63.2% in the first nine months of fiscal 2022 from 63.0% in the first nine months of fiscal 2021. Gross margin was not materially impacted by foreign currency. This increase in gross margin was primarily attributed to reduced promotional activity, favorable product mix and pricing actions as well as stronger-than-anticipated sell-throughs, offset by higher inbound freight costs, unfavorable channel mix, unfavorable geography mix, and higher duties.
Stuart Weitzman Gross Profit increased 23.8% or $28.0 million to $145.4 million during the first nine months of fiscal 2022 from $117.4 million in the first nine months of fiscal 2021. Gross margin decreased 10 basis points to 59.1% in the first nine months of fiscal 2022 from 59.2% in the first nine months of fiscal 2021. On a constant currency basis, gross margin increased 70 basis points. This increase in gross margin was primarily attributed to reduced promotional activity, favorable product mix and pricing actions, and lower duties offset by unfavorable geography mix and unfavorable channel mix.

Selling, General and Administrative Expenses


	Nine Months Ended
	April 2, 2022				March 27, 2021				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	1,564.7	42.2	%	$	1,317.6	43.0	%	$	247.1	18.8	%
Kate Spade	565.4		51.3		474.1		54.6		91.3		19.3
Stuart Weitzman	139.9		56.9		123.0		62.0		16.9		13.7
Corporate	333.9		NA		292.8		NA		41.1		14.0
Tapestry	$	2,603.9	51.5		$	2,207.5	53.4		$	396.4	18.0

SG&A expenses increased 18.0% or $396.4 million to $2.60 billion in the first nine months of fiscal 2022 as compared to $2.21 billion in the first nine months of fiscal 2021. As a percentage of net sales, SG&A expenses decreased to 51.5% during the first nine months of fiscal 2022 as compared to 53.4% during the first nine months of fiscal 2021. Excluding items affecting comparability of $31.7 million and $114.5 million in the first nine months of fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased 22.9% or $479.2 million to $2.57 billion from $2.09 billion the first nine months of fiscal 2021. Excluding items affecting comparability, SG&A expenses as a percentage of net sales increased to 50.8% in the first nine months of fiscal 2022 from 50.7% in the first nine months of fiscal 2021.

Coach SG&A Expenses increased 18.8% or $247.1 million to $1.56 billion in the first nine months of fiscal 2022 as compared to $1.32 billion in the first nine months of fiscal 2021. As a percentage of net sales, SG&A expenses decreased to 42.2% during the first nine months of fiscal 2022 as compared to 43.0% during the first nine months of fiscal 2021. Excluding items affecting comparability of $4.0 million and $41.6 million in the first nine months of fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased 22.3% or $284.7 million to $1.56 billion in the first nine months of fiscal 2022; and SG&A expenses as a percentage of net sales increased to 42.0% in the first nine months of fiscal 2022 from 41.6% in the first nine months of fiscal 2021. This increase in SG&A expenses was primarily due to higher marketing spend, most notably in digital, increased compensation costs, a decrease in Covid-19 related wage subsidies and rent concessions, and an increase in variable selling and distribution costs.
Kate Spade SG&A Expenses increased 19.3% or $91.3 million to $565.4 million in the first nine months of fiscal 2022 from $474.1 million in the first nine months of fiscal 2021. As a percentage of net sales, SG&A expenses decreased to 51.3% during the first nine months of fiscal 2022 as compared to 54.6% during the first nine months of fiscal 2021. Excluding items affecting comparability of $4.2 million and $23.6 million in the first nine months of fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased 24.6% or $110.7 million to $561.2 million in the first nine months of fiscal 2022; and SG&A expenses as a percentage of net sales decreased to 51.0% in the first nine months of fiscal 2022 from 51.9% in the first nine months of fiscal 2021. This increase in SG&A expenses was primarily due to higher marketing spend, most notably in digital, increased compensation costs, and an increase in variable selling and distribution costs.
Stuart Weitzman SG&A Expenses increased 13.7% or $16.9 million to $139.9 million in the first nine months of fiscal 2022 as compared to $123.0 million in the first nine months of fiscal 2021. As a percentage of net sales, SG&A expenses decreased to 56.9% during the first nine months of fiscal 2022 as compared to 62.0% during the first nine months of fiscal 2021. Excluding items affecting comparability of $3.2 million and $4.8 million in the first nine months of fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased 15.6% or $18.5 million to $136.7 million in the first nine months of fiscal 2022; and SG&A expenses as a percentage of net sales decreased to 55.6% in the first nine months of fiscal 2022 from 59.7% in the first nine months of fiscal 2021. This increase in SG&A expenses was primarily due to higher marketing spend, most notably in digital, higher selling costs, and a decrease in Covid-19 related rent concessions and wage subsidies.
Corporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment, increased 14.0% or $41.1 million to $333.9 million in the first nine months of fiscal 2022 as compared to $292.8 million in the first nine months of fiscal 2021. Excluding items affecting comparability of $20.3 million and $44.5 million in the first nine months of fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased by 26.3% or $65.3 million to $313.6 million in the first nine months of fiscal 2022 as compared to $248.3 million in the first nine months of fiscal 2021. This increase in SG&A expenses was primarily driven by higher compensation costs, the one-time gain on the sale of our corporate office in Hong Kong SAR, China in the first quarter of fiscal 2021 and the one-time gain realized on the deferred purchase price of the Kate Spade joint venture in the second quarter of fiscal 2021.

