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.

INTRODUCTION

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is provided as a supplement to the accompanying condensed consolidated financial statements and notes thereto to help provide an understanding of our results of operations, financial condition, and liquidity. MD&A is organized as follows:

• Overview. This section provides a general description of the business and brands as well as the Company’s growth strategy.

• Global Economic Conditions and Industry Trends. This section includes a discussion on global economic conditions and industry trends that affect comparability that are important in understanding results of operations and financial conditions, and in anticipating future trends.

• Results of operations*.* An analysis of our results of operations in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 and first nine months of fiscal 2023 compared to the first nine months of fiscal 2022.

• Non-GAAP measures. This section includes non-GAAP measures that 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.

• Liquidity and capital resources. This section includes a discussion on liquidity and capital resources including an analysis of changes in cash flow as well as working capital and capital expenditures.

• Critical Accounting policies and estimates. This section includes any material changes or updates to critical accounting policies or estimates since the Annual Report on Form 10-K for fiscal 2022.

OVERVIEW

Tapestry, Inc. (the "Company") is a leading New York-based house of iconic 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, 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 and concession shop-in-shops, sales to wholesale customers and through independent third party distributors.

• Stuart Weitzman - Includes global sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores, sales to wholesale customers, through e-commerce sites and through 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.

2025 Growth Strategy

Building on the success of the strategic growth plan from fiscal 2020 through fiscal 2022 (the “Acceleration Program”), in the first quarter of fiscal 2023, the Company introduced the 2025 growth strategy (“futurespeed”), designed to amplify and extend the competitive advantages of the brands, with a focus on four strategic priorities:

• Building Lasting Customer Relationships: The Company’s brands aim to leverage Tapestry’s transformed business model to drive customer lifetime value through a combination of increased customer acquisition, retention and reactivation.

• Fueling Fashion Innovation & Product Excellence: The Company aims to drive sustained growth in core handbags and small leathergoods, while accelerating gains in footwear and lifestyle products.

• Delivering Compelling Omni-Channel Experiences: The Company aims to extend its omni-channel leadership to meet the customer wherever they shop, delivering growth online and in stores.

• Powering Global Growth: The Company aims to support balanced growth across regions, prioritizing North America and China, its largest markets, while capitalizing on opportunities in under-penetrated geographies such as Southeast Asia and Europe.

GLOBAL ECONOMIC CONDITIONS AND INDUSTRY TRENDS

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.

We will continue to monitor the below 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 2, 2022.

Current Macroeconomic Conditions and Outlook

In the third quarter of fiscal 2023, the macroeconomic environment remained challenging and volatile. Several organizations that monitor the world’s economy, including the International Monetary Fund, continue to forecast growth in the global economy. Some of these organizations have recently revised the forecast slightly downwards since the second quarter of fiscal 2023. The updated forecast is below the historical average, which is reflective of the current volatile environment, including higher than anticipated inflation, tighter monetary and fiscal policies aiming to lower inflation, financial market volatility, the lingering effects of Covid-19 pandemic and the negative economic impacts due to the crisis in Ukraine. In addition, starting in December 2022 certain Covid-19 related government restrictions in Greater China were lifted and business trends have improved in the region.

In the third quarter of fiscal 2023, the U.S. Dollar has appreciated as compared to foreign currencies in regions where we conduct our business. For the three months and nine months ended April 1, 2023, this trend has resulted in adverse impacts to our business as compared to prior year, including, but not limited to, decreased Net sales of $52.8 million and $188.5 million respectively, negative impact to gross margin of approximately 120 basis points and 100 basis points respectively, and favorable impact to Selling, general and administrative expenses ("SG&A") of $23.5 million and $87.1 million respectively. Taken together, this resulted in approximately 170 basis points and 120 basis points, respectively, of negative impact to operating margin, and negative impact to Net income per diluted share by $0.10 and $0.30 respectively.

Currency volatility, political instability and potential changes to trade agreements or duty rates may also 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.

The Company continues to take strategic actions in response to the current environment and remains committed to driving SG&A savings. 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 current macroeconomic environment.

Covid-19 Pandemic

The ongoing Covid-19 pandemic has resulted in varying degrees of business disruption for the Company since it began in fiscal 2020 and has impacted all regions around the world, resulting in restrictions and shutdowns implemented by national, state, and local authorities. During the first half of fiscal 2023, the Company's results in Greater China were adversely impacted as a result of the Covid-19 pandemic. Starting in December 2022, certain government restrictions were lifted and business trends have improved in the region. We continue to monitor the latest developments regarding the Covid-19 pandemic and have incorporated certain assumptions regarding the duration, severity and global macroeconomic impact of the pandemic into our financial outlook. The impact of Covid-19 on our business and operating results could differ materially from these assumptions based on a number of factors largely outside of our control. Refer to Part II, Item 1A. "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2022, for additional discussion regarding risks to our business associated with the Covid-19 pandemic.

Supply Chain and Logistics Challenges

Covid-19 has and may continue to cause disruptions in the Company’s supply chain within our third-party manufacturers and logistics providers. During 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 improved production levels, the Company has and expects that it will continue to be able to meet anticipated levels of demand. The Company has experienced other global logistical challenges, such as delays as a result of port congestion, vessel availability, container shortages for imported products and rising freight costs.

During the first nine months of fiscal 2023, freight costs have started to moderate and the Company has significantly reduced the use of air freight when compared to the first nine months of fiscal 2022. As a result, during the three months and nine months ended April 1, 2023, the Company incurred lower freight expense of $45.6 million and $52.6 million respectively, positively impacting gross margin by approximately 360 basis points and 120 basis points when compared to the prior year.

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" in the Company's Annual Report on Form 10-K for the year ended July 2, 2022.

Generalized System of Preferences (“GSP”) program

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.

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 2022. The Company has paused all wholesale shipments to Russia. The Company's total business in Europe represented less than 5% of its fiscal 2022 total Net sales.

