Good morning, everyone, and thank you for joining Tapestry's 2025 Investor Day. Before the program begins, please silence your cell phones and reference the information on the screen. The following presentation includes forward-looking statements that are based on information currently available to Tapestry and is subject to risks and uncertainties that could cause actual results to differ materially from the information presented today. In addition, the presentation will reference certain non-GAAP financial measures. Please see Tapestry's investor website for a full reconciliation of GAAP to non-GAAP financial measures. Now, the program will begin with a short video. Please welcome to the stage Joanne Crevoiserat, CEO of Tapestry, Inc.
Good morning. Welcome, everyone. I'm Joanne Crevoiserat, and I'm excited to be here with our leadership team and on behalf of our 18,000 associates worldwide to welcome you to Tapestry's 2025 Investor Day. We are excited by the momentum in our business, and we're ready. We are ready to amplify, building on our strong foundation to reach more consumers, drive sustained growth, and create more value for our stakeholders. Today, I'm going to cover who we are and our competitive advantages, our ongoing transformation, which has created more fuel for our brands and delivered superior financial results. I want to spend most of our time today on what's next, our amplified growth agenda that will drive sustained, profitable growth for many years to come. I believe Tapestry is a differentiated and special company. Let's start with our advantages. We are anchored in our purpose to stretch what's possible.
Our purpose pushes us to break boundaries, going beyond conventional paradigms, constantly seeking growth, innovation, and creativity in a way that is authentic to us. This spirit lives in our two iconic brands, Coach and Kate Spade, each with a distinctive identity and strong emotional connections with their consumers. Coach is blazing a new trail with a new generation of consumers. Today, we ill cover Coach's bold ambition, building on the success of the last five years. Kate Spade has something rare. Kate Spade is an iconic brand that lives in the hearts of consumers. Today, you'll hear more about the deliberate steps we're taking to unlock that spirit and reignite growth at Kate Spade. Together, they represent compelling, organic growth potential for our business.
Our brands are supported by a direct-to-consumer model where we operate at global scale, with $7 billion in revenue across 60 countries and nearly 1,300 directly operated stores worldwide. Importantly, our brands and our business are supported by our incredible associates across the globe. I say this all the time. You'll hear it more than once today, maybe. We have the best team in the business. You see it in our stores. Hopefully, you'll take the time today and see it in our workshop or in our showrooms. Hopefully, you can feel it in our office. Our teams are bringing their passion and energy to our brands every day. Woven into our culture is our fabric of change, which reflects our ongoing commitment to building sustainable business for the long term, to allow our business, our people, our communities, and our planet to thrive.
Leading our work is our world-class team. They've joined me today. You will hear from several of our leaders today, including myself, Todd, and Scott, who speak to you every quarter. I'm excited that you'll also hear from Sandeep Seth, our Chief Growth Officer and President of International, who is an expert in brand building, and Ava Erdmann, our CEO of Kate Spade, who comes to us with decades of proven success building luxury brands in the beauty space. Peter Charles, our battle-tested Chief Supply Chain Officer, leads the team that brings unmatched quality and innovation to our consumers with efficiency and always, as required today, with the agility that we need in a complex world. What have we been up to over the last five years? We have structurally changed our business, setting an important foundation for our future growth.
Through our acceleration program, which began in 2020, we put the consumer at the center of our business. With future speed in 2022, we took the next step and began to operate at the speed of the consumer. Today, we know that consumer behaviors are shifting quickly. Data and digital innovation are changing how consumers and brands engage. What is true today may not be true tomorrow. These truths have profound implications, not only for our business but for our industry. This requires staying close to our consumers, constantly delivering innovation, and staying agile in responding to that change. At the end of the day, in a world where consumers have more choices than ever, brands matter. That's why today we have a culture of consumer-obsessed brand builders, supported by an agile and data-driven operating model. I want to emphasize this is what differentiates us. This is in our culture.
Brand building at Tapestry means building deep emotional connections with consumers at every touchpoint: in our product, in our stores, on our websites, in our marketing, and in our communication. Brand building is embedded in everything we do. Today, you'll hear about how this strong culture is driving our growth and delivering for our shareholders. You may be asking, how have we changed? As part of our transformation, as I mentioned, we've built robust brand building capabilities across the organization, from establishing a consumer listening function to our focus on customer acquisition to the way we invest in our brands. These capabilities are driving our success, and you're going to hear from Sandeep about where we're going to take them next.
