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

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

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

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 second quarter of fiscal 2024 compared to the second quarter of fiscal 2023 and first six months of fiscal 2024 compared to the first six months 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 enterprise value 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 new senior unsecured notes, new term loans, cash on hand, cash on hand at Capri and anticipated future cash flow. During the quarter ended December 30, 2023, the Company issued $4.5 billion Capri Acquisition USD Senior Notes and €1.5 billion Capri Acquisition EUR Senior Notes which, in addition to the $1.4 billion of delayed draw Capri Acquisition Term Loan Facilities executed in the first quarter of fiscal 2024, completes the expected financing for the Capri Acquisition. 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 second 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 slightly upwards since the first quarter of fiscal 2024. The updated forecast is still below the historical average, which is reflective of the current volatile environment, including tighter monetary and fiscal policies which have started to moderate inflation, financial market volatility, and the negative economic impacts of geopolitical instability in certain regions of the world.

In the second quarter of fiscal 2024, freight costs have continued to moderate as compared to prior year. As a result, during the three months and six months ended December 30, 2023, the Company incurred lower freight expense of $32.9 million and $54.1 million respectively, positively impacting gross margin by approximately 170 basis points and 160 basis points when compared to the prior year.

In the second quarter of fiscal 2024, the U.S. Dollar continued to fluctuate as compared to foreign currencies in regions where we conduct our business. This trend has resulted in impacts to our business including, but not limited to, for the three and six months ended December 31, 2023, decreased Net sales of $7.1 million and $26.3 million, positive impact to gross margin of

approximately 30 basis points and 10 basis points, and impact to operating margin of approximately 10 positive basis points and 10 negative basis points, 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.

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.

Geopolitical Disruptions to Supply Chain

During the second quarter of fiscal 2024, certain geopolitical events have impacted trade routes in the Red Sea which could potentially increase inventory transit times and costs in the second half of fiscal 2024 and into fiscal 2025. The Company is taking actions to minimize any potential disruptions and at this time, does not anticipate material impact to our business or operating results. We will continue to closely monitor the situation.

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 half 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

SECOND QUARTER FISCAL 2024 COMPARED TO SECOND QUARTER FISCAL 2023

The following table summarizes results of operations for the second quarter of fiscal 2024 compared to the second 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
	December 30, 2023				December 31, 2022				Variance
	(millions, except per share data)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Net sales	$	2,084.5	100.0	%	$	2,025.4	100.0	%	$	59.1	2.9	%
Gross profit	1,493.2		71.6		1,389.3		68.6		103.9		7.5
SG&A expenses	1,045.6		50.2		971.1		47.9		74.5		7.7
Operating income (loss)	447.6		21.5		418.2		20.6		29.4		7.0

Interest expense, net	49.2		2.4		7.9		0.4		41.3		NM
Other expense (income)	(4.7)		(0.2)		(6.6)		(0.3)		1.9		29.0
Provision for income taxes	80.8		3.9		87.0		4.3		(6.2)		(7.1)
Net income (loss)	322.3		15.5		329.9		16.3		(7.6)		(2.3)
Net income (loss) per share:
Basic	$	1.41			$	1.38			$	0.03	2.0
Diluted	$	1.39			$	1.36			$	0.03	2.6

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 second 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 second quarter of fiscal 2023. Refer to "Non-GAAP Measures" herein for further discussion on the Non-GAAP measures.

Second Quarter Fiscal 2024 Items


	Three Months Ended December 30, 2023
	Items Affecting Comparability
	GAAP Basis (As Reported)		Acquisition Costs		Non-GAAP Basis (Excluding Items)
	(millions, except per share data)











Coach	$	528.3	$	—	$	528.3
Kate Spade	72.1		—		72.1
Stuart Weitzman	1.4		—		1.4
Corporate	(154.2)		(28.3)		(125.9)
Operating income (loss)	$	447.6	$	(28.3)	$	475.9




Net income (loss)	$	322.3	$	(54.4)	$	376.7
Net income (loss) per diluted common share	$	1.39	$	(0.24)	$	1.63

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

Acquisition Costs - Total pre-tax charges of $72.4 million attributable to the Capri Acquisition. These charges include:

◦Interest expense, net: $44.1 million of financing related charges, which primarily includes Bridge Facility financing fees, and the net impact of the Capri Acquisition Senior Notes;

◦SG&A expenses: $28.3 million primarily related to professional fees recorded within Corporate.

