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 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 first quarter of fiscal 2024 compared to the first quarter of fiscal 2023.

• 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 2023.

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 primarily Coach brand 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.

Capri Holdings Limited Acquisition

On August 10, 2023, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, Sunrise Merger Sub, Inc., a direct wholly owned subsidiary of Tapestry, and Capri Holdings Limited ("Capri") for $57.00 per share in cash for a total of approximately $8.5 billion (the "Capri Acquisition"). The Capri Acquisition, once completed, will bring together six highly complementary brands with global reach, powered by the Company’s data-rich customer engagement platform and diversified, direct-to-consumer operating model. The transaction is expected to close during calendar year 2024. The Company intends to finance the Capri Acquisition, inclusive of related fees and expenses, with the net proceeds of additional permanent financing, new term loans, cash on hand, cash on hand at Capri and anticipated future cash flow. Refer to Note 5, "Acquisitions" for further information.

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 its 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 I, Item 1A. "Risk Factors" herein and as disclosed in our Annual Report on Form 10-K for the year ended July 1, 2023.

Current Macroeconomic Conditions and Outlook

During the first quarter of fiscal 2024, 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 down slightly since the fourth quarter of fiscal 2023. The updated forecast is still 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, and the negative economic impacts of geopolitical instability in certain regions of the world.

In the first quarter of fiscal 2024, freight costs have continued to moderate as compared to prior year, resulting in lower freight expense of approximately $21.2 million, and positively impacting gross margin by approximately 150 basis points when compared to the first quarter of fiscal 2023.

In the first quarter of fiscal 2024, the U.S. Dollar continued to strengthen as compared to foreign currencies in regions where we conduct our business. This trend has resulted in adverse impacts to our business including, but not limited to, decreased Net sales of $19.2 million, negative impact to gross margin of approximately 20 basis points, and negative impact to operating margin of approximately 40 basis points.

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.

In response to the current environment, the Company continues to take strategic actions considering near-term exigencies and remains committed to maintaining the health of the brands and business.

Covid-19 Pandemic

The 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. Such disruptions continued during the first half of fiscal 2023, and 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 in the region and business trends improved. In the first quarter of fiscal 2024, the Covid-19 pandemic did not materially impact our business or operating results. We continue to monitor the latest developments regarding the Covid-19 pandemic and potential impacts on our business, operating results and outlook.

Tax Legislation

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. The CAMT is effective beginning fiscal 2024 and is not expected to have a material impact on the Company’s rate, however we will continue to monitor as additional guidance 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.

On December 12, 2022, the European Union member states reached an agreement to implement the OECD’s reform of international taxation known as Pillar Two Global Anti-Base Erosion ("GloBE") Rules, which broadly mirrors the Inflation Reduction Act by imposing a 15% global minimum tax on multinational companies. GloBE is anticipated to be effective beginning fiscal 2025. The US Treasury and the OECD continue to seek input and release guidance, so it is unclear at this time what, if any, impact it will have on the Company’s tax rate and financial results. We will continue to evaluate its impact as further information becomes available.

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.

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 weather and macroeconomic events, and pandemics such as Covid-19.

RESULTS OF OPERATIONS

FIRST QUARTER FISCAL 2024 COMPARED TO FIRST QUARTER FISCAL 2023

The following table summarizes results of operations for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023. All percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers.

			Three Months Ended
			September 30, 2023												October 1, 2022												Variance
			(millions, except per share data)
			Amount						% of net sales						Amount						% of net sales						Amount						%
Net sales			$	1,513.2					100.0		%				$	1,506.5					100.0		%				$	6.7					0.4		%
Gross profit			1,097.7						72.5						1,054.6						70.0						43.1						4.1
SG&A expenses			844.5						55.8						800.3						53.1						44.2						5.5
Operating income (loss)			253.2						16.7						254.3						16.9						(1.1)						(0.4)
Interest expense, net			13.3						0.9						7.4						0.5						5.9						79.9
Other expense (income)			1.4						0.1						10.7						0.7						(9.3)						(86.9)
Provision (benefit) for income taxes			43.5						2.9						40.9						2.7						2.6						6.3
Net income (loss)			195.0						12.9						195.3						13.0						(0.3)						(0.1)
Net income (loss) per share:
Basic			$	0.85											$	0.81											$	0.04					5.6
Diluted			$	0.84											$	0.79											$	0.05					6.0

