AGM 2020

Nov 5, 2020

Thank you for standing by, and welcome to the Tapestry, Inc. Annual Meeting. At this time, you may begin. Good morning. My name is Joanne Crevoiserat, and I'm the Chief Executive Officer of Tapestry. I will be serving as Chair of this meeting and hereby call the 2020 Annual Meeting of Stockholders of Tapestry Inc. To order. I would like to welcome you to our 1st virtual annual meeting. Due to the ongoing COVID-nineteen pandemic, we felt it was in the best interest of our stockholders, our Board of Directors and our employees to hold our meeting via webcast. In addition to holding the meeting virtually for safety concerns, we are simultaneously allowing for greater participation and the opportunity to join the live online meeting from any location convenient to you. If you encounter any technical difficulties accessing or participating in the meeting, please refer to the information provided in the Conduct of Meeting guidelines for information on how to reach the technical support team. Before I begin, I must point out that my remarks today will include certain forward looking statements, including projections for our business in the current or future quarters or fiscal years. Future results may differ materially from our current expectations based on a number of important factors, including risks and uncertainties. Please refer to our latest Annual Report on Form 10 ks and our other filings with the Securities and Exchange Commission for a complete list of risks and important factors. Now turning to an overview of our fiscal 2020, the period covered in our proxy statement. We began the fiscal year with a comprehensive review of our business to identify opportunities to drive sustainable growth and profitability across the portfolio. With a focus on innovation, investing in digital capabilities and harnessing the power of our multi brand model, we entered the calendar year in a position of strength. However, COVID-nineteen had material impacts on our business, including the temporary closure of the significant majority of our stores globally during the second half of the fiscal year. In the face of the pandemic, we acted swiftly to preserve liquidity and enhance financial flexibility. We took appropriate actions to protect the health and safety of our employees, customers and communities, enhancing health and safety operating procedures at our distribution centers and stores. Our effective and values led approach to navigating the environment was evident in our fiscal Q4 results released in August, which were ahead of internal top and bottom line expectations. We reopened the vast majority of our directly operated stores by fiscal year end, drove strong e commerce growth, expanded gross margin and achieved substantial SG and A savings. I'm incredibly proud of our global teams for the resilience, passion and commitment they have shown during these unprecedented times. Importantly, as part of our Q4 earnings, we formally announced our acceleration program, our multi year strategic agenda. The guiding principle of our acceleration program is to better meet the needs of each of our brand's unique customers by sharpening our focus on the consumer, leveraging data, leading with digital and transforming into a leaner, more responsive organization. We believe the successful execution of our acceleration program will fuel desire for Coach, Kate Spade and Stuart Weitzman brands, driving accelerated revenue growth, higher gross margin and substantial operating margin leverage across Tapestry's portfolio. As you heard on our earnings call last week, we were very pleased with our results for the Q1 of fiscal year 2021, which exceeded expectations and demonstrated the bold actions we are implementing as part of our acceleration program. We delivered strong profit growth across our portfolio of brands and drove a meaningful sequential improvement in top line trends, supported by strength in digital and China. At the same time, we expanded gross margin by deliberately reducing promotional activity and raising AUR, while also tightly controlling SG and A expense. Taken together, we achieved a significant increase in EPS and generated positive free cash flow. Our performance underscores the power of our brands, the agility of our talented team and the competitive advantage of Tapestry's enabling platform. It also reinforces the potential of our acceleration program. We are confident in the strong foundation we are building and our ability to create long term value for our stakeholders. As we enter the holiday season, our teams continue to focus on the factors within our control. We are putting the consumer first, delivering innovative, relevant and beautifully crafted products, while staying true to the unique purpose of each of our brands. We are also leaning into the opportunity to evolve with the changing landscape and shifting consumer needs and preferences. Given the strength of the Q1, we are increasingly optimistic in our ability to drive sustainable top and bottom line growth over our planning horizon. Now before proceeding to the business of the meeting, I would like to make certain introductions. First, I would like to recognize the members of our Board of Directors who are all standing for reelection and are all present telephonically at the meeting today. Our directors, each of whom is independent are Susan Croft, Chair of the Board, Retired President and Chief Operating Officer of Avon Products John P. Bilbrey, Retired Chairman, President and Chief Executive Officer of The Hershey Company Daryl Cavins, Retired Founder and Chief Executive Officer of Zulily Inc. David Denton, Executive Vice President and Chief Financial Officer of Loews Companies Ann Gates, Retired President of MGA Entertainment Inc. Annabelle Yu Long, Chief Executive Officer of Bertelsmann China Corporate Center and Managing Partner, Bertelsmann Asia Investments and Ivan Menezes, Chief Executive and Director of Diageo Plc. We are proud to propose the slate of directors. They are your representatives. Also present today are Tony Gianotta and Michael Gil Price of Deloitte and Touche, Tapestry's auditors. If questions arise during the discussion period that the auditors should appropriately address, they will be glad to respond. Also present is Peter Dzkevic of Broadridge Financial Solutions, who is acting as the Independent