These actions taken together negatively impacted operating income by $28.3 million, increased interest expense by $44.1 million and reduced the provision for income tax by $18.0 million resulting in a net decrease in net income by $54.4 million or $0.24 per diluted share.

Supplemental Segment Data


	Three Months Ended December 30, 2023
	Items Affecting Comparability
	GAAP Basis (As Reported)		Acquisition Costs		Non-GAAP Basis (Excluding Items)
	(millions)
Coach	$	619.2	$	—	$	619.2
Kate Spade	222.3		—		222.3
Stuart Weitzman	49.9		—		49.9
Corporate	154.2		28.3		125.9
SG&A expenses	$	1,045.6	$	28.3	$	1,017.3

Tapestry, Inc. Summary – Second Quarter of Fiscal 2024

Currency Fluctuation Effects

The change in net sales for the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023 has been presented both including and excluding currency fluctuation impacts. All percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers.

Net Sales


	Three Months Ended				Variance
	December 30, 2023		December 31, 2022		Amount		%		Constant Currency Change
	(millions)
Coach	$	1,541.9	$	1,449.7	$	92.2	6.4	%	6.8	%
Kate Spade	460.4		490.3		(29.9)		(6.1)		(6.0)
Stuart Weitzman	82.2		85.4		(3.2)		(3.8)		(3.2)
Total Tapestry	$	2,084.5	$	2,025.4	$	59.1	2.9		3.3

Net sales in the second quarter of fiscal 2024 increased 2.9% or $59.1 million to $2.08 billion. Excluding the impact of foreign currency, net sales increased by 3.3% or $66.3 million.

Coach Net Sales increased 6.4% or $92.2 million to $1.54 billion in the second quarter of fiscal 2024. Excluding the impact of foreign currency, net sales increased 6.8% or $98.6 million. This increase in net sales was primarily due to an increase of $98.2 million in net retail sales driven by an increase in both store and e-commerce sales globally.

*•*Kate Spade Net Sales decreased 6.1% or $29.9 million to $460.4 million in the second quarter of fiscal 2024. Excluding the impact of foreign currency, net sales decreased 6.0% or $29.5 million. This decrease in net sales was due a decrease of $26.2 million in net retail sales as a result of lower store and e-commerce sales and a decrease of $4.0 million in wholesale sales.

Stuart Weitzman Net Sales decreased 3.8% or $3.2 million to $82.2 million in the second quarter of fiscal 2024. Excluding the impact of foreign currency, net sales decreased 3.2% or $2.8 million.

Gross Profit


	Three Months Ended
	December 30, 2023				December 31, 2022				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	1,147.5	74.4	%	$	1,035.3	71.4	%	$	112.2	10.8	%
Kate Spade	294.4		63.9		302.1		61.6		(7.7)		(2.5)
Stuart Weitzman	51.3		62.4		51.9		60.8		(0.6)		(1.2)
Tapestry	$	1,493.2	71.6		$	1,389.3	68.6		$	103.9	7.5

Gross profit increased 7.5% or $103.9 million to $1.49 billion in the second quarter of fiscal 2024 from $1.39 billion in the second quarter of fiscal 2023. Gross margin for the second quarter of fiscal 2024 was 71.6% as compared to 68.6% in the second quarter of fiscal 2023. This increase in Gross margin was primarily attributed to lower freight costs, favorable geography mix, 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
	December 30, 2023				December 31, 2022				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	619.2	40.2	%	$	582.1	40.2	%	$	37.1	6.4	%
Kate Spade	222.3		48.2		233.1		47.5		(10.8)		(4.6)
Stuart Weitzman	49.9		60.7		51.2		59.9		(1.3)		(2.6)
Corporate(1)(2)	154.2		NA		104.7		NA		49.5		47.2
Tapestry	$	1,045.6	50.2		$	971.1	47.9		$	74.5	7.7