Operating Income (Loss)


	Nine Months Ended
	April 2, 2022				March 27, 2021				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	1,124.5	30.3	%	$	933.4	30.5	%	$	191.1	20.5	%
Kate Spade	131.2		11.9		73.3		8.4		57.9		78.8
Stuart Weitzman	5.5		2.2		(5.6)		(2.8)		11.1		NM
Corporate	(333.9)		NA		(292.8)		NA		(41.1)		(14.0)
Tapestry	$	927.3	18.3		$	708.3	17.1		$	219.0	30.9

Operating income increased 30.9% or $219.0 million to $927.3 million in the first nine months of fiscal 2022 as compared to operating income of $708.3 million in the first nine months of fiscal 2021. Operating margin was 18.3% in the first nine months of fiscal 2022 as compared to 17.1% in the first nine months of fiscal 2021. Excluding items affecting comparability of $31.7 million and $114.5 million in the first nine months of fiscal 2022 and fiscal 2021, respectively, operating income increased $136.2 million to $959.0 million from $822.8 million in the first nine months of fiscal 2021; and operating margin was 19.0% in the first nine months of fiscal 2022 as compared to 19.9% in the first nine months of fiscal 2021.

Coach Operating Income increased 20.5% or $191.1 million to $1.12 billion in the first nine months of fiscal 2022, resulting in an operating margin of 30.3%, as compared to $933.4 million and 30.5%, respectively, in the first nine months of fiscal 2021. Excluding items affecting comparability, Coach operating income increased 15.8% or $153.5 million to $1,128.5 million from $975.0 million in the first nine months of fiscal 2021; and operating margin was 30.4% in the first nine months of fiscal 2022 as compared to 31.8% in the first nine months of fiscal 2021.
Kate Spade Operating Income increased 78.8% or $57.9 million to $131.2 million in the first nine months of fiscal 2022, resulting in an operating margin of 11.9%, as compared to operating income of $73.3 million and 8.4%, respectively, in the first nine months of fiscal 2021. Excluding items affecting comparability, Kate Spade operating income increased 39.6% or $38.5 million to $135.4 million from $96.9 million in the first nine months of fiscal 2021;

and operating margin was 12.3% in the first nine months of fiscal 2022 as compared to 11.2% in the first nine months of fiscal 2021.

Stuart Weitzman Operating Income increased $11.1 million to $5.5 million in the first nine months of fiscal 2022, resulting in an operating margin of 2.2%, as compared to operating loss of $5.6 million in first nine months of fiscal 2021. Excluding items affecting comparability, Stuart Weitzman operating income increased $9.5 million to $8.7 million from and operating loss of $0.8 million in the first nine months of fiscal 2021; and operating margin was 3.5% in the first nine months of fiscal 2022 as compared to an operating loss of 0.4% in the first nine months of fiscal 2021.