Inspector of Elections for this meeting. The Inspector of Elections has taken the oath of office, which will be filed with the records of the company. Joining me is David Howard, Senior Vice President and General Counsel and Secretary. David will act as secretary and will record the proceedings of this meeting. The Board of Directors fixed the close of business on September 8, 2020, as the record date for purposes of this meeting. Only stockholders of record as of the record date are entitled to vote at this meeting. David, let's proceed with the formalities. Will you please advise as to the mailing of the notice for this meeting? Joanne, I have received an affidavit from Broadridge stating that a notice of Tapestry's annual meeting was mailed on September 25, 2020 to each stockholder of record at the close of business on September 8, 2020. I'm inserting this affidavit in the company's records. We are conducting this meeting in accordance with our bylaws and the code of meeting guidelines. The meeting guidelines and agenda are available on the meeting website. We are committed to ensuring that our stockholders have substantially the same opportunities to participate in the virtual annual meeting as they would at an in person annual meeting. We have established clear processes around submitting and responding to stockholder questions and members of executive management and the Board will be available for questions today. The polls are open and stockholders attending the virtual meeting can vote their shares online through the closing of the polls by logging into the meeting website as a stockholder and clicking the Vote Here button on their screen. If you have previously voted by proxy and do not wish to change your vote, your vote will be cast as you previously instructed and no further action is existence of a quorum for the transaction of business. As of the record, existence of a quorum for the transaction of business. As of the record date, 277,000,000,373,538 shares of common stock of the company that were outstanding and entitled to vote at this meeting. I am pleased to report that the Inspector of Elections has informed me that they are present at this meeting in person or by proxy. The holders have not less than a majority of all votes entitled to be cast at this meeting. Since a quorum is present, this meeting is duly constituted for the transaction of business. I will now review the procedures for this meeting. The proposals described in this proxy statement will be brought up for consideration and voted upon. After the proposals have been presented, we will pause to answer questions received regarding the proposals. We will then announce the preliminary results for each proposal. After the meeting is adjourned, there will be a period for general questions regarding the company in accordance with the rules of conduct posted on the Annual Meeting website. Stockholders attending this webcast will be able to submit questions by typing them into the text box on the meeting website. Please submit any questions regarding a specific proposal while the proposals are being presented. Only questions directly related to the proposals will be addressed at that time. You can submit general questions regarding the company's business through the end of the Q and A session. Only our stockholders are able to submit questions and all questions and comments should relate to the company's business. In the interest of time, questions relating to the same subject may be consolidated and responded to as one. Thank you, David. I believe that concludes all of the preliminary matters and we can now proceed with the formal business of the meeting. David, please proceed with presenting the proposals. The first item for business at the meeting is the election of 7 directors of the company, each to hold office until the 2021 Annual Meeting of Stockholders and until his or her successor is duly elected and qualifies. The Board of Directors has nominated Susan Croft, John P. Bilbrey, Daryl Cavins, David Denton, Ann Gates, Annabelle Yu Ong and Ivan Menezes. A majority of the votes cast at this meeting is required to elect each Director. Our Board of Directors unanimously recommends that you vote for each of the directors. No other nominations have been received in accordance with the requirements of the company's bylaws. The second item of business is the ratification of the appointment of Deloitte and Touche LLP as the company's independent registered public accounting firm for fiscal year 2021. A majority of votes cast at this meeting is required to approve this motion. Our Board of Directors unanimously recommends that you vote for this proposal. The 3rd item of business is the approval on a non binding advisory basis of the company's executive compensation as described in our proxy statement. A majority of votes cast at this meeting is required to approve this motion. Our Board of Directors unanimously recommends that you vote for this proposal. The 4th item of business is the approval of the 2nd amended and restated Tapestry, Inc. 2018 Stock Incentive Plan. A majority of votes cast at this meeting is required to approve this motion. Our Board of Directors unanimously recommends that you vote for this proposal. As a reminder, the polls are open for voting on each of the proposals presented to stockholders. If you intend to vote, please do so now. There were no questions received from stockholders directly on the proposals. Therefore, the polls are now closed and I will present the preliminary report of the Inspector of Elections based on the proxies received as of the opening of the polls at today's meeting. The voting results I'm about to announce are subject to further checking, but we believe they are unlikely to change. Each of the 7 nominees for directors received at least a majority of all votes cast. A majority of eligible votes were cast and at least a majority of those votes cast were voted in favor of proposal number 2, the appointment of Deloitte and Touche proposal number 3, the non binding advisory vote on executive compensation and proposal number 4, the approval of the second and amended and restated 2018 Stock Incentive Plan. Since each of the nominees has received at least a majority of all the votes cast, I declared that each is elected the Director of Tapestry until the 2021 Annual Meeting of Stockholders and