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"). The reported results during the first quarter of fiscal 2024 reflect certain items which affect the comparability of our results, as noted in the following table. There were no charges affecting comparability during the first quarter of fiscal 2023. Refer to "Non-GAAP Measures" herein for further discussion on the Non-GAAP measures.

First Quarter Fiscal 2024 Items

			Three Months Ended September 30, 2023
			Items Affecting Comparability
			GAAP Basis (As Reported)						Acquisition Costs						Non-GAAP Basis (Excluding Items)
			(millions, except per share data)
Coach			$	371.3					$	—					$	371.3
Kate Spade			26.6						—						26.6
Stuart Weitzman			(8.6)						—						(8.6)
Corporate			(136.1)						(19.6)						(116.5)
Operating income (loss)			$	253.2					$	(19.6)					$	272.8
Net income (loss)			$	195.0					$	(21.3)					$	216.3
Net income (loss) per diluted common share			$	0.84					$	(0.09)					$	0.93

In the first quarter of fiscal 2024, the Company incurred charges as follows:

• Acquisition Costs - Total pre-tax charges of $26.3 million attributable to the Capri Acquisition. These charges include $19.6 million primarily related to professional fees recorded in SG&A expense within Corporate and $6.7 million related to financing recorded in interest expense.

These actions taken together negatively impacted operating income by $19.6 million, increased interest expense by $6.7 million and reduced the provision for income tax by $5.0 million resulting in a net decrease in net income by $21.3 million or $0.09 per diluted share.

Supplemental Segment Data

			Three Months Ended September 30, 2023
			Items Affecting Comparability
			GAAP Basis (As Reported)						Acquisition Costs						Non-GAAP Basis (Excluding Items)
			(millions, except per share data)
Coach			$	496.3					$	—					$	496.3
Kate Spade			172.3						—						172.3
Stuart Weitzman			39.8						—						39.8
Corporate			136.1						19.6						116.5
SG&A expenses			$	844.5					$	19.6					$	824.9

Tapestry, Inc. Summary – First Quarter of Fiscal 2024

Currency Fluctuation Effects

The change in net sales for the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023 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
			September 30, 2023						October 1, 2022						Amount						%						Constant Currency Change
			(millions)
Coach			$	1,157.4					$	1,119.3					$	38.1					3.4		%				4.9		%
Kate Spade			303.2						321.9						(18.7)						(5.8)						(5.3)
Stuart Weitzman			52.6						65.3						(12.7)						(19.4)						(18.0)
Total Tapestry			$	1,513.2					$	1,506.5					$	6.7					0.4						1.7

Net sales in the first quarter of fiscal 2024 increased 0.4% or $6.7 million to $1.51 billion. Excluding the impact of foreign currency, net sales increased by 1.7% or $25.8 million.

*•*Coach Net Sales increased 3.4% or $38.1 million to $1.16 billion in the first quarter of fiscal 2024. Excluding the impact of foreign currency, net sales increased 4.9% or $54.7 million. This increase in net sales was primarily due to an increase of $28.4 million in net retail sales driven by an increase of store sales. The increase in net sales was also attributed to a $24.3 million increase in wholesale sales.

*•*Kate Spade Net Sales decreased 5.8% or $18.7 million to $303.2 million in the first quarter of fiscal 2024. Excluding the impact of foreign currency, net sales decreased 5.3% or $17.1 million. This decrease in net sales was due to a decrease of $7.5 million in wholesale sales and a decrease of $7.4 million in net retail sales as a result of lower e-commerce sales.