Loss on Extinguishment of Debt

In the second quarter of fiscal 2022, the Company early tendered $500 million in aggregate of the Company’s 2027 Senior Notes and 2025 Senior Notes. As a result, the Company incurred a loss on extinguishment of debt of $53.7 million in the first nine months of fiscal 2022, primarily related to the premiums, amortization and fees associated with the partial tender.

Interest Expense, net

Interest expense, net decreased 14.9% or $8.2 million to $46.8 million in the first nine months of fiscal 2022 as compared to $55.0 million in the first nine months of fiscal 2021. This decrease in interest expense, net was due to lower interest expense due to the repayment of the Revolving Credit Facility during fiscal 2021 as well as lower bond interest expense.

Other Expense (Income)

Other income decreased $10.1 million to an expense of $8.3 million in the first nine months of fiscal 2022 as compared to income of $1.8 million in the first nine months of fiscal 2021. This decrease in other income was related to an increase in foreign exchange losses.

Provision (Benefit) for Income Taxes

The effective tax rate was 18.5% in the first nine months of fiscal 2022 as compared to 3.1% in the first nine months of fiscal 2021. Excluding items affecting comparability, the effective tax rate was 18.2% in the first nine months of fiscal 2022 as compared to 18.3% in the first nine months of fiscal 2021.

Net Income (Loss)

Net income increased 5.2% or $33.1 million to $667.5 million in the first nine months of fiscal 2022 as compared to net income of $634.4 million in the first nine months of fiscal 2021. Excluding items affecting comparability, net income increased 17.6% or $110.6 million to $739.3 million in the first nine months of fiscal 2022 as compared to $628.7 million in the first nine months of fiscal 2021. This increase was primarily due to higher operating income.

Net Income (Loss) per Share

Net income per diluted share increased 7.3% or $0.17 to $2.42 in the first nine months of fiscal 2022 as compared to $2.25 in the first nine months of fiscal 2021. Excluding items affecting comparability, net income per diluted share increased 19.9% or $0.45 to $2.68 in the first nine months of fiscal 2022 from $2.23 in the first nine months of fiscal 2021. This change was primarily due to higher net income.

NON-GAAP MEASURES

The Company’s reported results are presented in accordance with GAAP. The reported SG&A expenses, operating income, provision for income taxes, net income and earnings per diluted share in the third quarter and the first nine months of fiscal 2022 and fiscal 2021 and the reported loss on extinguishment of debt in the first nine months of fiscal 2022 reflect certain items, including debt extinguishment costs in fiscal 2022, Acceleration Program costs in fiscal 2022 and fiscal 2021, the CARES Act Tax Impact in fiscal 2021 and Impairment costs in fiscal 2021. As a supplement to the Company's reported results, these metrics are also reported on a non-GAAP basis to exclude the impact of these items, along with a reconciliation to the most directly comparable GAAP measures.

The Company has historically reported comparable store sales, which reflects sales performance at stores that have been open for at least 12 months, and includes sales from e-commerce sites. The Company excludes new stores, including newly acquired locations, from the comparable store base for the first twelve months of operation. The Company excludes closed stores from the calculation. Comparable store sales are not adjusted for store expansions. Due to extensive full and partial store closures resulting from the impact of the Covid-19 pandemic, comparable store sales are not reported for the three or nine months ended April 2, 2022 as the Company does not believe this metric is currently meaningful to the readers of its financial statements for this period.

These non-GAAP performance measures were used by management to conduct and evaluate its business during its regular review of operating results for the periods affected. Management and the Company’s Board utilized these non-GAAP measures to make decisions about the uses of Company resources, analyze performance between periods, develop internal projections and measure management performance. The Company’s internal management reporting excluded these items. In addition, the human resources committee of the Company’s Board uses these non-GAAP measures when setting and assessing achievement of incentive compensation goals.

The Company operates on a global basis and reports financial results in U.S. dollars in accordance with GAAP. Fluctuations in foreign currency exchange rates can affect the amounts reported by the Company in U.S. dollars with respect to its foreign revenues and profit. Accordingly, certain material increases and decreases in operating results for the Company and its segments have been presented both including and excluding currency fluctuation effects. These effects occur from translating foreign-denominated amounts into U.S. dollars and comparing to the same period in the prior fiscal year. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. The Company calculates constant currency revenue results by translating current period revenue in local currency using the prior year period's currency conversion rate.