Tax Legislation

Over the past year, there has been significant discussion with regards to tax legislation by both the Biden Administration and the Organization for Economic Cooperation and Development (“OECD”). On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law by the Biden Administration, with tax provisions primarily focused on implementing a 15% corporate alternative minimum tax on global adjusted financial statement income ("CAMT") and a 1% excise tax on share repurchases. On December 12, 2022, the European Union member states also reached agreement to implement the OECD’s reform of international taxation known as Pillar Two Global Anti-Base Erosion ("GloBE") Rules, which broadly mirror the Inflation Reduction Act by imposing a 15% global minimum tax on multinational companies. The CAMT and GloBE are anticipated to be effective beginning in fiscal 2024 and fiscal 2025, respectively. The US Treasury and the OECD continue to seek input and release guidance on the CAMT and GloBE legislation and how the two will interact, so it is unclear at this time what, if any, impact either will have on the Company’s tax rate and financial results. We will continue to evaluate their impact as further information becomes available. With respect to the 1% excise tax on net share repurchases, this provision of the Inflation Reduction Act was effective on January 1, 2023 and did not have a material impact on our financial statements. This excise tax is recorded in Retained earnings as part of Stockholders' Equity.

Seasonality

The Company's results are typically affected by seasonal trends. During the first fiscal quarter, we typically build inventory for the winter and holiday 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 season. Accordingly, the Company’s net sales, operating income and operating cash flows for the three months ended April 1, 2023 are not necessarily indicative of that expected for the full fiscal 2023. 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.

THIRD QUARTER FISCAL 2023 COMPARED TO THIRD QUARTER FISCAL 2022

The following table summarizes results of operations for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022. All percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers.

			Three Months Ended
			April 1, 2023												April 2, 2022												Variance
			(millions, except per share data)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Net sales			$	1,509.5					100.0		%				$	1,437.5					100.0		%				$	72.0					5.0		%
Gross profit			1,098.3						72.8						1,005.1						69.9						93.2						9.3
SG&A expenses			872.0						57.8						835.6						58.1						36.4						4.3
Operating income (loss)			226.3						15.0						169.5						11.8						56.8						33.6
Interest expense, net			6.1						0.4						14.8						1.0						(8.7)						(58.9)
Other expense (income)			(3.0)						(0.2)						3.0						0.2						(6.0)						NM
Provision for income taxes			36.5						2.4						29.0						2.0						7.5						25.5
Net income (loss)			186.7						12.4						122.7						8.5						64.0						52.2
Net income (loss) per share:
Basic			$	0.80											$	0.47											$	0.33					68.6
Diluted			$	0.78											$	0.46											$	0.32					68.5

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"). There were no charges affecting comparability during the third quarter of fiscal 2023. The reported results during the third quarter of fiscal 2022 reflect certain items which affect the comparability of our results, as noted in the following table. 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)
Coach			780.0																		—												780.0
Kate Spade			189.4																		—												189.4
Stuart Weitzman			35.7																		—												35.7
Gross profit			$	1,005.1																	$	—											$	1,005.1
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
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

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.

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.

Tapestry, Inc. Summary – Third Quarter of Fiscal 2023

Currency Fluctuation Effects

The change in net sales for the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 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

			Three Months Ended												Variance
			April 1, 2023						April 2, 2022						Amount						%						Constant Currency Change
			(millions)
Coach			$	1,144.0					$	1,072.4					$	71.6					6.7		%				10.8		%
Kate Spade			297.2						301.5						(4.3)						(1.4)						0.9
Stuart Weitzman			68.3						63.6						4.7						7.3						9.9
Total Tapestry			$	1,509.5					$	1,437.5					$	72.0					5.0						8.7

Net sales in the third quarter of fiscal 2023 increased 5.0% or $72.0 million to $1.51 billion. Excluding the effects of foreign currency, net sales increased by 8.7% or $124.8 million.

• Coach Net Sales increased 6.7% or $71.6 million to $1.14 billion in the third quarter of fiscal 2023. Excluding the impact of foreign currency, net sales increased 10.8% or $115.9 million. This increase in net sales was primarily due to an increase of $122.7 million in net retail sales driven by an increase in both store and e-commerce sales globally. The increase in net retail sales was partially offset by an $11.4 million decrease in wholesale sales.

• Kate Spade Net Sales decreased 1.4% or $4.3 million to $297.2 million in the third quarter of fiscal 2023. Excluding the impact of foreign currency, net sales increased 0.9% or $2.6 million. This increase in net sales was primarily due to an increase of $7.1 million in net retail sales driven by higher store sales globally, partially offset by a decrease in e-commerce sales. This increase in net retail sales was partially offset by a $3.6 million decrease in wholesale sales.

• Stuart Weitzman Net Sales increased 7.3% or $4.7 million to $68.3 million in the third quarter of fiscal 2023. Excluding the impact of foreign currency, net sales increased 9.9% or $6.3 million. This increase in net sales was primarily attributed to a $3.5 million increase in wholesale sales, as well as an increase of $2.8 million in net retail sales primarily driven by higher e-commerce sales.

Gross Profit

			Three Months Ended
			April 1, 2023												April 2, 2022												Variance
			(millions)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Coach			$	866.5					75.7		%				$	780.0					72.7		%				$	86.5					11.1		%
Kate Spade			191.1						64.3						189.4						62.8						1.7						0.9
Stuart Weitzman			40.7						59.6						35.7						56.1						5.0						14.1
Tapestry			$	1,098.3					72.8						$	1,005.1					69.9						$	93.2					9.3

Gross profit increased 9.3% or $93.2 million to $1.10 billion in the third quarter of fiscal 2023 from $1.01 billion in the third quarter of fiscal 2022. Gross margin for the third quarter of fiscal 2023 was 72.8% as compared to 69.9% in the third quarter of fiscal 2022. Gross margin for the third quarter of fiscal 2023 was positively impacted by favorable freight of 360 basis points and unfavorable currency translation of 120 basis points. Refer to "Current Macroeconomic Conditions and Outlook" and "Supply Chain and Logistics Challenges" herein, for further information.

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.