We've also further strengthened our operations, building robust data and analytics capabilities, establishing a truly global digital platform, and, importantly, in today's world, building an even more diversified supply chain that maintains best-in-class quality and efficiency. You'll hear more about that from Peter. Underpinning all of our work is a culture that allows us to move faster than ever, bringing innovative thinking to both challenges and opportunities. Before moving on, I want to touch on what it truly means to be data-driven at Tapestry. One of the ways we're innovating is how we move from insights to action, where we see the payoff in our business, by placing data and insights tools in the hands of decision-makers across our organization. This is an important differentiator that we've been building over the last five years.
We are constantly listening and testing and leveraging data to inform the choices we make across the value chain, from design and assortment planning through store operations, pricing, and marketing. At every touchpoint, we are improving the customer experience. That's what allows us to make stronger emotional connections with our consumers, and it brings together the magic and the logic in our business. These competitive advantages are powering our execution behind our future speed agenda. As a reminder, our future speed agenda focused on four key priorities: building lasting customer relationships, fueling fashion innovation, delivering compelling experiences, and driving and powering global growth. Our strategies are working. You can see it in our results. Over the last three years, we have recruited more than 20 million new customers to our brands in North America alone.
We have grown our top line by 10% while generating 180 basis points of operating margin expansion. Notably, we have delivered on our commitment to generate over $5 in earnings, driving nearly 50% growth in earnings per share. Our foundation is strong, and this presents a compelling opportunity to amplify from a place of strength. Let's talk about our growth agenda. With the capabilities we've built, we are now positioned to amplify. We are ready. It means scaling what's working and building on our strengths to power our growth. As we look to the future, we know that trends are only accelerating in the marketplace. Because of that, the future will be written by those closest to the consumer. We are uniquely positioned against this truth.
With the culture that we've built and the agility that we've embedded across our organization, and a business that is 85% direct-to-consumer, we are wired to keep the consumer at the center of our focus and move with speed to maintain engagement and relevance. Guiding us forward is a clear vision: to give more people the power to bring their own style and story into the world. As we deliver on this vision, we're going to take our iconic brands to new heights. Let's take a look at what that looks like.
This company was made to grow. For the last five years, we've stretched what's possible, bringing together a tapestry of talent, breaking through constraints, and taking beloved brands further than they could go alone. Now, our sights are set on what's next. Our vision is to give more people the power to bring their own style and story into the world, expanding our brand's reach into new geographies and generations, going beyond knowing our consumers to being inspired by them, connecting to the fabric of their lives, and sparking innovation that meets desires in the moment and builds brand love that lasts. Through experiences that captivate them and products they treasure, we'll reach more people first and for a lifetime. With promises kept, confidence carried, joy expressed, we'll bring our vision to life. Together, we'll amplify our impact.
I hope you agree this is an exciting place to be. We are building off our strong foundation toward this bold vision with our amplified growth agenda. The strategies that guide us should look familiar to you. These are consistent strategies, and they're proven, which we will execute through our amplified agenda with even more focus. We will continue to deliver the financial outcomes you've come to expect from us. First, we will continue to create emotional connections with our consumers, with a focus on driving new customer acquisition, particularly with younger consumers. Second, we will fuel fashion innovation and product excellence with a focus on our core leather goods category, where we're positioned to lead with quality and creativity. Third, we'll deliver compelling experiences to drive global growth, with a focus on our key markets of North America, Greater China, and Europe.
Finally, we'll ignite the power of our people, strengthening our culture and our capabilities to future-proof our growth. Let me unpack these in detail. New customers are like oxygen for our brands, necessary to drive our growth. This is why we are focused on new customer acquisition. To do this, it starts with knowing the customer, understanding them deeply to ensure that our brands are relevant and fit into their evolving lives. We're focused on winning with young consumers as they're entering the market, expanding the market, fostering deeper brand love, and providing higher lifetime value through lasting relationships. We will invest in marketing to spark their brand desire and achieve our growth ambition. As we fuel fashion innovation, we will focus on leather goods, continuing to create icons our customers will treasure.