We believe these non-GAAP measures are useful to investors and others in evaluating the Company’s ongoing operating and financial results in a manner that is consistent with management's evaluation of business performance and understanding how such results compare with the Company’s historical performance. Additionally, we believe presenting certain increases and decreases in constant currency provides a framework for assessing the performance of the Company's business outside the United States and helps investors and analysts understand the effect of significant year-over-year currency fluctuations. We believe excluding these items assists investors and others in developing expectations of future performance.

By providing the non-GAAP measures, as a supplement to GAAP information, we believe we are enhancing investors’ understanding of our business and our results of operations. The non-GAAP financial measures are limited in their usefulness and should be considered in addition to, and not in lieu of, GAAP financial measures. Further, these non-GAAP measures may be unique to the Company, as they may be different from non-GAAP measures used by other companies.

For a detailed discussion on these non-GAAP measures, see Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows


	Nine Months Ended
	April 2, 2022		March 27, 2021		Change
	(millions)

Net cash provided by operating activities	$	616.4	$	944.6	$	(328.2)
Net cash used in investing activities	(337.5)		(43.6)		(293.9)
Net cash used in financing activities	(1,468.3)		(688.6)		(779.7)
Effect of exchange rate changes on cash and cash equivalents	(12.3)		13.0		(25.3)
Net (decrease) increase in cash and cash equivalents	$	(1,201.7)	$	225.4	$	(1,427.1)

The Company’s cash and cash equivalents decreased by $1.20 billion in the first nine months of fiscal 2022 as compared to an increase of $225.4 million in the first nine months of fiscal 2021, as discussed below.

Net cash provided by operating activities

Net cash provided by operating activities decreased $328.2 million due to changes in operating assets and liabilities of $505.7 million, partially offset by the impact of non-cash adjustments of $90.7 million, loss on extinguishment of debt of $53.7 million and higher net income of $33.1 million.

The $505.7 million decrease in changes in operating asset and liability balances were primarily driven by the following:

Inventories were a use of cash of $192.2 million in the first nine months of fiscal 2022 compared to a source of cash of $63.9 million in the first nine months of fiscal 2021, primarily driven by higher receipts and increased in transit inventory due to supply chain challenges and increased inbound freight costs compared to prior year.
Accounts payable were a source of cash of $23.1 million in the first nine months of fiscal 2022 compared to a source of cash of $275.0 million in the first nine months of fiscal 2021, primarily due to the extension of payment terms with certain vendors in fiscal 2021 and higher inventory in transit in fiscal 2022.
Accrued liabilities were a use of cash of $110.6 million in the first nine months of fiscal 2022 compared to a source of cash of $7.6 million in the first nine months of fiscal 2021, primarily attributed to the Annual Incentive Plan payment as the Company did not pay out under its Annual Incentive Plan during fiscal 2021 (for performance during fiscal year 2020) offset by increased distribution costs driven by higher sales and inbound freight.
Other assets were a source of cash of $62.3 million in the first nine months of fiscal 2022 compared to a use of cash of $105.7 million in the first nine months of fiscal 2021, primarily attributed to income tax receivables including the NOL carryback claim under the CARES Act filed in fiscal 2021 and the timing of payments and other refunds in the U.S.

Net cash used in investing activities

Net cash used in investing activities in the first nine months of fiscal 2022 was $337.5 million as compared to a use of cash of $43.6 million in the first nine months of fiscal 2021, resulting in a $293.9 million increase in net cash used in investing activities.

The $337.5 million use of cash in the first nine months of fiscal 2022 is primarily due to purchases of investments of $523.4 million and capital expenditures of $75.1 million, partially offset by proceeds from maturities and sales of investments $261.0 million.

The $43.6 million use of cash in the first nine months of fiscal 2021 is primarily due to capital expenditures of $68.9 million, partially offset by cash received from the sale of building of $23.9 million.

Net cash used in financing activities

Net cash used in financing activities was $1.47 billion in the first nine months of fiscal 2022 as compared to a use of cash of $688.6 million in the first nine months of fiscal 2021, resulting in a $779.7 million increase in net cash used in financing activities.