• Coach Gross Profit increased 11.1% or $86.5 million to $866.5 million in the third quarter of fiscal 2023 from $780.0 million in the third quarter of fiscal 2022. Gross margin increased 300 basis points to 75.7% in the third quarter of fiscal 2023 from 72.7% in the third quarter of fiscal 2022. This increase in gross margin was primarily attributed to favorable inbound freight expense and net pricing improvements, partially offset by unfavorable currency translation.

• Kate Spade Gross Profit increased 0.9% or $1.7 million to $191.1 million in the third quarter of fiscal 2023 from $189.4 million in the third quarter of fiscal 2022. Gross margin increased 150 basis points to 64.3% in the third quarter of fiscal 2023 from 62.8% in the third quarter of fiscal 2022. This increase in gross margin was primarily attributed to favorable inbound freight expense, offset by unfavorable product mix and unfavorable currency translation.

• Stuart Weitzman Gross Profit increased 14.1% or $5.0 million to $40.7 million in the third quarter of fiscal 2023 from $35.7 million in the third quarter of fiscal 2022. Gross margin increased 350 basis points to 59.6% in the third quarter of fiscal 2023 from 56.1% in the third quarter of fiscal 2022. This increase in gross margin was primarily attributed to net pricing improvements and favorable inbound freight expense.

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

			Three Months Ended
			April 1, 2023												April 2, 2022												Variance
			(millions)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Coach			$	524.3					45.8		%				$	494.5					46.1		%				$	29.8					6.0		%
Kate Spade			183.1						61.6						179.1						59.4						4.0						2.2
Stuart Weitzman			39.9						58.5						42.0						66.0						(2.1)						(4.9)
Corporate			124.7						NA						120.0						NA						4.7						3.9
Tapestry			$	872.0					57.8						$	835.6					58.1						$	36.4					4.3

SG&A expenses increased 4.3% or $36.4 million to $872.0 million in the third quarter of fiscal 2023 as compared to $835.6 million in the third quarter of fiscal 2022. As a percentage of net sales, SG&A expenses decreased to 57.8% during the third quarter of fiscal 2023 from 58.1% during the third quarter of fiscal 2022. Excluding items affecting comparability of $6.3 million in the third quarter of fiscal 2022, SG&A expenses increased 5.1% or $42.7 million to $872.0 million from $829.3 million in the third quarter of fiscal 2022. SG&A as a percentage of net sales increased to 57.8% as compared to 57.7% during the third quarter of fiscal 2022. SG&A for the third quarter of fiscal 2023 was positively impacted by favorable currency translation of $23.5 million. Refer to "Current Macroeconomic Conditions and Outlook" herein, for further information.

• Coach SG&A Expenses increased 6.0% or $29.8 million to $524.3 million in the third quarter of fiscal 2023 as compared to $494.5 million in the third quarter of fiscal 2022. SG&A expenses as a percentage of net sales decreased to 45.8% during the third quarter of fiscal 2023 from 46.1% during the third quarter of fiscal 2022. Excluding items affecting comparability of $1.5 million in the third quarter of fiscal 2022, SG&A expenses increased 6.3% or $31.3 million to $524.3 million from $493.0 million in third quarter of fiscal 2022; and SG&A expenses as a percentage of net sales decreased to 45.8% in the third quarter of fiscal 2023 from 46.0% in the third quarter of fiscal 2022. This increase in SG&A expenses was primarily due to increased occupancy costs, increased compensation costs, higher information technology costs, an increase in variable distribution and selling costs, and higher marketing spend, partially offset by favorable currency translation.

• Kate Spade SG&A Expenses increased 2.2% or $4.0 million to $183.1 million in the third quarter of fiscal 2023 as compared to $179.1 million in the third quarter of fiscal 2022. As a percentage of net sales, SG&A expenses increased to 61.6% during the third quarter of fiscal 2023 from 59.4% during the third quarter of fiscal 2022. Excluding items affecting comparability of $0.7 million in the third quarter of fiscal 2022, SG&A expenses increased 2.6% or $4.7 million to $183.1 million from $178.4 million in the third quarter of fiscal 2022; and SG&A expenses as a percentage of net sales increased to 61.6% in the third quarter of fiscal 2023 from 59.2% in the third quarter of fiscal 2022. This increase in SG&A expenses was primarily due to higher information technology costs, increased occupancy costs, and an increase in selling costs, partially offset by favorable currency translation and lower marketing spend.

• Stuart Weitzman SG&A Expenses decreased 4.9% or $2.1 million to $39.9 million in the third quarter of fiscal 2023 as compared to $42.0 million in the third quarter of fiscal 2022. As a percentage of net sales, SG&A expenses decreased to 58.5% during the third quarter of fiscal 2023 as compared to 66.0% during the third quarter of fiscal 2022. Excluding items affecting comparability of $(0.1) million in the third quarter of fiscal 2022, SG&A expenses decreased 5.3% or $2.2 million to $39.9 million from $42.1 million in the third quarter of fiscal 2022; and SG&A expenses as a percentage of net sales decreased to 58.5% in the third quarter of fiscal 2023 from 66.2% in the third

quarter of fiscal 2022. This decrease in SG&A expenses was primarily due to lower marketing spend and favorable currency translation.

• Corporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment, increased 3.9% or $4.7 million to $124.7 million in the third quarter of fiscal 2023 as compared to $120.0 million in the third quarter of fiscal 2022. Excluding items affecting comparability of $4.2 million in the third quarter of fiscal 2022, SG&A expenses increased 7.7% or $8.9 million to $124.7 million in the third quarter of fiscal 2023 as compared to $115.8 million in the third quarter of fiscal 2022. This increase in SG&A expenses was primarily due to higher compensation costs, professional fees and higher information technology costs.