SG&A expenses increased 7.7% or $74.5 million to $1.05 billion in the second quarter of fiscal 2024 as compared to $971.1 million in the second quarter of fiscal 2023. As a percentage of net sales, SG&A expenses increased to 50.2% during the second quarter of fiscal 2024 from 47.9% during the second quarter of fiscal 2023. Excluding items affecting comparability of $28.3 million in the second quarter of fiscal 2024, SG&A expenses increased 4.8% or $46.2 million to $1,017.3 million from $971.1 million in the second quarter of fiscal 2023. SG&A as a percentage of net sales increased 80 basis points to 48.7% as compared to 47.9% during the second quarter of fiscal 2023. This increase in SG&A as a percentage of net sales was primarily due to higher compensation costs, partially offset by a decrease in distribution costs.

(1)In the second quarter of fiscal 2024, Corporate incurred charges affecting comparability of $28.3 million. Excluding those items affecting comparability, SG&A expenses increased 20.2% or $21.2 million to $125.9 million in the second quarter of fiscal 2024 as compared to $104.7 million in the second 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
	December 30, 2023				December 31, 2022				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	528.3	34.3	%	$	453.2	31.3	%	$	75.1	16.6	%
Kate Spade	72.1		15.7		69.0		14.1		3.1		4.5
Stuart Weitzman	1.4		1.7		0.7		0.9		0.7		86.5
Corporate	(154.2)		NA		(104.7)		NA		(49.5)		(47.2)
Tapestry	$	447.6	21.5		$	418.2	20.6		$	29.4	7.0

Operating income increased 7.0% or $29.4 million to $447.6 million in the second quarter of fiscal 2024 as compared to $418.2 million in the second quarter of fiscal 2023. Operating margin was 21.5% in the second quarter of fiscal 2024 as compared to 20.6% in the second quarter of fiscal 2023. Excluding items affecting comparability of $28.3 million in the second quarter of fiscal 2024, operating income increased $57.7 million to $475.9 million in the second quarter of fiscal 2024 from $418.2 million in the second quarter of fiscal 2023; and operating margin increased 220 basis points to 22.8% in the second quarter of fiscal 2024 as compared to 20.6% in the second quarter of fiscal 2023. This increase in operating margin was primarily attributed to a 300 basis points increase in gross margin partially offset by an increase of 80 basis points in SG&A as a percentage of sales.

Coach Operating Income increased $75.1 million to $528.3 million in the second quarter of fiscal 2024, resulting in an operating margin increase of 300 basis points to 34.3%, as compared to $453.2 million and 31.3%, respectively, in the second quarter of fiscal 2023. This increase in operating margin was primarily attributed to:

◦Gross Margin, increased 300 basis points mainly due to lower freight costs, net pricing improvements and favorable channel and geography mix;

◦SG&A expenses as a percentage of net sales, remained even to prior year mainly driven by higher compensation costs, partially offset by a decrease in distribution costs and depreciation.

Kate Spade Operating Income increased $3.1 million to $72.1 million in the second quarter of fiscal 2024, resulting in an operating margin increase of 160 basis points to 15.7%, as compared to $69.0 million and operating margin of 14.1% in the second quarter of fiscal 2023. This increase in operating margin was primarily attributed to:

◦Gross Margin, increased 230 basis points mainly due to lower freight costs;

◦SG&A expenses as a percentage of net sales, increased 70 basis points mainly due to higher compensation costs, higher marketing spend, increased occupancy costs, partially offset by a decrease in distribution and selling costs.