We'll also prioritize innovation throughout our assortment while staying true to the craftsmanship and quality that define our products. We will extend into lifestyle categories where we have a right to win, specifically in footwear. As we look at the path ahead of us, it's exciting to see the opportunity to amplify growth across our key regions, with continued growth in North America and accelerating growth in international markets, particularly in Greater China and in Europe, where we have lower penetration and we see an opportunity to expand the market and our share. To achieve this growth, we will scale our proven brand building capabilities globally while always mining and adapting to local consumer insights. Again, we will support our growth ambition with investment and targeted store expansion across these markets. We know that our people and our culture are a differentiator for our company. It's our secret sauce.
Our continued investment in talent and culture will future-proof our growth for years to come. Our ambition is to have brand builders in every seat, with every person across our organization obsessed with knowing our consumers and building our brands. To do this, we'll be supporting our people in new ways, giving them the tools and training to continue to translate data and insights into action. That's where we see the payoff in our business. We'll be fostering curiosity and empowering them to make decisions, enabling them to become the next generation of transformative leaders for our business and for our industry. We're confident that these strategies will create durable growth, with a compounding financial model that will drive significant returns to shareholders for many years to come. This is what amplifying looks like.
We are confident in our existing fiscal 2026 outlook, and we're excited about fiscal 2027 and fiscal 2028, where we expect to deliver mid-single-digit revenue growth, operating margin expansion to over 22%, and low double-digit growth in earnings per share annually. We plan to return $4 billion to shareholders over the next three years. This demonstrates our commitment to creating value for our shareholders, and it recognizes the underlying intrinsic value that we see in Tapestry because we're building a business to deliver solid growth, not only over this three-year time horizon but well into the future. Before I hand it over to Sandeep, here are the things I hope you take away from today's Investor Day. Our strengths are structural. We have transformed our company to become consumer-obsessed brand builders, and we are winning with a new generation of consumers.
This is driving our global momentum, and our growth is durable well into the future as we deliver our amplified plan. Our vision is clear. We are giving more people the power to bring their own style and story into the world. This will deliver compounding financial returns and significant value for our people, our consumers, our brands, and our shareholders. Thank you, and it's now my pleasure to turn the stage over to Sandeep.
Thank you, Joanne, and good morning, everyone. I've met many of you, but maybe it's the first time seeing a lot of you. I'm going to start with a brief introduction. Hi, I'm Sandeep Seth, Tapestry's Chief Growth Officer and President International. I've joined the company four years back as Coach's CMO and North America President. Prior to that, I've spent 23 years at Procter & Gamble learning the art and science of brand building. I know many of you are here today to understand what have we done to unlock the growth that we are seeing and ask the question, what gives us confidence that this can be sustained? What I'm going to share with you today is what we have unlocked and how we're going to bring this forward to drive long-term durable growth.
Here are the three things that I'm sharing today: the tremendous headroom we see for growth, two, how we're unlocking the strategies Joanne just shared to drive robust long-term growth, and three, what's our international agenda. Let's start with the headroom. Historically, this is the view of the market we've taken, where we look at the market from a dollar value and the existing buyers in the market. This is an attractive market, and Tapestry has a 7% share in this $100 billion handbags, small leather goods, and footwear market. We see significant headroom for growth within this market. This historic view of the market limits our focus on current buyers of the market. This overlooks the full potential, and the focus really becomes gaining share from other existing players. We're redefining this market. We're redefining this market to include qualified consumers who have the potential to purchase our handbags.
This opens up the aperture and gives us a significantly higher global reach and growth by expanding the market. If I look back historically, Coach had achieved this back in the late 1990s and early 2000s when the luxury market in America grew as we increased the consumer participation in the market. We see exponential opportunity as we open up the aperture. Let's look at this market from a consumer lens point of view. Expanding this focus gives us a global reach to 1.9 billion potential consumers of this category. If I look at the current penetration for Tapestry, it's only 0.6% within this market. In fact, what I want to focus on is the point of market entry. We are honing into this point of market entry consumer, which comprises 275 million consumers out here. Point of market entry is the 18 to 27-year-olds.
This provides us with a really robust and sustainable cohort of consumers to drive long-term growth. Our brands are really well positioned to win with this point of market entry consumers. Let's look at why point of market entry and what does it give us. First and foremost, this is a sizable and sustainable time for us because every year over the next 10 years, 25 million women are going to turn 18, and they are all going to make their first major handbag purchase. Why 18 is significant? This is the age where they transition from carrying backpacks to handbags as most of them move from high school to college or university. This provides a huge opportunity to grow by expanding that market. Second, our brands have it in their DNA to be considered for the first major handbag purchase.