Operating Income (Loss)

			Three Months Ended
			April 1, 2023												April 2, 2022												Variance
			(millions)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Coach			$	342.2					29.9		%				$	285.5					26.6		%				$	56.7					19.9		%
Kate Spade			8.0						2.7						10.3						3.4						(2.3)						(22.0)
Stuart Weitzman			0.8						1.1						(6.3)						(9.9)						7.1						NM
Corporate			(124.7)						NA						(120.0)						NA						(4.7)						(3.9)
Tapestry			$	226.3					15.0						$	169.5					11.8						$	56.8					33.6

Operating income increased 33.6% or $56.8 million to $226.3 million in the third quarter of fiscal 2023 as compared to $169.5 million in the third quarter of fiscal 2022. Operating margin was 15.0% in the third quarter of fiscal 2023 as compared to 11.8% in the third quarter of fiscal 2022. Excluding items affecting comparability of $6.3 million in the third quarter of fiscal 2022, operating income increased 28.7% or $50.5 million to $226.3 million in the third quarter of fiscal 2023 from $175.8 million in the third quarter of fiscal 2022; and operating margin increased to 15% in the third quarter of fiscal 2023 as compared to 12.2% in the third quarter of fiscal 2022.

• Coach Operating Income increased 19.9% or $56.7 million to $342.2 million in the third quarter of fiscal 2023, resulting in an operating margin of 29.9%, as compared to $285.5 million and 26.6%, respectively, in the third quarter of fiscal 2022. Excluding items affecting comparability, Coach operating income increased 19.2% or $55.2 million to $342.2 million from $287.0 million in the third quarter of fiscal 2022; and operating margin was 29.9% in the third quarter of fiscal 2023 as compared to 26.8% in the third quarter of fiscal 2022.

• Kate Spade Operating Income decreased 22.0% or $2.3 million to $8.0 million in the third quarter of fiscal 2023, resulting in an operating margin of 2.7%, as compared to $10.3 million and operating margin of 3.4% in the third quarter of fiscal 2022. Excluding items affecting comparability, Kate Spade operating income decreased 26.7% or $3.0 million to $8.0 million from $11.0 million in the third quarter of fiscal 2022; and operating margin was 2.7% in the third quarter of fiscal 2023 as compared to 3.6% in the third quarter of fiscal 2022.

• Stuart Weitzman Operating Income increased $7.1 million to $0.8 million in the third quarter of fiscal 2023, resulting in an operating margin of 1.1%, as compared to an operating loss of $6.3 million and an operating margin of (9.9)% in the third quarter of fiscal 2022. Excluding items affecting comparability, Stuart Weitzman operating income increased $7.2 million to $0.8 million from an operating loss of $6.4 million in the third quarter of fiscal 2022, and operating margin was 1.1% in the third quarter of fiscal 2023 as compared to (10.2)% in the third quarter of fiscal 2022.

Interest Expense, net

Interest expense, net decreased 58.9% or $8.7 million to $6.1 million in the third quarter of fiscal 2023 as compared to $14.8 million in the third quarter of fiscal 2022. This decrease in interest expense, net was mainly due to the favorable impact of the net investment hedges, higher interest income, as well as lower bond interest expense on senior notes offset by higher interest on the term loan.

Other Expense (Income)

Other expense decreased $6.0 million to income of $3.0 million in the third quarter of fiscal 2023 as compared to expense of $3.0 million in the third quarter of fiscal 2022. The decrease in other expense is related to an increase in foreign exchange gains.

Provision (Benefit) for Income Taxes

The effective tax rate was 16.4% in the third quarter of fiscal 2023 as compared to 19.2% in the third quarter of fiscal 2022. Excluding items affecting comparability, the effective tax rate was 13.8% in the third quarter of fiscal 2022. This increase in our effective tax rate was primarily attributable to geographic mix of earnings and the effects of foreign earnings on U.S. income.

Net Income (Loss)

Net income increased 52.2% or $64.0 million to $186.7 million in the third quarter of fiscal 2023 as compared to $122.7 million in the third quarter of fiscal 2022. Excluding items affecting comparability, net income increased 37.0% or $50.4 million to $186.7 million in the third quarter of fiscal 2023 as compared to $136.3 million in the third quarter of fiscal 2022. This increase was primarily due to higher operating income.

Net Income (Loss) per Share

Net income per diluted share increased 68.5% or $0.32 to $0.78 in the third quarter of fiscal 2023 as compared to $0.46 in the third quarter of fiscal 2022. Excluding items affecting comparability, net income per diluted share increased 51.7% or $0.27 to $0.78 in the third quarter of fiscal 2023 as compared to $0.51 in the third quarter of fiscal 2022. This change was primarily due to higher net income and lower diluted shares. Foreign exchange negatively impacted Net income per diluted share by $0.10.

FIRST NINE MONTHS FISCAL 2023 COMPARED TO FIRST NINE MONTHS FISCAL 2022

The following table summarizes results of operations for the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022. All percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers.

			Nine Months Ended
			April 1, 2023												April 2, 2022												Variance
			(millions, except per share data)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Net sales			$	5,041.4					100.0		%				$	5,059.6					100.0		%				$	(18.2)					(0.4)		%
Gross profit			3,542.2						70.3						3,531.2						69.8						11.0						0.3
SG&A expenses			2,643.4						52.4						2,603.9						51.5						39.5						1.5
Operating income (loss)			898.8						17.8						927.3						18.3						(28.5)						(3.1)
Loss on extinguishment of debt			—						—						53.7						1.1						(53.7)						—
Interest expense, net			21.4						0.4						46.8						2.1						(25.4)						(54.3)
Other expense (income)			1.1						—						8.3						0.2						(7.2)						(85.9)
Provision for income taxes			164.4						3.3						151.0						3.0						13.4						8.9
Net income (loss)			711.9						14.1						667.5						13.2						44.4						6.7
Net income (loss) per share:
Basic			$	2.99											$	2.47											$	0.52					20.6
Diluted			$	2.93											$	2.42											$	0.51					21.0

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"). There were no charges affecting comparability during the first nine months of fiscal 2023. The reported results during the first nine months of fiscal 2022 reflect certain items which affect the comparability of our results, as noted in the following table. 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)
Coach			2,689.2						—						—									2,689.2
Kate Spade			696.6						—						—									696.6
Stuart Weitzman			145.4						—						—									145.4
Gross profit			$	3,531.2					$	—					$	—								$	3,531.2
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
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

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. Refer to Note 11, "Debt," for further information.

*•*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.

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.