until his or her successor is duly elected and qualifies. I also declare that proposals number 2, 3 and 4 have passed. A more detailed report on the voting may be found in a Form 8 ks to be filed with the SEC within 4 business days. This concludes the formal business of the meeting and the formal meeting is hereby adjourned. We now invite you to ask questions regarding the company in accordance with the conduct of meeting guidelines posted on the virtual meeting website. Christina Klone, Vice President of Investor Relations, will join us to provide the questions received by our stockholders. Christina? Hi, thank you. The first question received is can we discuss what we're doing to drive profit growth and shareholder returns at Tapestry? Can you please also discuss the compensation paid to executives in light of the pressured results and share price in FY 2020. Thank you, Christina, and thank you for your question. First, I'm confident that we have the right strategy to drive accelerated growth and profitability for Tapestry and each of our brands. We were very pleased with our results for the Q1 of fiscal year 2021, which exceeded expectations and delivered significant profit growth across brands through bold and deliberate actions in the face of an unprecedented backdrop. We reported a significant increase in earnings per share and generated positive free cash flow for the quarter. We have also made meaningful progress on the strategic priorities under our acceleration program. We are sharpening our focus on the consumer, leveraging data and leading with digital and transforming into a leaner and more responsive organization. We are confident in our ability to translate this transformation into shareholder value creation through accelerated growth in revenue and profitability across our portfolio over our planning horizon. Our strong Q1 performance demonstrates the bold actions we are taking and reinforces the potential of this strategy. We believe the successful execution of these priorities will fuel desire for our brands, enabling us to accelerate growth across our portfolio, while enhancing the profitability and cash generation of the overall business. Now responding to the proportion of the question on compensation and bonus payouts, we have designed our compensation program to have a high degree of alignment between pay and company performance. We started the calendar year with strong underlying trends and our annual and long term performance awards were tracking between threshold and target. However, as noted in my prepared remarks, the COVID-nineteen pandemic had material impact on our business for fiscal year 2020, the period covered in our proxy statement, resulting in the closure of a significant majority of our stores globally during the second half of the fiscal year. In the face of the pandemic, management and the Board acted swiftly to preserve liquidity and enhance financial flexibility. Importantly, we did not pay out any bonuses for the fiscal year under our annual incentive plan and no shares were earned under performance restricted stock units with performance periods ending in fiscal year 2020. These awards did not meet the performance threshold for a payout and the Human Resources Committee of the Board determined not to apply any discretion to allow for a payout, which demonstrates our strong pay for performance alignment. We also eliminated merit salary increases for all employees for fiscal year 2021 and implemented temporary salary reductions for corporate staff over a salary threshold, including named executive officers. These reductions were in place from the beginning of fiscal year 2021 through November 1, 2020. Over the long term, we are focused on driving organic growth, profitability and shareholder value and we feel that our compensation programs are strongly aligned with this objective. Thank you. We received questions on strategic alternatives for the company. The first is on whether a stock buyout is being considered at this time, which we are interpreting as asking whether or not we're thinking of taking the company private. The second relates to our openness to considering returning to a mono brand company specifically focusing on the Coach brand. Again, thank you, Christine, and thank you for your question. We are not considering those alternatives. As I stated in my response to the first question, I'm confident that we have the right strategy in place. We have 3 powerful brands and Tapestry is the enabling acceleration program. We received a question from Kent Stein on behalf of the People for the Ethical Treatment of Animals. The question reads as follows. Earlier this year, Tapestry said it would focus on driving meaningful positive change for a safe and sustainable planet. In keeping with that goal, we urge you to reimagine what it means to be a force for good in the world by considering the ways that animals are treated and consequently by discontinuing the use of alpaca flakes in Mohair in the Kate Spade brand. Animals suffer terribly in the Mohair and alpaca industries as shown in PETA's investigations regardless of supplier assurances or animal welfare policies. It's common for workers to hit, kick, tightly restrain and violently share goats and alpacas, leaving them crying out and bleeding from the deep wounds that they are crudely stitched up without any painkillers. Additionally, Tapestry cannot meet its 2025 sustainability goals to reduce its carbon footprint, while continuing to use highly unsustainable materials. Alpaca Fleece is ranked in the 2nd most environmentally damaging textile by the HIG index in the mohair industry, also shares responsibility for a multitude of environmental hazards associated with animal agriculture, including producing massive amounts of methane manure and slaughter waste, land degradation, water contamination and pollution. Eliminating alpaca waste in mohair would help achieve your goal of producing products in a way that respects our planet. Being well aware of the suffering that animals endure in the production of its alpaca and mohair items as well as the environmental devastation associated with it, when will Kate Spade make a positive decision to stop selling alpaca fleece and mohair? Thank you. We appreciate the question and your perspective and PETA's perspective. Each of our brands is led by a creative team that is