*•*Stuart Weitzman Net Sales decreased 19.4% or $12.7 million to $52.6 million in the first quarter of fiscal 2024. Excluding the impact of foreign currency, net sales decreased 18.0% or $11.8 million. This decrease in net sales was primarily due to a decrease of $8.3 million in wholesale sales.

Gross Profit

			Three Months Ended
			September 30, 2023												October 1, 2022												Variance
			(millions)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Coach			$	867.6					75.0		%				$	808.9					72.3		%				$	58.7					7.3		%
Kate Spade			198.9						65.6						207.8						64.6						(8.9)						(4.3)
Stuart Weitzman			31.2						59.2						37.9						58.0						(6.7)						(17.7)
Tapestry			$	1,097.7					72.5						$	1,054.6					70.0						$	43.1					4.1

Gross profit increased 4.1% or $43.1 million to $1.10 billion in the first quarter of fiscal 2024 from $1.05 billion in the first quarter of fiscal 2023. Gross margin increased 250 basis points to 72.5% in the first quarter of fiscal 2024 from 70.0% in the first quarter of fiscal 2023. This increase in Gross margin was primarily attributed to lower freight costs and net pricing improvements. Refer to "Current Macroeconomic Conditions and Outlook" 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.

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

			Three Months Ended
			September 30, 2023												October 1, 2022												Variance
			(millions)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Coach			$	496.3					42.9		%				$	469.7					42.0		%				$	26.6					5.7		%
Kate Spade			172.3						56.7						184.6						57.3						(12.3)						(6.7)
Stuart Weitzman			39.8						75.5						43.0						65.8						(3.2)						(7.5)
Corporate**(1)(2)**			136.1						NA						103.0						NA						33.1						32.2
Tapestry			$	844.5					55.8						$	800.3					53.1						$	44.2					5.5

SG&A expenses increased 5.5% or $44.2 million to $844.5 million in the first quarter of fiscal 2024 as compared to $800.3 million in the first quarter of fiscal 2023. As a percentage of net sales, SG&A expenses increased to 55.8% during the first quarter of fiscal 2024 from 53.1% during the first quarter of fiscal 2023. Excluding items affecting comparability of 19.6 million in the first quarter of fiscal 2024, SG&A expenses increased 3.1% or $24.6 million to $824.9 million from $800.3 million in the first quarter of fiscal 2023. SG&A as a percentage of net sales increased 140 basis points to 54.5% compared to 53.1% during the first quarter of fiscal 2023. This increase in SG&A as a percentage of net sales was primarily due to increased occupancy costs, higher information technology costs, and higher marketing spend, partially offset by a decrease in distribution costs.

(1)In the first quarter of fiscal 2024, Corporate incurred charges affecting comparability of $19.6 million. Excluding those items affecting comparability, SG&A expenses increased 13.2% or $13.5 million to $116.5 million in the first quarter of fiscal 2024 as compared to $103.0 million in the first quarter of fiscal 2023.

(2)Corporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment.

Operating Income (Loss)

			Three Months Ended
			September 30, 2023												October 1, 2022												Variance
			(millions)
			Amount						% of Net Sales						Amount						% of Net Sales						Amount						%
Coach			$	371.3					32.1		%				$	339.2					30.3		%				$	32.1					9.5		%
Kate Spade			26.6						8.8						23.2						7.2						3.4						14.6
Stuart Weitzman			(8.6)						(16.3)						(5.1)						(7.8)						(3.5)						(67.8)
Corporate			(136.1)						NA						(103.0)						NA						(33.1)						(32.1)
Tapestry			$	253.2					16.7						$	254.3					16.9						$	(1.1)					(0.4)

Operating income decreased $1.1 million to $253.2 million in the first quarter of fiscal 2024 as compared to $254.3 million in the first quarter of fiscal 2023. Operating margin was 16.7% in the first quarter of fiscal 2024 as compared to 16.9% in the first quarter of fiscal 2023. Excluding items affecting comparability of $19.6 million in the first quarter of fiscal 2024, operating income increased $18.5 million to $272.8 million in the first quarter of fiscal 2024 from $254.3 million in the first quarter of fiscal 2023; and operating margin increased 110 basis points to 18.0% in the first quarter of fiscal 2024 as compared to 16.9% in the first quarter of fiscal 2023. This increase in operating margin was primarily attributed to a 250 basis points increase in gross margin partially offset by an increase of 140 basis points in SG&A as a percentage of sales.