Tapestry, Inc. Summary – First Nine Months of Fiscal 2023

Currency Fluctuation Effects

The change in net sales and gross margin for the first nine months of fiscal 2023 compared to fiscal 2022 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

			Nine Months Ended												Variance
			April 1, 2023						April 2, 2022						Amount						%						Constant Currency Change
			(millions)
Coach			$	3,713.0					$	3,712.3					$	0.7					—		%				4.2		%
Kate Spade			1,109.4						1,101.4						8.0						0.7						3.1
Stuart Weitzman			219.0						245.9						(26.9)						(10.9)						(8.6)
Total Tapestry			$	5,041.4					$	5,059.6					$	(18.2)					(0.4)						3.4

Net sales in the first nine months of fiscal 2023 decreased 0.4% or $18.2 million to $5.04 billion. Excluding the effects of foreign currency, net sales increased by 3.4% or $170.3 million.

• Coach Net Sales remained even at $3.71 billion in the first nine months of fiscal 2023. Excluding the impact of foreign currency, net sales increased 4.2% or $157.0 million. This increase in net sales was primarily due to an increase of $124.4 million in net retail sales driven by an increase of store sales, partially offset by a decrease in e-commerce sales. The increase in net sales was also attributed to a $23.1 million increase in wholesale sales.

*•*Kate Spade Net Sales increased 0.7% or $8.0 million to $1.11 billion in the first nine months of fiscal 2023. Excluding the impact of foreign currency, net sales increased 3.1% or $34.4 million. This increase in net sales was primarily due to an increase of $26.3 million in net retail sales driven by higher store sales, partially offset by a decrease in e-commerce sales. The increase in net sales was also attributed to a $7.8 million increase in wholesale sales.

• Stuart Weitzman Net Sales decreased 10.9% or $26.9 million to $219.0 million in the first nine months of fiscal 2023. Excluding the impact of foreign currency, net sales decreased 8.6% or $21.1 million. This decrease in net sales was primarily due to a decrease of $15.5 million in net retail sales mainly in store sales in Greater China due to Covid-19 related disruptions, partially offset by an increase in e-commerce sales. This decrease in net sales was also attributed to a $5.5 million decrease in wholesale sales.

Gross Profit

			Nine Months Ended
			April 1, 2023												April 2, 2022												Variance
			(millions)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Coach			$	2,710.7					73.0		%				$	2,689.2					72.4		%				$	21.5					0.8		%
Kate Spade			701.0						63.2						696.6						63.2						4.4						0.6
Stuart Weitzman			130.5						59.6						145.4						59.1						(14.9)						(10.2)
Tapestry			$	3,542.2					70.3						$	3,531.2					69.8						$	11.0					0.3

Gross profit increased 0.3% or $11.0 million to $3.54 billion during the first nine months of fiscal 2023 from $3.53 billion in the first nine months of fiscal 2022. Gross margin for the first nine months of fiscal 2023 was 70.3% as compared to 69.8% in the first nine months of fiscal 2022. Gross margin for the first nine months of fiscal 2023 was positively impacted by favorable freight of 120 basis points and unfavorable currency translation of 100 basis points. Refer to "Current Macroeconomic Conditions and Outlook" and "Supply Chain and Logistics Challenges" herein, for further information.

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.

• Coach Gross Profit increased 0.8% or $21.5 million to $2.71 billion in the first nine months of fiscal 2023 from $2.69 billion in the first nine months of fiscal 2022. Gross margin increased 60 basis points to 73.0% in the first nine months of fiscal 2023 from 72.4% in the first nine months of fiscal 2022. This increase in gross margin was primarily attributed to lower freight costs and net pricing improvements, partially offset by unfavorable currency translation.

• Kate Spade Gross Profit increased 0.6% or $4.4 million to $701.0 million in the first nine months of fiscal 2023 from $696.6 million in the first nine months of fiscal 2022. Gross margin remained even at 63.2% in the first nine months of fiscal 2023 compared to the prior year which included increased promotional activity and unfavorable currency translation, offset by lower freight costs.

• Stuart Weitzman Gross Profit decreased 10.2% or $14.9 million to $130.5 million during the first nine months of fiscal 2023 from $145.4 million in the first nine months of fiscal 2022. Gross margin increased 50 basis points to 59.6% in the first nine months of fiscal 2023 from 59.1% in the first nine months of fiscal 2022. This increase in gross margin was primarily attributed to net pricing improvements, lower freight costs and favorable channel mix, partially offset by unfavorable foreign currency translation and unfavorable geography mix mainly due to decreased sales in Greater China as a result of Covid-19 related disruptions.

Selling, General and Administrative Expenses

			Nine Months Ended
			April 1, 2023												April 2, 2022												Variance
			(millions)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Coach			$	1,576.1					42.4		%				$	1,564.7					42.2		%				$	11.4					0.7		%
Kate Spade			600.8						54.2						565.4						51.3						35.4						6.3
Stuart Weitzman			134.1						61.2						139.9						56.9						(5.8)						(4.1)
Corporate			332.4						NA						333.9						NA						(1.5)						(0.4)
Tapestry			$	2,643.4					52.4						$	2,603.9					51.5						$	39.5					1.5

SG&A expenses increased 1.5% or $39.5 million to $2.64 billion in the first nine months of fiscal 2023 as compared to $2.60 billion in the first nine months of fiscal 2022. As a percentage of net sales, SG&A expenses increased to 52.4% during the first nine months of fiscal 2023 as compared to 51.5% during the first nine months of fiscal 2022. Excluding items affecting comparability of $31.7 million in the first nine months of fiscal 2022, SG&A expenses increased 2.8% or $71.2 million to $2.64 billion from $2.57 billion the first nine months of fiscal 2022. SG&A expenses as a percentage of net sales increased to 52.4% in the first nine months of fiscal 2023 from 50.8% in the first nine months of fiscal 2022. SG&A for the first nine months for fiscal 2023 was positively impacted by favorable currency translation of $87.1 million. Refer to "Current Macroeconomic Conditions and Outlook" herein, for further information.