The $1.47 billion of cash used in the first nine months of fiscal 2022 was primarily due to repurchase of common stock of $1.25 billion, repayment of debt of $500.0 million, dividend payments of $202.8 million and the payment of debt extinguishment costs of $50.7 million, partially offset by proceeds from the issuance of debt, net of discount of $498.5 million.

The $688.6 million use of cash in the first nine months of fiscal 2021 was primarily due to repayments on the revolving credit facility of $700.0 million and note payable of $11.5 million, partially offset by proceeds from share-based awards of $37.8 million.

Working Capital and Capital Expenditures

As of April 2, 2022, in addition to our cash flows from operations, our sources of liquidity and capital resources were comprised of the following:


	Sources of Liquidity		Outstanding Indebtedness		Total Available Liquidity(1)
	(millions)
Cash and cash equivalents(1)	$	806.0	$	—	$	806.0
Short-term investments(1)	267.0		—		267.0

Revolving Credit Facility(2)	900.0		—		900.0

3.050% Senior Notes due 2032(3)	500.0		500.0		—
4.125% Senior Notes due 2027(3)	396.6		396.6		—
3.000% Senior Notes due 2022(3)	400.0		400.0		—
4.250% Senior Notes due 2025(3)	303.4		303.4		—

Total	$	3,573.0	$	1,600.0	$	1,973.0

(1) As of April 2, 2022, approximately 28% of our cash and short-term investments were held outside the United States. The Company will likely repatriate some portion of available foreign cash in the foreseeable future, and has recorded deferred taxes on certain earnings of non-US subsidiaries that are deemed likely to be repatriated.

(2) In October 2019, the Company entered into a definitive credit agreement whereby Bank of America, N.A., as administrative agent, the other agents party thereto, and a syndicate of banks and financial institutions have made available to the Company a $900.0 million revolving credit facility, including sub-facilities for letters of credit, with a maturity date of October 24, 2024 (the "Revolving Credit Facility"). Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to, at the Borrowers’ option, either (a) an alternate base rate (which is a rate equal to the greatest of (i) the Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate in effect on such day plus ½ of 1% or (iii) the Adjusted LIBO Rate for a one month Interest Period on such day plus 1%) or (b) a rate based on the rates applicable for deposits in the interbank market for U.S. Dollars or the applicable currency in which the loans are made plus, in each case, an applicable margin. The applicable margin will be determined by reference to a grid, defined in the Credit Agreement, based on the ratio of (a) consolidated debt plus operating lease liability less excess cash above $300 million to (b) consolidated EBITDAR. Additionally, the Company pays a commitment fee at a rate determined by the reference to the aforementioned pricing grid. The Company must comply on a quarterly basis with a maximum net leverage ratio of 4.0 to 1.0. As of April 2, 2022, there were no borrowings outstanding under the Revolving Credit Facility. Refer to Note 11, "Debt," for further information on our existing debt instruments.

Subsequent to the end of the third quarter of fiscal 2022, the Company refinanced and replaced the Revolving Credit Facility by entering into a new revolving credit facility that (i) includes an increased revolving credit facility (the “New Revolving Credit Facility”) from $900.0 million to $1.25 billion, (ii) includes an unsecured $500.0 million Term Loan (the “Term Loan”) and (iii) redefines certain terms within the existing Revolving Credit Facility. Refer to Note 17, "Subsequent Events" for further information.

(3) In December 2021, the Company issued $500.0 million aggregate principal amount of 3.050% senior unsecured notes due March 15, 2032 at 99.705% of par (the "2032 Senior Notes") and completed cash tender offers for $203.4 million and $296.6 million of the outstanding aggregate principal amount under its 2027 Senior Notes and 2025 Senior Notes, respectively. In June 2017, the Company issued $600.0 million aggregate principal amount of 2027 Senior Notes, and $400.0 million aggregate principal amount of 3.000% senior unsecured notes due July 15, 2022 at 99.505% of par (the "2022 Senior Notes"). In March 2015, the Company issued $600.0 million aggregate principal amount of 2025 Senior Notes. Furthermore, the indentures for the 2032 Senior Notes, 2027 Senior Notes, 2022 Senior Notes, and 2025 Senior Notes contain certain covenants limiting the Company’s ability to: (i) create certain liens, (ii) enter into certain sale and leaseback transactions and (iii) merge, or consolidate or transfer, sell or lease all or substantially all of the Company’s assets. As of April 2, 2022, no known events of default have occurred. Refer to Note 11, "Debt," for further information on our existing debt instruments.