• Coach Operating Income increased $32.1 million to $371.3 million in the first quarter of fiscal 2024, resulting in an operating margin increase of 180 basis points to 32.1%, as compared to $339.2 million and 30.3%, respectively, in the first quarter of fiscal 2023. This increase in operating margin was primarily attributed to:

◦Gross Margin, increased 270 basis points mainly due to lower freight costs and net pricing improvements;

◦SG&A expenses as a percentage of net sales, increased 90 basis points mainly due to higher marketing spend and higher information technology costs, partially offset by a decrease in distribution costs.

• Kate Spade Operating Income increased $3.4 million to $26.6 million in the first quarter of fiscal 2024, resulting in an operating margin increase of 160 basis points to 8.8%, as compared to $23.2 million and operating margin of 7.2% in the first quarter of fiscal 2023. This increase in operating margin was primarily attributed to:

◦Gross Margin, increased 100 basis points mainly due to lower freight costs partially offset by unfavorable currency translation;

◦SG&A expenses as a percentage of net sales, decreased 60 basis points mainly due to lower marketing spend, partially offset by higher occupancy costs and higher information technology costs.

• Stuart Weitzman Operating Loss increased $3.5 million to a loss of $8.6 million in the first quarter of fiscal 2024, resulting in an operating margin decrease of 850 basis points to (16.3)%, as compared to an operating loss of $5.1 million in the first quarter of fiscal 2023 and an operating margin of (7.8)%. This decrease in operating margin was primarily attributable to:

◦Gross Margin, increased 120 basis points primarily attributed to favorable channel mix, favorable currency translation, favorable geography mix and lower freight costs, partially offset by higher promotional activity;

◦SG&A expenses as a percentage of net sales, increased 970 basis points mainly due to deleverage of expenses on lower net sales. This increase in SG&A expenses as a percentage of net sales was mainly due to increased compensation costs, increased occupancy costs, and higher depreciation, partially offset by lower marketing spend.

• Corporate Operating Loss increased 32.1% or $33.1 million to a loss of $136.1 million in the first quarter of fiscal 2024. Excluding items affecting comparability, Corporate operating loss increased $13.5 million to a loss of $116.5 million from a loss of $103.0 million in the first quarter of fiscal 2023. This increase in operating loss was attributed to an increase in SG&A expenses primarily due to increased occupancy costs, increased compensation costs, higher professional fees, and higher information technology costs.

Interest Expense, net

Net interest expense increased 79.9% or $5.9 million to $13.3 million in the first quarter of fiscal 2024 as compared to $7.4 million in the first quarter of fiscal 2023. Excluding items affecting comparability, net interest expense decreased $0.8 million to $6.6 million from $7.4 million in the first quarter of fiscal 2023. This decrease in Interest expense, net was mainly due higher interest income, the favorable impact of the net investment hedges, partially offset by higher interest on the term loan.

Other Expense (Income)

Other expense decreased $9.3 million to $1.4 million in the first quarter of fiscal 2024 as compared to $10.7 million in the first quarter of fiscal 2023. This decrease in other expense was related to a decrease in foreign exchange losses.

Provision (Benefit) for Income Taxes

The effective tax rate was 18.2% in the first quarter of fiscal 2024 as compared to 17.3% in the first quarter of fiscal 2023. Excluding items affecting comparability, the effective tax rate was 18.3% in the first quarter of fiscal 2024. This increase in our effective tax rate was primarily attributable to the impact of vesting of equity compensation awards during the period partially offset by geographic mix of earnings.