Stuart Weitzman Operating Income increased $0.7 million to $1.4 million in the second quarter of fiscal 2024, resulting in an operating margin increase of 80 basis points to 1.7%, as compared to $0.7 million and operating margin of 0.9% in the second quarter of fiscal 2023.
Corporate Operating Expenses increased 47.2% or $49.5 million to $154.2 million in the second quarter of fiscal 2024. Excluding items affecting comparability, Corporate operating expenses increased $21.2 million to $125.9 million from $104.7 million in the second quarter of fiscal 2023. This increase in operating expenses was attributed to an increase in SG&A expenses primarily due to higher compensation costs, increased occupancy costs, and higher professional fees.

Interest Expense, net

Net interest expense increased $41.3 million to $49.2 million in the second quarter of fiscal 2024 as compared to $7.9 million in the second quarter of fiscal 2023. Excluding items affecting comparability, net interest expense decreased $2.8 million to $5.1 million from $7.9 million in the second quarter of fiscal 2023. This decrease in Interest expense, net was mainly due to higher interest income partially offset by higher interest on the Term Loan due 2027.

Other Expense (Income)

Other income decreased $1.9 million to $4.7 million in the second quarter of fiscal 2024 as compared to $6.6 million in the second quarter of fiscal 2023. This decrease in other income was related to a decrease in foreign exchange gains.

Provision (Benefit) for Income Taxes

The effective tax rate was 20.0% in the second quarter of fiscal 2024 as compared to 20.9% in the second quarter of fiscal 2023. Excluding items affecting comparability, the effective tax rate was 20.8% in the second quarter of fiscal 2024.

Net Income (Loss)

Net income decreased 2.3% or $7.6 million to $322.3 million in the second quarter of fiscal 2024 as compared to $329.9 million in the second quarter of fiscal 2023. Excluding items affecting comparability, net income increased 14.2% or $46.8 million to $376.7 million in the second quarter of fiscal 2024 from $329.9 million in the second quarter of fiscal 2023.

Net Income (Loss) per Share

Net income per diluted share was $1.39 in the second quarter of fiscal 2024 as compared to $1.36 in the second quarter of fiscal 2023. Excluding items affecting comparability, net income per diluted share increased $0.27 to $1.63 in the second quarter of fiscal 2024 from $1.36 in the second quarter of fiscal 2023. This change was primarily due to higher net income and a decrease in shares outstanding.

RESULTS OF OPERATIONS

FIRST SIX MONTHS FISCAL 2024 COMPARED TO FIRST SIX MONTHS FISCAL 2023

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


	Six Months Ended
	December 30, 2023				December 31, 2022				Variance
	(millions, except per share data)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Net sales	$	3,597.7	100.0	%	$	3,531.9	100.0	%	$	65.8	1.9	%
Gross profit	2,590.9		72.0		2,443.9		69.2		147.0		6.0
SG&A expenses	1,890.1		52.5		1,771.4		50.2		118.7		6.7
Operating income (loss)	700.8		19.5		672.5		19.0		28.3		4.2

Interest expense, net	62.5		1.7		15.3		0.4		47.2		NM
Other expense (income)	(3.3)		(0.1)		4.1		0.1		(7.4)		NM
Provision (benefit) for income taxes	124.3		3.5		127.9		3.6		(3.6)		(2.8)
Net income (loss)	517.3		14.4		525.2		14.9		(7.9)		(1.5)
Net income (loss) per share:
Basic	$	2.26			$	2.19			$	0.07	3.5
Diluted	$	2.23			$	2.14			$	0.09	4.0

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 six months 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 six months of fiscal 2023. Refer to "Non-GAAP Measures" herein for further discussion on the Non-GAAP measures.

First Six Months of Fiscal 2024 Items


	Six Months Ended December 30, 2023
	Items Affecting Comparability
	GAAP Basis (As Reported)		Acquisition Costs		Non-GAAP Basis (Excluding Items)
	(millions, except per share data)











Coach	$	899.6	$	—	$	899.6
Kate Spade	98.7		—		98.7
Stuart Weitzman	(7.2)		—		(7.2)
Corporate	(290.3)		(47.9)		(242.4)
Operating income (loss)	$	700.8	$	(47.9)	$	748.7




Net income (loss)	$	517.3	$	(75.7)	$	593.0
Net income (loss) per diluted common share	$	2.23	$	(0.33)	$	2.56

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

*•*Acquisition Costs - Total pre-tax charges of $98.7 million attributable to the Capri Acquisition. These charges include:

◦Interest expense, net: $50.8 million of financing related charges, which primarily includes Bridge Facility financing fees, and the net impact of the Capri Acquisition Senior Notes;

◦SG&A expenses: $47.9 million primarily related to professional fees recorded within Corporate.