• Coach SG&A Expenses increased 0.7% or $11.4 million to $1.58 billion in the first nine months of fiscal 2023 as compared to $1.56 billion in the first nine months of fiscal 2022. As a percentage of net sales, SG&A expenses increased to 42.4% during the first nine months of fiscal 2023 as compared to 42.2% during the first nine months of fiscal 2022. Excluding items affecting comparability of $4.0 million in the first nine months of fiscal 2022, SG&A expenses increased 1.0% or $15.4 million to $1.58 billion in the first nine months of fiscal 2023; and SG&A expenses as a percentage of net sales increased to 42.4% in the first nine months of fiscal 2023 from 42.0% in the first nine months of fiscal 2022. This increase in SG&A expenses was primarily due to increased occupancy costs, higher marketing spend, increased compensation costs, higher information technology costs, and an increase in variable distribution and selling costs, partially offset by favorable currency translation.

• Kate Spade SG&A Expenses increased 6.3% or $35.4 million to $600.8 million in the first nine months of fiscal 2023 from $565.4 million in the first nine months of fiscal 2022. As a percentage of net sales, SG&A expenses increased to 54.2% during the first nine months of fiscal 2023 as compared to 51.3% during the first nine months of fiscal 2022. Excluding items affecting comparability of $4.2 million in the first nine months of fiscal 2022, SG&A expenses increased 7.0% or $39.6 million to $600.8 million in the first nine months of fiscal 2023; and SG&A expenses as a percentage of net sales increased to 54.2% in the first nine months of fiscal 2023 from 51.0% in the first nine months of fiscal 2022. This increase in SG&A expenses was primarily due to an increase in selling and distribution costs, higher information technology costs, increased occupancy costs, and higher marketing spend, partially offset by favorable currency translation.

• Stuart Weitzman SG&A Expenses decreased 4.1% or $5.8 million to $134.1 million in the first nine months of fiscal 2023 as compared to $139.9 million in the first nine months of fiscal 2022. As a percentage of net sales, SG&A expenses increased to 61.2% during the first nine months of fiscal 2023 as compared to 56.9% during the first nine months of fiscal 2022. Excluding items affecting comparability of $3.2 million in the first nine months of fiscal 2022, SG&A expenses decreased 1.9% or $2.6 million to $134.1 million in the first nine months of fiscal 2023; and SG&A expenses as a percentage of net sales increased to 61.2% in the first nine months of fiscal 2023 from 55.6% in the first nine months of fiscal 2022. This decrease in SG&A expenses was primarily due to favorable currency translation and a decrease in selling and distribution costs, partially offset by higher marketing spend.

• Corporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment, decreased 0.4% or $1.5 million to $332.4 million in the first nine months of fiscal 2023 as compared to $333.9 million in the first nine months of fiscal 2022. Excluding items affecting comparability of $20.3 million in the first nine months of fiscal 2022, SG&A expenses increased by 6.0% or $18.8 million to $332.4 million in the first nine months of fiscal 2023 as compared to $313.6 million in the first nine months of fiscal 2022. This increase in SG&A expenses was primarily due to higher information technology costs, an increase in compensation and professional fees.

Operating Income (Loss)

			Nine Months Ended
			April 1, 2023												April 2, 2022												Variance
			(millions)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Coach			$	1,134.6					30.6		%				$	1,124.5					30.3		%				$	10.1					0.9		%
Kate Spade			100.2						9.0						131.2						11.9						(31.0)						(23.6)
Stuart Weitzman			(3.6)						(1.6)						5.5						2.2						(9.1)						NM
Corporate			(332.4)						NA						(333.9)						NA						1.5						0.4
Tapestry			$	898.8					17.8						$	927.3					18.3						$	(28.5)					(3.1)

Operating income decreased 3.1% or $28.5 million to $898.8 million in the first nine months of fiscal 2023 as compared to operating income of $927.3 million in the first nine months of fiscal 2022. Operating margin was 17.8% in the first nine months of fiscal 2023 as compared to 18.3% in the first nine months of fiscal 2022. Excluding items affecting comparability of $31.7 million in the first nine months of fiscal 2022, operating income decreased $60.2 million to $898.8 million from $959.0 million in the first nine months of fiscal 2022; and operating margin was 17.8% in the first nine months of fiscal 2023 as compared to 19.0% in the first nine months of fiscal 2022.

• Coach Operating Income increased 0.9% or $10.1 million to $1.13 billion in the first nine months of fiscal 2023, resulting in an operating margin of 30.6%, as compared to $1.12 billion and 30.3%, respectively, in the first nine months of fiscal 2022. Excluding items affecting comparability, Coach operating income increased 0.5% or $6.1 million to $1.13 billion from $1.13 billion in the first nine months of fiscal 2022; and operating margin was 30.6% in the first nine months of fiscal 2023 as compared to 30.4% in the first nine months of fiscal 2022.

• Kate Spade Operating Income decreased 23.6% or $31.0 million to $100.2 million in the first nine months of fiscal 2023, resulting in an operating margin of 9.0%, as compared to operating income of $131.2 million and 11.9%, respectively, in the first nine months of fiscal 2022. Excluding items affecting comparability, Kate Spade operating income decreased 26.0% or $35.2 million to $100.2 million from $135.4 million in the first nine months of fiscal 2022; and operating margin was 9.0% in the first nine months of fiscal 2023 as compared to 12.3% in the first nine months of fiscal 2022.

• Stuart Weitzman Operating Loss increased $9.1 million to a loss of $3.6 million in the first nine months of fiscal 2023, resulting in an operating margin of (1.6)%, as compared to operating income of $5.5 million and 2.2%, respectively in the first nine months of fiscal 2022. Excluding items affecting comparability, Stuart Weitzman operating loss increased $12.3 million to a loss of $3.6 million from $8.7 million of income in the first nine months of fiscal 2022; and operating margin was (1.6)% in the first nine months of fiscal 2023 as compared to 3.5% in the first nine months of fiscal 2022.