Net Income (Loss)

Net income decreased 0.1% or $0.3 million to $195.0 million in the first quarter of fiscal 2024 as compared to $195.3 million in the first quarter of fiscal 2023. Excluding items affecting comparability, net income increased $21.0 million to $216.3 million in the first quarter of fiscal 2024 from $195.3 million in the first quarter of fiscal 2023.

Net Income (Loss) per Share

Net income per diluted share was $0.84 in the first quarter of fiscal 2024 as compared to net income per diluted share of $0.79 in the first quarter of fiscal 2023. Excluding items affecting comparability, net income per diluted share increased $0.14 to $0.93 in the first quarter of fiscal 2024 from $0.79 in the first quarter of fiscal 2023, primarily due to higher net income and a decrease in shares outstanding.

NON-GAAP MEASURES

The Company’s reported results are presented in accordance with GAAP. The reported SG&A expenses, operating income, interest expense, provision for income taxes, net income and earnings per diluted share in the first quarter of fiscal 2024 reflect certain items affecting comparability, including the impact of Acquisition costs. There were no items affecting comparability in the first quarter of fiscal 2023. 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.

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 the GAAP to Non-GAAP Reconciliation discussions above in this Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

						Three Months Ended
						September 30, 2023						October 1, 2022						Change
						(millions)
Net cash provided by (used in) operating activities						$	75.3					$	(170.4)					$	245.7
Net cash provided by (used in) investing activities						(22.8)						146.8						(169.6)
Net cash provided by (used in) financing activities						(149.4)						(226.2)						76.8
Effect of exchange rate changes on cash and cash equivalents						(7.1)						(13.5)						6.4
Net increase (decrease) in cash and cash equivalents						$	(104.0)					$	(263.3)					$	159.3

The Company’s cash and cash equivalents decreased by $104.0 million in the first quarter of fiscal 2024 as compared to a decrease of $263.3 million in the first quarter of fiscal 2023, as discussed below.

Net cash provided by (used in) operating activities

Net cash provided by operating activities increased $245.7 million primarily due to changes in operating assets and liabilities of $185.8 million, higher impact of non-cash adjustments of $60.2 million, as well as lower net income of $0.3 million.

The $185.8 million increase in changes in operating asset and liability balances were primarily driven by the following:

*•*Inventories were a use of cash of $29.8 million in the first quarter of fiscal 2024 compared to a use of cash of $181.9 million in the first quarter of fiscal 2023, primarily driven by lower in-transit inventory due to strategic decision to pull back on receipts as well as decreased freight costs.

*•*Other assets were a use of cash of $29.7 million in the first quarter of fiscal 2024 compared to a use of cash of $111.6 million in the first quarter of fiscal 2023, primarily driven by the change in mark to market on derivative assets, as well as lower prepaid expenses due to prepayment of capital expenditures for the west coast distribution center in the prior year.

*•*Accrued liabilities were a use of cash of $62.0 million in the first quarter of fiscal 2024 compared to a use of cash of $134.0 million in the first quarter of fiscal 2023, primarily driven by lower Annual Incentive Plan payments compared to prior year.

*•*Other liabilities were a use of cash of $8.2 million in the first quarter of fiscal 2024 compared to a source of cash of $42.9 million in the first quarter of fiscal 2023, primarily driven by the change in mark to market on derivative liabilities.

*•*Trade accounts receivable were a use of cash of $55.6 million in the first quarter of fiscal 2024 compared to a use of cash of $15.8 million in the first quarter of fiscal 2023, primarily driven by higher wholesale sales.

Net cash provided by (used in) investing activities

Net cash used in investing activities in the first quarter of fiscal 2024 was $22.8 million as compared to a source of cash of $146.8 million in the first quarter of fiscal 2023, resulting in a $169.6 million increase in net cash used in investing activities.

The $22.8 million use of cash in the first quarter of fiscal 2024 was primarily due to capital expenditures of $20.9 million.