We believe that our Revolving Credit Facility is adequately diversified with no undue concentrations in any one financial institution. As of April 2, 2022, there were 12 financial institutions participating in the Revolving Credit Facility, with no one participant maintaining a combined maximum commitment percentage in excess of 14%.

We have the ability to draw on our credit facilities or access other sources of financing options available to us in the credit and capital markets for, among other things, acquisition or integration-related costs, our restructuring initiatives, settlement of a material contingency, or a material adverse business or macroeconomic development, as well as for other general corporate business purposes.

Management believes that cash flows from operations, access to the credit and capital markets and our credit lines, on-hand cash and cash equivalents and our investments will provide adequate funds to support our operating, capital, and debt service requirements for the remainder of fiscal 2022 and beyond. There can be no assurance that any such capital will be available to the Company on acceptable terms or at all. Our ability to fund working capital needs, planned capital expenditures, and scheduled debt payments, as well as to comply with all of the financial covenants under our debt agreements, depends on future operating performance and cash flow. This future operating performance and cash flow are subject to prevailing economic conditions, which is uncertain as a result of Covid-19, and to financial, business and other factors, some of which are beyond the Company's control.

As part of our efforts to improve our working capital efficiency, we have worked with certain suppliers to revisit terms and conditions, including the extension of payment terms. As an alternative to our payment terms, available to certain suppliers is a voluntary supply chain finance (“SCF”) program that enables our suppliers to sell their receivables from the Company to a global financial institution on a non-recourse basis at a rate that leverages our credit rating. We do not have the ability to refinance or modify payment terms to the global financial institution through the SCF program. No guarantees are provided by the Company or any of our subsidiaries under the SCF program.

Reference should be made to our most recent Annual Report on Form 10-K and other filings with the SEC for additional information regarding liquidity and capital resources. The Company expects total fiscal 2022 capital expenditures and cloud computing implementation costs to be approximately $180 million. Certain cloud computing implementation costs are recognized within Prepaid expenses and Other assets on the Condensed Consolidated Balance Sheets.

Seasonality

The Company's results are typically affected by seasonal trends. During the first fiscal quarter, we build inventory for the holiday selling season. In the second fiscal quarter, working capital requirements are reduced substantially as we generate higher net sales and operating income, especially during the holiday months of November and December. Accordingly, the Company’s net sales, operating income and operating cash flows for the three months ended April 2, 2022 are not necessarily indicative of that expected for the full fiscal 2022. However, fluctuations in net sales, operating income and operating cash flows of the Company in any fiscal quarter may be affected by the timing of wholesale shipments and other events affecting retail sales, including adverse weather conditions or other macroeconomic events, including pandemics such as Covid-19.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's significant accounting policies are described in Note 3 to the audited consolidated financial statements in our Annual Report on Form 10-K for fiscal 2021. Our discussion of results of operations and financial condition relies on our condensed consolidated financial statements that are prepared based on certain critical accounting policies that require management to make judgments and estimates which are subject to varying degrees of uncertainty. While we believe that these accounting policies are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts.

For a complete discussion of our critical accounting policies and estimates, see the "Critical Accounting Policies and Estimates" section of the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal 2021. As of April 2, 2022, there have been no material changes to any of the critical accounting policies.

The Company performs its annual impairment assessment of goodwill as well as brand intangibles at the beginning of the fourth quarter of each fiscal year. In all fiscal years, the fair values of our Coach brand reporting units significantly exceeded their respective carrying values. The fair values of the Kate Spade brand reporting unit and indefinite-lived brand as of the fiscal 2021 testing date exceeded their respective carrying values by approximately 41% and 77%, respectively. Several factors could impact the Kate Spade brand's ability to achieve expected future cash flows, including continued economic volatility and potential operational challenges related to the Covid-19 pandemic, the reception of new collections in all channels, the success of international expansion strategies, the optimization of the store fleet productivity, the impact of promotional activity in department stores, and other initiatives aimed at increasing profitability of the business. Given the relatively small excess of fair value over carrying value as noted above, if profitability trends decline from those that are expected, it is possible that these assets could be impaired.

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