Loss on Extinguishment of Debt

There was no loss on extinguishment of debt in the first nine months of fiscal 2023 as compared to $53.7 million in the first nine months of fiscal 2022. This was primarily related to the premiums, amortization and fees associated with the partial tender of the company's 2027 senior notes and 2025 senior notes.

Interest Expense, net

Interest expense, net decreased 54.3% or $25.4 million to $21.4 million in the first nine months of fiscal 2023 as compared to $46.8 million in the first nine months of fiscal 2022. This decrease in interest expense, net was mainly due to the favorable impact of the net investment hedges, lower bond interest expense on senior notes, as well as higher interest income offset by higher interest on the term loan.

Other Expense (Income)

Other expense decreased $7.2 million to an expense of $1.1 million in the first nine months of fiscal 2023 as compared to an expense of $8.3 million in the first nine months of fiscal 2022. This decrease in other expense was related to a decrease in foreign exchange losses.

Provision (Benefit) for Income Taxes

The effective tax rate was 18.8% in the first nine months of fiscal 2023 as compared to 18.5% in the first nine months of fiscal 2022. Excluding items affecting comparability, the effective tax rate was 18.2% in the first nine months of fiscal 2022.

Net Income (Loss)

Net income increased 6.7% or $44.4 million to $711.9 million in the first nine months of fiscal 2023 as compared to net income of $667.5 million in the first nine months of fiscal 2022. Excluding items affecting comparability, net income decreased 3.7% or $27.4 million to $711.9 million in the first nine months of fiscal 2023 as compared to $739.3 million in the first nine months of fiscal 2022. This decrease was primarily due to lower operating income.

Net Income (Loss) per Share

Net income per diluted share increased 21.0% or $0.51 to $2.93 in the first nine months of fiscal 2023 as compared to $2.42 in the first nine months of fiscal 2022. Excluding items affecting comparability, net income per diluted share increased 9.2% or $0.25 to $2.93 in the first nine months of fiscal 2023 from $2.68 in the first nine months of fiscal 2022. This change was primarily due to lower diluted shares. Foreign exchange negatively impacted Net income per diluted share by $0.30.

NON-GAAP MEASURES

The Company’s reported results are presented in accordance with GAAP. There were no items affecting comparability during the first nine months of fiscal 2023. The reported SG&A expenses, operating income, provision for income taxes, net income and earnings per diluted share in the three and nine months ended April 2, 2022 and the reported loss on extinguishment of debt in the nine months ended April 2, 2022 reflect certain items, including Acceleration Program costs in the three and nine months ended April 2, 2022 and debt extinguishment costs in the nine months ended April 2, 2022. 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 temporary 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 1, 2023 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 1, 2023						April 2, 2022						Change
						(millions)
Net cash provided by (used in) operating activities						$	574.8					$	616.4					$	(41.6)
Net cash provided by (used in) investing activities						40.6						(337.5)						378.1
Net cash provided by (used in) financing activities						(768.7)						(1,468.3)						699.6
Effect of exchange rate changes on cash and cash equivalents						0.7						(12.3)						13.0
Net increase (decrease) in cash and cash equivalents						$	(152.6)					$	(1,201.7)					$	1,049.1

The Company’s cash and cash equivalents decreased by $152.6 million in the first nine months of fiscal 2023 as compared to a decrease of $1.20 billion in the first nine months of fiscal 2022, as discussed below.

Net cash provided by (used in) operating activities

Net cash provided by operating activities decreased $41.6 million due to lower impact of non-cash adjustments of $97.1 million, partially offset by higher net income of $44.4 million and changes in operating assets and liabilities of $11.1 million.

The $11.1 million increase in changes in operating asset and liability balances were primarily driven by the following:

• Inventories were a source of cash of $53.8 million in the first nine months of fiscal 2023 compared to a use of cash of $192.2 million in the first nine months of fiscal 2022, primarily driven by lower in-transit inventory compared to prior year end due to the strategic decision to pull back on receipts.

• Trade accounts receivable were a use of cash of $7.6 million in the first nine months of fiscal 2023 compared to a use of cash of $59.5 million in the first nine months of fiscal 2022, primarily driven by higher wholesale sales in fiscal 2022 compared to fiscal 2021.

• Accounts payable were a use of cash of $166.7 million in the first nine months of fiscal 2023 compared to a source of cash of $23.1 million in the first nine months of fiscal 2022, primarily driven by lower in-transit inventory and receipts compared to the prior year end due to the strategic decision to pull back on receipts.

• Accrued liabilities were a use of cash of $161.2 million in the first nine months of fiscal 2023 compared to a use of cash of $110.6 million in the first nine months of fiscal 2022, primarily driven by a decrease in accrued freight and duty, a decrease in accruals for the Annual Incentive Plan, partially offset by an increase in accrued interest due to the net investment hedge and an increase in accrued sales tax due to higher holiday sales.

• Other assets were a source of cash of $13.4 million in the first nine months of fiscal 2023 compared to a source of cash of $62.3 million in the first nine months of fiscal 2022, primarily driven by additional income tax payments for the year in addition to a tax refund in the prior year.

Net cash provided by (used in) investing activities

Net cash provided by investing activities in the first nine months of fiscal 2023 was $40.6 million as compared to a use of cash of $337.5 million in the first nine months of fiscal 2022, resulting in a $378.1 million increase in net cash provided by investing activities.

The $40.6 million source of cash in the first nine months of fiscal 2023 is primarily due to proceeds from maturities and sales of investments $154.6 million, settlement of net investment hedge of $41.9 million, partially offset by capital expenditures of $149.6 million.

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 purchases of property and equipment of $75.1 million, partially offset by proceeds from maturities and sales of investments $261.0 million.

Net cash provided by (used in) financing activities

Net cash used in financing activities was $768.7 million in the first nine months of fiscal 2023 as compared to a use of cash of $1.47 billion in the first nine months of fiscal 2022, resulting in a net decrease in use of cash for financing activities of $699.6 million.

The $768.7 million use of cash in the first nine months of fiscal 2023 was primarily due to repurchase of common stock of $502.0 million and dividend payments of $214.2 million as well as taxes paid to net settle share-based awards of $55.3 million.

The $1.47 billion use of cash 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.