The $146.8 million source of cash in the first quarter of fiscal 2023 was primarily due to proceeds from maturities and sales of investments of $136.2 million, settlement of net investment hedge of $41.9 million, partially offset by capital expenditures of $27.3 million.

Net cash provided by (used in) financing activities

Net cash used in financing activities was $149.4 million in the first quarter of fiscal 2024 as compared to a use of cash of $226.2 million in the first quarter of fiscal 2023, resulting in a net decrease in use of cash for financing activities of $76.8 million.

The $149.4 million of cash used in the first quarter of fiscal 2024 was primarily due to dividend payments of 80.2 million and taxes paid to net settle share-based awards of $31.6 million as well as debt issuance costs of $31.4 million.

The $226.2 million of cash used in the first quarter of fiscal 2023 was primarily due to repurchase of common stock of $94.9 million and dividend payments of $72.7 million as well as taxes paid to net settle share-based awards of $51.9 million.

Working Capital and Capital Expenditures

As of September 30, 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)**			$	622.1					$	—					$	622.1
Short-term investments**(1)**			16.7						—						16.7
Revolving Credit Facility**(2)**			2,000.0						—						2,000.0
Bridge Loan Facility**(3)**			6,600.0						—						6,600.0
New Term Loan Facilities**(4)**			1,400.0						—						1,400.0
2027 Term Loan**(5)**			462.5						462.5						—
3.050% Senior Notes due 2032**(6)**			500.0						500.0						—
4.125% Senior Notes due 2027**(6)**			396.6						396.6						—
4.250% Senior Notes due 2025**(6)**			303.4						303.4						—
Total			$	12,301.3					$	1,662.5					$	10,638.8

(1) As of September 30, 2023, approximately 62.9% of our cash and short-term investments were held outside the United States.

(2) On August 30, 2023, pursuant to that certain Amendment No. 1 to Credit Agreement (the "Amendment"), the Company amended its Existing Credit Agreement (as defined below), originally dated as of May 11, 2022, among the Company, as borrower, certain of our subsidiaries, as guarantors, Bank of America, N.A., as administrative agent, and the financial institutions parties thereto as lenders (the "Existing Credit Agreement", and as amended by the Amendment, the "Amended Credit Agreement"). Under the Amended Credit Agreement, a syndicate of financial institutions and other lenders provided increases to the aggregate commitments to the revolving facility under the Existing Credit Agreement from $1.25 billion to $2.0 billion (the “Revolving Facility”). The Revolving Facility will mature on May 11, 2027.

Borrowings under the Revolving 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 rate based on the forward-looking SOFR term rate administered by CME Group Benchmark Administration Limited (or any successor administrator satisfactory to the administrative agent), (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. 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 Revolving Facility, payable quarterly in arrears, and certain fees with respect to letters of credit that are issued. The Revolving 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). Additionally, up to $250 million of the Revolving Facility will be available on a funds certain basis to fund the purchase price of the Capri Acquisition and to pay related fees and expenses. There were no outstanding borrowings on the Revolving Facility as of September 30, 2023.

(3) In connection with our entry into the Merger Agreement, the Company entered into a commitment letter, dated as of August 10, 2023, with Bank of America, N.A., Morgan Stanley Senior Funding, Inc. and the other commitment parties party thereto, to provide a 364-day senior unsecured bridge loan facility in an aggregate principal amount of up to $8.0 billion (the "Bridge Facility") to fund the purchase price of the Capri Acquisition and to pay related fees and expenses. Upon entering into the New Term Loan Agreement (as defined below) and, as a result of the commitments thereunder with respect to the New Term Loan Facilities (as defined below), the Bridge Facility commitments were reduced to $6.6 billion. As of September 30, 2023 there were no outstanding borrowings on the Bridge Facility.