We've heard countless stories of consumers recounting their first Coach handbag purchase, and this nostalgia stays with them forever. If I were to do a quick poll in this room by way of raising your hands, how many of you remember your first Coach handbag, which you bought for yourself or significant others? There will be many hands up here. I wanted to recount one of my own personal stories. Five years back, when I was interviewing with Tapestry, it was still COVID. I was doing the interviews from home, and my wife overheard the name Coach, and she pulled out the first Coach handbag I bought her back in 1999, just a couple of months after we got married, which I had bought on my way back from Hong Kong. These memories last forever. We hear the same stories from Kate Spade consumers.
They continue to recount these beautiful memories of the first bag. Thirdly, point of market entry is critical because behavior is shaped at this age, and it stays forever. We've seen for Coach, the Boomers and the Gen X who've bought Coach in their teens continue to stay loyal with the brand forever. This is not just happening because of the price points we offer. It is because of the brand heat that drives desirability and brand love that stays forever. Fourth, we've seen data to show that this generation has the highest reverse influence amongst all other generations. Again, our data at Coach shows that we are seeing growth across all generations once we unlock the growth with the Gen Zs and the point of market entry consumers. Lastly, capturing them at this point gives us the highest lifetime value that we can unlock.
With that tremendous time, how are we going to use the proven strategies to unlock the durable growth? Joanne just shared this. What's so significant about these strategies is they've been unchanged for the last couple of years. What we've done over this period has gotten really focused on our way to play choices under each of them. What I'm going to talk about is how we are leveraging these strategies with clear consumer building blocks, the capabilities that we are building from a brand building point of view, and the investments that we're going to fuel behind these strategies. Let's start with the consumer building blocks. As you see here, we start with a robust planning of how many consumers we need to acquire over the next three years to hit our goals.
We then break that up into who these consumers are, what are they going to buy, and where are we going to capture them. As you see in this chart, 85% of these consumers are point of market entry consumers that we're going to acquire. This really informs our teams on how do we emotionally connect with these consumers, what stories we need to engage them with. Two, 80% of them are going to come through our core handbag and leather goods products. This is very important information for our design teams, our product teams, and our supply chain teams for their planning. Lastly, over 75% of them are going to be acquired across international markets, which informs our global agenda. With these clear building blocks, the next step is the brand growth capabilities that we are building. These brand growth capabilities are the part of what sets Tapestry apart.
Our current growth is fueled behind the brand building we are doing. This is structural, and this is repeatable. It starts with knowing the consumer, building a deep understanding of who these consumers are, translating that understanding into the magic that our teams create across everything we do, and eventually leveraging that to reach many consumers and drive acquisition at point of market entry. Let's start with knowing the consumer. We have defined very clear and distinctive target segments for both our brands: timeless Gen Z for Coach and Gen Z connectors for Kate Spade that Ava is going to talk about. This is based on demand spaces, and we've done quantitative segmentation work across all our global markets to define what these segments are. They are sizable. They are distinctive. We get clear data on their emotional and functional needs.
We understand their category behaviors, and all of this informs our teams. We don't stop there. We go a step deeper to understand them beyond their category behavior, to know their life, and understand how and where our brands fit in this. For this, we are doing ethnographic studies. Personally, I have visited over 200 in-homes, meeting consumers myself here in the U.S., across Europe, across the different countries in Asia. We spend two to three hours in their homes. We talk to them, understand their aspiration, understand their future plans, understand what gives them confidence, what are their fears, and what are the tensions they're facing. All of these are deep insights that then are translated into the storytelling. Coach recently launched a campaign last week that you may have seen, which brings these emotional stories to life, and Kate Spade is doing the same.
Equipped with this understanding, we have a clear picture of what this consumer is looking for. The important thing I want to introduce is deselection barriers because it's equally important to know what they don't like. That's where deselection barriers come in. Our consumers are presented with over 200 brands to choose from. The way the brain works is not through a process of selection. It works through a subconscious process of deselection. This is very important to understand what causes that deselection. Anything we don't like, anything that doesn't fit with our value system, our brain automatically deselects. Brands miss this quite often. Let me give you a couple of quick examples on what that looks like. Overexposure to discounting is a deselection barrier because it subconsciously sends a signal the brand is not hot and trying to push sales.