These actions taken together negatively impacted operating income by $47.9 million, increased interest expense by $50.8 million and reduced the provision for income tax by $23.0 million resulting in a net decrease in net income by $75.7 million or $0.33 per diluted share.

Supplemental Segment Data


	Six Months Ended December 30, 2023
	Items Affecting Comparability
	GAAP Basis (As Reported)		Acquisition Costs		Non-GAAP Basis (Excluding Items)
	(millions)
Coach	$	1,115.5	$	—	$	1,115.5
Kate Spade	394.6		—		394.6
Stuart Weitzman	89.7		—		89.7
Corporate	290.3		47.9		242.4
SG&A expenses	$	1,890.1	$	47.9	$	1,842.2

Tapestry, Inc. Summary – First Six Months of Fiscal 2024

Currency Fluctuation Effects

The change in net sales for the first six months of fiscal 2024 compared to the first six months of fiscal 2023 has been presented both including and excluding currency fluctuation impacts. All percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers.

Net Sales


	Six Months Ended				Variance
	December 30, 2023		December 31, 2022		Amount		%		Constant Currency Change
	(millions)
Coach	$	2,699.3	$	2,569.0	$	130.3	5.1	%	6.0	%
Kate Spade	763.6		812.2		(48.6)		(6.0)		(5.7)
Stuart Weitzman	134.8		150.7		(15.9)		(10.6)		(9.7)
Total Tapestry	$	3,597.7	$	3,531.9	$	65.8	1.9		2.6

Net sales in the first six months of fiscal 2024 increased 1.9% or $65.8 million to $3.60 billion. Excluding the impact of foreign currency, net sales increased by 2.6% or $92.1 million.

Coach Net Sales increased 5.1% or $130.3 million to $2.70 billion in the first six months of fiscal 2024. Excluding the impact of foreign currency, net sales increased 6.0% or $153.3 million. This increase in net sales was primarily due to an increase of $126.6 million in net retail sales driven by an increase in both store and e-commerce sales globally. The increase in net sales was also attributed to a $21.0 million increase in wholesale sales.

*•*Kate Spade Net Sales decreased 6.0% or $48.6 million to $763.6 million in the first six months of fiscal 2024. Excluding the impact of foreign currency, net sales decreased 5.7% or $46.6 million. This decrease in net sales was due a decrease of $33.6 million in net retail sales as a result of lower store and e-commerce sales and a decrease of $11.6 million in wholesale sales.

*•*Stuart Weitzman Net Sales decreased 10.6% or $15.9 million to $134.8 million in the first six months of fiscal 2024. Excluding the impact of foreign currency, net sales decreased 9.7% or $14.6 million.

Gross Profit


	Six Months Ended
	December 30, 2023				December 31, 2022				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	2,015.1	74.7	%	$	1,844.2	71.8	%	$	170.9	9.3	%
Kate Spade	493.3		64.6		509.9		62.8		(16.6)		(3.3)
Stuart Weitzman	82.5		61.2		89.8		59.6		(7.3)		(8.2)
Tapestry	$	2,590.9	72.0		$	2,443.9	69.2		$	147.0	6.0

Gross profit increased 6.0% or $147.0 million to $2.59 billion during the first six months of fiscal 2024 from $2.44 billion in the first six months of fiscal 2023. Gross margin in the first six months of fiscal 2024 was 72.0% as compared to 69.2% in the first six months 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.