(4) On August 30, 2023, the Company entered into a definitive credit agreement (such agreement, the "New Term Loan Credit Agreement") whereby Bank of America, N.A, as administrative agent, and the other agents party thereto, and a syndicate of banks and financial institutions have committed to lend the Company, subject to the satisfaction or waiver of the conditions set forth in the Term Loan Agreement, a $1.05 billion unsecured term loan facility maturing three years after the term loans thereunder are borrowed (the “Three-Year Term Loan Facility”) and a $350 million term loan facility maturing five years after the term loans thereunder are borrowed (the “Five-Year Term Loan Facility”; and collectively with the Three-Year Term Loan Facility, the “New Term Loan Facilities”). The Company plans to use borrowings under the New Term Loan Facilities to pay a portion of the consideration for the Capri Acquisition and to pay related fees and expenses.

Borrowings under the New Term Loan Facilities bear interest at a rate per annum equal to, at the Company’s option, either (a) an alternate base rate or (b) a rate based on the forward-looking Secured Overnight Financing Rate ("SOFR") term rate administered by CME Group Benchmark Administration Limited (or any successor administrator) plus, in each case, an applicable margin. The applicable margin will be adjusted by reference to a grid based on the ratio of (a) consolidated debt (with certain customary deductions for unrestricted cash and permitted investments) to (b) consolidated EBITDAR The applicable margin will initially be (x) in the case of the Three-Year Term Loan Facility, 0.250% for base rate loans and 1.250% for SOFR loans and (y) in the case of the Five-Year Term Loan Facility, 0.375% for base rate loans and 1.375% for SOFR loans. Additionally, the Company will pay a ticking fee of 0.15% on the average daily amount of the unused commitments of the New Term Loan Facilities. There were no outstanding borrowings on the New Term Loan Facilities as of September 30, 2023.

(5) On May 11, 2022, pursuant to the Existing Credit Agreement, the Company entered into an unsecured $500.0 million Term Loan (the “2027 Term Loan”) which matures on May 11, 2027. The 2027 Term Loan amortizes in an amount equal to 5.00% per annum, with payments made quarterly. As of September 30, 2023, $25.0 million of the 2027 Term Loan is included in Current debt on the Consolidated Balance Sheets. Borrowings under the 2027 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 ratio (a) consolidated debt to (b) consolidated EBITDAR.

(6) In March 2015, the Company issued $600.0 million aggregate principal amount of 4.25% senior unsecured notes due April 1, 2025 at 99.445% of par (the "2025 Senior Notes"). In June 2017, the Company issued $600.0 million aggregate principal amount of 4.125% senior unsecured notes due July 15, 2027 at 99.858% of par (the "2027 Senior Notes"). In December 2021, the Company completed a cash tender offer 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 addition, 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"). As of September 30, 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, Bridge Loan Facility, and Term Loans are adequately diversified with no undue concentrations in any one financial institution. As of September 30, 2023, there were 18 financial institutions participating in the Revolving Facility, 14 financial institutions participating in the Bridge Loan Facility, and 24 financial institutions participating in the Term Loans, with no one participant maintaining a combined maximum commitment percentage in excess of 20%. 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 2024 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, 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. Refer to Note 2, "Basis of Presentation and Organization," for additional information.

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 first quarter of fiscal 2024 capital expenditures and cloud computing implementation costs were $28.6 million. The Company expects total fiscal 2024 capital expenditures and cloud computing cost to be approximately $200.0 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 September 30, 2023 the Company had $800 million of additional shares available to be repurchased as authorized under the 2022 Share Repurchase Program. In August 2023, the Company suspended its share repurchase activity in connection with the Merger Agreement with Capri. Refer to Note 5, "Acquisitions," for further information. There were no shares repurchased during the three months ended September 30, 2023.

Capri Holdings Limited Acquisition

On August 10, 2023, the Company entered into a Merger Agreement. The Company intends to finance the Capri Acquisition, inclusive of related fees and expenses, with the net proceeds of additional permanent financing, new term loans, cash on hand, cash on hand at Capri and anticipated future cash flow. Refer to Note 5, "Acquisitions" and Note 11, "Debt" for further information.

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 2023. 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 2023. As of September 30, 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 2023 testing date exceeded their carrying values by approximately 20% and 40%, 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 2024 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.