responsible for designing products for that brand. We think the continued ability of our creative teams to make these decisions are integral to the success of our brands. We are committed to high standards of animal welfare and have adopted principles and practices that require all animals in our supply chain be treated with care and respect. Our suppliers are required to adhere to our supplier code of conduct as well as our animal welfare policy, both of which are available on tapestry.com. In fact, Tapestry's animal welfare policy describes our commitment to ethical practices and is based on the 5 freedoms. We review our suppliers' compliance with our high standards through regular internal and external compliance audits. We also have set a goal under our corporate responsibility program to achieve 95% traceability and mapping of our raw materials, which will continue our work to achieve the highest standards for ethical and sustainable sourcing. We encourage you to read our annual corporate responsibility report available on dot com for more information. We also encourage you to read our corporate responsibility report regarding traceability goals. With respect to the recent PETA investigation into Alpaca, we are aware and have contacted our raw material suppliers after this information came to light. We confirmed that we do not source from the farm, investigated and featured IPETA. Again, we are committed to corporate responsibility, including animal welfare, as well as our 2025 goals, and we continuously reinforce our requirements and standards with our suppliers and follow-up through audits and monitoring programs. Thank you. Thank you. The next question is what initiatives do you have in place this holiday season to address any inventory issues? Specifically, can customers buy online, pick up in store? And how do you ensure that these initiatives and systems work appropriately? Thank you for that question. Take a few minutes to talk about our strategy for the holiday period and how we're leaning into digital and leveraging technology such as buy online, pickup in store to deliver exceptional customer experiences during this important and unprecedented time. The backdrop is uncertain. However, we're focusing on the factors within our control with an eye towards best in class execution. We're putting the consumer first and delivering innovative relevant and beautifully crafted product while staying true to the unique purpose of each of our brands. We will provide our customers with seamless shopping experiences by offering curbside pickup, remote and contactless payment options and the opportunity to make virtual appointments. We're also testing new technology to offer virtual queues in select North America outlet stores, allowing guests to bypass lines and instead receive an alert text when it is their time to enter the store. As mentioned, we are also currently offering buy online, pickup in store options currently available at Coach and Kate Retail Online and certain locations for Stuart Weitzman. Importantly, given social distancing requirements and related capacity constraints, we are implementing strategies to elongate the holiday shopping period, pulling forward demand ahead of the peak Thanksgiving week to level load volume throughout the quarter. We also continue to lean into digital with e commerce sales expected to represent nearly half of holiday sales in North America this year. We're taking actions to add fulfillment capacity to satisfy online demand. The environment is uncertain in the near term. We are focused on staying close to the consumer and controlling the controllables. We have a comprehensive plan and believe we are well positioned for the environment. The next question states with COVID-nineteen entering a second wave, what proactive steps are being taken to address this threat for 2021? Yes. Thank you for the question. We believe we are effectively navigating the COVID-nineteen pandemic and we're confident in our ability to emerge a stronger company. The environment remains challenging, but we're well positioned. During the COVID-nineteen crisis, we have been guided by our values through many difficult and important decisions, prioritizing the health and well-being of our employees, their families, our customers and communities. We acted swiftly to preserve liquidity and enhance financial flexibility by reducing SG and A and capital expenditures, tightly managing inventory, drawing down $700,000,000 from our revolver and suspending our dividend and stock repurchase program. We also implemented cost cutting measures, including reductions in our corporate and retail workforce, elimination of merit salary increases and temporary salary reductions for our corporate workforce above a certain salary threshold. Our Board also reduced their cash retainers by 50%. The salary and Board retainer reductions started at the beginning of fiscal year 2021, our current fiscal year and were lifted just a few days ago on November 1. Until May 30, we did continue to pay most of our assistant managers and store associates despite stores being closed and only furlough those whose stores had not reopened by May 30, 2020. The vast majority of stores are now reopened and employees have been brought back from furlough or exited in connection with our operating model work. We've also supported our local communities through philanthropic commitments from our brand foundations and brand product donations, including $3,000,000 to support New York City Department of Small Business Services, Small Business Continuity Fund for businesses affected by COVID-nineteen. The donation includes $1,000,000 that primarily went to minority and women owned businesses. Dollars 300,000 to Brock's Nonprofit that provides emergency cash assistance to low income families that lost their primary earner during COVID-nineteen. And as I said, brand product donations to those impacted by COVID-nineteen, including healthcare workers. These actions demonstrate the agility of our Thank you. We've received no additional questions at this time. I believe that concludes the Q and A session. I want to thank our stockholders for your questions and your interest in the company. We will now conclude the Q and A section. And thank you very much. Thank you for your participation. This concludes today's conference call. You may now disconnect.