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


	Six Months Ended
	December 30, 2023				December 31, 2022				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	1,115.5	41.3	%	$	1,051.8	40.9	%	$	63.7	6.1	%
Kate Spade	394.6		51.6		417.7		51.4		(23.1)		(5.5)
Stuart Weitzman	89.7		66.5		94.2		62.5		(4.5)		(4.8)
Corporate(1)(2)	290.3		NA		207.7		NA		82.6		39.8
Tapestry	$	1,890.1	52.5		$	1,771.4	50.2		$	118.7	6.7

SG&A expenses increased 6.7% or $118.7 million to $1.89 billion in the first six months of fiscal 2024 as compared to $1.77 billion in the first six months of fiscal 2023. As a percentage of net sales, SG&A expenses increased to 52.5% during the first six months of fiscal 2024 from 50.2% during the first six months of fiscal 2023. Excluding items affecting comparability of $47.9 million in the first six months of fiscal 2024, SG&A expenses increased 4.0% or $70.8 million to $1.84 billion from $1.77 billion the first six months of fiscal 2023. SG&A expenses as a percentage of net sales increased 100 basis points to 51.2% compared to 50.2% in the first six months of fiscal 2023. This increase in SG&A as a percentage of net sales was primarily due to higher compensation costs, increased occupancy costs, and higher information technology costs partially offset by a decrease in distribution costs.

(1)In the first six months of fiscal 2024, Corporate incurred charges affecting comparability of $47.9 million. Excluding those items affecting comparability, SG&A expenses increased 16.7% or $34.7 million to $242.4 million in the six months of fiscal 2024 as compared to $207.7 million in the six months 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)


	Six Months Ended
	December 30, 2023				December 31, 2022				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	899.6	33.3	%	$	792.4	30.8	%	$	107.2	13.5	%
Kate Spade	98.7		12.9		92.2		11.3		6.5		7.1
Stuart Weitzman	(7.2)		(5.3)		(4.4)		(2.9)		(2.8)		(64.5)
Corporate	(290.3)		NA		(207.7)		NA		(82.6)		(39.7)
Tapestry	$	700.8	19.5		$	672.5	19.0		$	28.3	4.2

Operating income increased $28.3 million to $700.8 million in the first six months of fiscal 2024 as compared to $672.5 million in the first six months of fiscal 2023. Operating margin was 19.5% in the first six months of fiscal 2024 as compared to 19.0% in the first six months of fiscal 2023. Excluding items affecting comparability of $47.9 million in the first six months of fiscal 2024, operating income increased $76.2 million to $748.7 million from $672.5 million in the first six months of fiscal 2023; and operating margin increased 180 basis points to 20.8% in the first six months of fiscal 2024 as compared to 19.0% in the first six months of fiscal 2023. This increase in operating margin was primarily attributed to a 280 basis points increase in gross margin partially offset by an increase of 100 basis points in SG&A as a percentage of sales.

Coach Operating Income increased $107.2 million to $899.6 million in the first six months of fiscal 2024, resulting in an operating margin increase of 250 basis points to 33.3%, as compared to $792.4 million and 30.8%, respectively, in the first six months of fiscal 2023. This increase in operating margin was primarily attributed to:

◦Gross Margin, increased 290 basis points mainly due to lower freight costs and net pricing improvements;

◦SG&A expenses as a percentage of net sales, increased 40 basis points mainly due to higher compensation costs, higher marketing spend, and higher information technology costs, partially offset by a decrease in distribution costs.

Kate Spade Operating Income increased $6.5 million to $98.7 million in the first six months of fiscal 2024, resulting in an operating margin increase of 160 basis points to 12.9%, as compared to $92.2 million and 11.3%, respectively, in the first six months of fiscal 2023. This increase in operating margin was primarily attributed to:

◦Gross Margin, increased 180 basis points mainly due to lower freight costs;

◦SG&A expenses as a percentage of net sales, increased 20 basis points mainly due to increased occupancy costs, and higher information technology costs, partially offset by lower marketing spend.