Working Capital and Capital Expenditures

As of April 1, 2023, 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)**			$	637.2					$	—					$	637.2
Short-term investments**(1)**			14.6						—						14.6
Revolving Credit Facility**(2)**			1,250.0						—						1,250.0
Term Loan**(2)**			475.0						475.0						—
3.050% Senior Notes due 2032**(3)**			500.0						500.0						—
4.125% Senior Notes due 2027**(3)**			396.6						396.6						—
4.250% Senior Notes due 2025**(3)**			303.4						303.4						—
Total			$	3,576.8					$	1,675.0					$	1,901.8

(1) As of April 1, 2023, approximately 73.6% of our cash and short-term investments were held outside the United States. We have analyzed our global working capital and cash requirements, and the potential tax liabilities associated with repatriation, and have determined that we will likely repatriate some portion of available foreign cash in the foreseeable future. The Company has recorded deferred taxes on certain earnings of non-US subsidiaries that are deemed likely to be repatriated.

(2) On May 11, 2022, the Company entered into a definitive agreement whereby Bank of America, N.A., as administrative agent, other agents party thereto, and a syndicate of banks and financial institutions have made available to the Company a $1.25 billion revolving credit facility (the "$1.25 Billion Revolving Credit Facility") and an unsecured $500.0 Million Term Loan (the “Term Loan”). Both the $1.25 Billion Revolving Credit Facility and Term Loan (collectively, the “Credit Facilities”) will mature on May 11, 2027. The Company and its subsidiaries must comply on a quarterly basis with a maximum 4.0 to 1.0 ratio of (a) consolidated debt minus unrestricted cash and cash equivalents in excess of $300 million to (b) consolidated EBITDAR.

Borrowings under the $1.25 Billion Revolving Credit Facility bear interest at a rate per annum equal to, at the Company’s option, (i) for borrowings in U.S. Dollars, either (a) an alternate base rate or (b) a term secured overnight financing rate, (ii) for borrowings in Euros, the Euro Interbank Offered Rate, (iii) for borrowings in Pounds Sterling, the Sterling Overnight Index Average Reference Rate and (iv) for borrowings in Japanese Yen, the Tokyo Interbank Offer Rate, plus, in each case, an applicable margin. The applicable margin will be adjusted by reference to a grid (the “Pricing Grid”) based on the ratio of (a) consolidated debt to (b) consolidated EBITDAR (the “Gross Leverage Ratio”). Additionally, the Company will pay facility fees, calculated at a rate per annum determined in accordance with the Pricing Grid, on the full amount of the $1.25 Billion Revolving Credit Facility, payable quarterly in arrears, and certain fees with respect to letters of credit that are issued. The $1.25 Billion Revolving Credit Facility may be used to finance the working capital needs, capital expenditures, permitted investments, share purchases, dividends and other general corporate purposes of the Company and its subsidiaries (which may include commercial paper backup). There were no outstanding borrowings on the $1.25 Billion Revolving Credit Facility as of April 1, 2023.

The Term Loan includes a two-month delayed draw period from the closing date. On June 14, 2022 the Company drew down on the Term Loan to satisfy the Company’s remaining obligations under the 3.000% senior unsecured notes due 2022 and for general corporate purposes. The Term Loan amortizes in an amount equal to 5.00% per annum, with payments made quarterly. As of April 1, 2023, $25.0 million of the Term Loan is included in Current debt on the Condensed Consolidated Balance Sheet. Borrowings under the Term Loan bear interest at a rate per annum equal to, at the Company’s option, either (i) an alternate base rate or (ii) a term secured overnight financing rate plus, in each case, an applicable margin. The applicable margin will be adjusted by reference to a pricing grid based on the Gross Leverage Ratio. Additionally, the Company will pay a ticking fee on the undrawn amount of the Term Loan. Refer to Note 11, "Debt," for further information on our existing debt instruments.

(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. 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, 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 1, 2023, 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 1, 2023, there were 14 financial institutions participating in the Revolving Credit Facility and Term Loans, with no one participant maintaining a combined maximum commitment percentage in excess of 15%. We have no reason to believe at this time that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the facility in the event we elect to draw funds in the foreseeable future.

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 fiscal 2023 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.

To improve our working capital efficiency, we make available to certain suppliers 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. During the three and nine months ended April 1, 2023, capital expenditures and cloud computing implementation costs were $56.6 million and $205.8 million, respectively. The Company expects total fiscal 2023 capital expenditures and cloud computing cost to be approximately $280.0 million. Certain cloud computing implementation costs are recognized within Prepaid expenses and Other assets on the Condensed Consolidated Balance Sheets.

Stock Repurchase Plan

On May 12, 2022, the Company announced the Board of Directors authorized the additional repurchase of up to $1.50 billion of its common stock (the "2022 Share Repurchase Program"). Pursuant to this program, purchases of the Company's common stock will be made subject to market conditions and at prevailing market prices, through open market purchases. Repurchased shares of common stock will become authorized but unissued shares. These shares may be issued in the future for general corporate and other purposes. In addition, the Company may terminate or limit the stock repurchase program at any time. As of April 1, 2023 the Company had $1.00 billion of additional shares available to be repurchased as authorized under the 2022 Share Repurchase Program. Refer to Part II, Item 2. "Unregistered Sales of Equity Securities and Use of Proceeds," for further information. During the three and nine months ended April 1, 2023, the Company repurchased $200.0 million and

$500.0 million, respectively, worth of shares. In total, the Company intends to repurchase approximately $700.0 million in fiscal 2023, all of which is under its current authorization.

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 2022. 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 2022. As of April 1, 2023, 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 2022 testing date exceeded their carrying values by approximately 50% and 90%, respectively. Several factors could impact the Kate Spade brand's ability to achieve expected future cash flows, including the optimization of the store fleet productivity, the success of international expansion strategies, the impact of promotional activity, continued economic volatility and potential operational challenges related to macroeconomic factors, the reception of new collections in all channels, 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 during fiscal 2023 from those that are expected, it is possible that an interim test, or our annual impairment test, could result in an impairment of those assets.