Stuart Weitzman Operating Loss increased $2.8 million to a loss of $7.2 million in the first six months of fiscal 2024, resulting in an operating margin decrease of 240 basis points to (5.3)%, as compared to an operating loss of $4.4 million in the first six months of fiscal 2023 and an operating margin of (2.9)%.
Corporate Operating Expenses increased (39.7)% or $82.6 million to $290.3 million in the first six months of fiscal 2024. Excluding items affecting comparability, Corporate operating expenses increased $34.7 million to $242.4 million from $207.7 million in the first six months of fiscal 2023. This increase in operating expenses was attributed to an increase in SG&A expenses primarily due to higher compensation costs, increased occupancy costs, and higher professional fees.

Interest Expense, net

Net Interest expense increased $47.2 million to $62.5 million in the first six months of fiscal 2024 as compared to $15.3 million in the first six months of fiscal 2023. Excluding items affecting comparability, net interest expense decreased $3.6 million to $11.7 million from $15.3 million in the first six months of fiscal 2023. This decrease in Interest expense, net was mainly due to higher interest income partially offset by higher interest on the Term Loan due 2027.

Other Expense (Income)

Other income increased $7.4 million to income of $3.3 million in the first six months of fiscal 2024 as compared to expense of $4.1 million in the first six months of fiscal 2023. This increase in other income was related to a increase in foreign exchange gains.

Provision (Benefit) for Income Taxes

The effective tax rate was 19.4% in the first six months of fiscal 2024 as compared to 19.6% in the first six months of fiscal 2023. Excluding items affecting comparability, the effective tax rate was 19.9% in the first six months 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 1.5% or $7.9 million to $517.3 million in the first six months of fiscal 2024 as compared to $525.2 million in the first six months of fiscal 2023. Excluding items affecting comparability, net income increased $67.8 million to $593.0 million in the first six months of fiscal 2024 from $525.2 million in the first six months of fiscal 2023.

Net Income (Loss) per Share

Net income per diluted share was $2.23 in the first six months of fiscal 2024 as compared to net income per diluted share of $2.14 in the first six months of fiscal 2023. Excluding items affecting comparability, net income per diluted share increased $0.42 to $2.56 in the first six months of fiscal 2024 from $2.14 in the first six months 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 second quarter and first six months of fiscal 2024 reflect certain items affecting comparability, including the impact of Acquisition costs. There were no items affecting comparability in the first six months 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


	Six Months Ended
	December 30, 2023		December 31, 2022		Change
	(millions)
Net cash provided by (used in) operating activities	$	901.8	$	462.4	$	439.4
Net cash provided by (used in) investing activities	(655.0)		80.6		(735.6)
Net cash provided by (used in) financing activities	5,809.2		(504.7)		6,313.9
Effect of exchange rate changes on cash and cash equivalents	51.0		2.1		48.9
Net increase (decrease) in cash and cash equivalents	$	6,107.0	$	40.4	$	6,066.6

The Company’s cash and cash equivalents increased by $6.1 billion in the first six months of fiscal 2024 as compared to an increase of $40.4 million in the first six months of fiscal 2023, as discussed below.

Net cash provided by (used in) operating activities

Net cash provided by operating activities increased $439.4 million primarily due to changes in operating assets and liabilities of $359.2 million, higher impact of non-cash adjustments of $88.1 million, as well as a lower net income of $7.9 million.

The $359.2 million increase in changes in operating asset and liability balances were primarily driven by the following:

Accrued liabilities were a source of cash of $87.0 million in the first six months of fiscal 2024 compared to a use of cash of $60.6 million in the first six months of fiscal 2023, primarily driven by higher compensation accrual and an increase in accrued interest due to bond issuances.
Accounts payable were a source of cash of $56.3 million in the first six months of fiscal 2024 compared to a use of cash of $60.2 million in the first six months of fiscal 2023, primarily driven by the timing of payments compared to the prior year.
Inventories were a source of cash of $103.8 million in the first six months of fiscal 2024 compared to a source of cash of $11.5 million in the first six months of fiscal 2023, primarily driven by reduction in inventory purchases and better sell through when compared to prior year.

Net cash provided by (used in) investing activities

Net cash used in investing activities in the first six months of fiscal 2024 was $655.0 million as compared to a source of cash of $80.6 million in the first six months of fiscal 2023, resulting in a $735.6 million increase in net cash used in investing activities.

The $655.0 million use of cash in the first six months of fiscal 2024 was primarily due to purchases of investments of $611.3 million from the proceeds of the senior unsecured notes issued to fund the Capri Acquisition.

The $80.6 million source of cash in the first six months of fiscal 2023 was primarily due to proceeds from maturities and sales of investments of $151.8 million, settlement of net investment hedge of $41.9 million, partially offset by capital expenditures of $108.8 million.

Net cash provided by (used in) financing activities

Net cash provided by financing activities was $5.8 billion in the first six months of fiscal 2024 as compared to a use of cash of $504.7 million in the first six months of fiscal 2023, resulting in a net increase of cash provided by financing activities of $6.3 billion.

The $5.8 billion source of cash in the first six months of fiscal 2024 was primarily due to proceeds from the issuance of senior unsecured notes to fund the Capri Acquisition of $6.1 billion, partially offset by dividend payments of $160.4 million as well as payment of debt issuance costs of $78.2 million.

The $504.7 million use of cash in the first six months of fiscal 2023 was primarily due to repurchase of common stock of $300.0 million, dividend payments of $144.2 million, as well as taxes paid to net settle share-based awards of $55.0 million.

Effect of exchange rate changes on cash and cash equivalents

Effect of exchange rate changes on cash and cash equivalents was $51.0 million as compared to $2.1 million in the first six months of fiscal 2023, primarily driven by the impact of changes in the exchange rate of the United States Dollar against the Euro on the Capri Acquisition EUR Senior Notes.

Financial Condition

The following table presents our financial condition as of December 30, 2023 and July 1, 2023:


	December 30, 2023		July 1, 2023		Change
	(millions)
Cash and cash equivalents(1)	$	6,833.1	$	726.1	$	6,107.0
Short-term investments(1)	629.2		15.4		613.8
Current debt(2)	(25.0)		(25.0)		—
Long-term debt(2)	(7,714.4)		(1,635.8)		(6,078.6)
Total, net	$	(277.1)	$	(919.3)	$	642.2

(1) As of December 30, 2023, approximately 11.3% of our cash and short-term investments were held outside the United States.

(2) Refer to Note 11, "Debt" for discussion of the carrying values of our debt.

Sources of Liquidity

Our primary sources of liquidity are the cash flows generated from our operations, our cash and cash equivalents and short-term investments, availability under our credit facilities, and other available financing options.

The following table presents the total availability, borrowings outstanding, and remaining availability under our Revolving Facility and Capri Acquisition Term Loan Facilities as of December 30, 2023:


	Total Availability		Borrowings Outstanding		Remaining Availability
	(millions)
Revolving Facility(1)	$	2,000.0	$	—	$	2,000.0
Capri Acquisition Term Loan Facilities(1)	1,400.0		—		1,400.0
Total	$	3,400.0	$	—	$	3,400.0

(1) Refer to Note 11, "Debt" for further information on these instruments.

We believe that our Revolving Facility and Term Loans are adequately diversified with no undue concentrations in any one financial institution. As of December 30, 2023, there were 18 financial institutions participating in the Revolving Facility, and 24 financial institutions participating in the Term Loans, with no one participant maintaining a combined maximum commitment percentage in excess of 10%. 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.

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.

Supply Chain Finance

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.

Capital Expenditures

During the three and six months ended December 30, 2023, capital expenditures and cloud computing implementation costs were $30.5 million and $59.1 million, respectively. The Company expects total fiscal 2024 capital expenditures and cloud computing cost to be approximately $190.0 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 December 30, 2023 the Company had $800.0 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 Capri Acquisition. Refer to Note 5, "Acquisitions," for further information. There were no shares repurchased during the six months ended December 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 new senior unsecured notes, 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 December 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.

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