Too many messages, emails, SMSs, let's say 10, 15 messages a week, are an annoyance and cause deselection. Our teams are constantly working, whether in our communication, whether in our product stories, whether in our stores and experiences, to identify those deselection barriers we need to eliminate so we can have people subconsciously put us in their top choice and remember us as the brand of choice. Before I proceed, I would like to play a quick video to give you a snapshot of the consumer in-homes and the work we're doing with these consumers. Can we play the video, please? Hope that gives you a snippet of these consumers and what they have to say and how they're distinctive from each other. The key is to ensure everyone in the organization has this consumer understanding.
We always try and bring as many people out for the consumer in-homes, but we want to make sure that everyone has these insights and has this data, which then leads to the magic they all create. This information, these insights inform the product icons our teams are developing, the product and pricing strategy. It informs the storytelling that our teams are working on, and the experiences, be it in our stores, our pop-ups, our digital presence, all come out of the data and insights from the consumers that we gather, which in turn enables us to reach a lot of consumers and drive acquisition at scale. Our strategy of focusing on point of market entry really gives us sustainable growth as new consumers are entering the category every day, and we want to be present with our brands first with them.
It's equally important to retain these consumers and drive lifetime value. Here's the interesting insight: the strategies that drive acquisition are also the strategies that drive retention. Creating that best first experience is the best way to have the consumer come back. On a lighter note, I would say something that we can all relate to: you only get a second date if you have a great experience in the first date. No amount of calling back will bring the person back on that. That holds true for our consumers. We want to make sure we are creating the best experiences for our consumer at every touchpoint so that they want to come back repeatedly to our brand and drive the maximum lifetime value. We're seeing it in our data. We're seeing it with our new consumers we're acquiring that our retention rates are going up.
With clear and tangible building blocks that our teams have and the foundational brand building capability, it's important we are investing behind these capabilities. Over the last five to six years, we have significantly increased our marketing investment. Back in fiscal year 2019, we were investing 4% in marketing, and it's up to 11% last fiscal year. If you look at the last three years, we've spent $1.8 billion in marketing investment, building these connections with our consumers and reaching many million consumers across the world. We're also investing in driving our footprint both physically as well as online to reach the consumer. Shifting to brand building capabilities, we want to make sure that every employee in the company has the foundational understanding of the brand growth capabilities we've just demonstrated.
To do that, we are establishing a brand university, and we'll make sure every employee has this understanding and is using the consumer knowledge to build the magic that they're doing. How are we going to scale all of these strategies, all of these capabilities internationally? Firstly, as I've mentioned, 75% of our growth over the next three years is going to come from international markets. As you look at this chart, you can see the significant size of the addressable market that we have across all our key geographies and the headroom that we have given our low penetration in all of them. As we focus on the top markets internationally, first and foremost, we are committed to driving growth and investment in North America.
As we look internationally, Greater China and Europe provide us the largest opportunity in terms of the time and the low penetration that we have to grow. The way we're going to bring this global plan together is really mixing a global and local approach. There are some things that are going to stay globally consistent for us. Brand purpose is defined by the brands globally based on consumer understanding across all markets, and this stays consistent for us. The product icons we are building will stay consistent globally. We've seen now data, compelling data on this, that the products that work resonate globally for us. Our target segments are not going to change.
The timeless Gen Z that Coach is focusing on and the Gen Z connector that Kate Spade is focusing on stay the same because this is based on segmentation work that we've done across all the key markets. We know we have sizable segments that desire our brands. What our local markets then focus on is really deep understanding of the consumer and the culture in the markets. They bring out the insights, which are then shared back with the design teams, but also used locally to create content and experiences that are relevant for that market. We then tailor our distribution strategies by market. As we look at China, we have a lot of physical footprint opportunity for expansion, while in Europe, a lot of this opportunity is going to come through wholesale or digital. Let me share a quick example of how the teams are planning gainst this.
This is an example from China. We recently visited a city called Wuhan in China, and our teams penetrated here. Wuhan is somewhere between a tier one, tier two city in China, but it presents a huge opportunity from a time point of view as you look at it. What's significant here is Wuhan has 1.2 million university students, making it one of the largest university populations in the world. As we look at our brands, Coach has three stores in Wuhan. It has low single-digit unaided brand awareness, and it has only 0.5% penetration on that, presenting a huge growth opportunity. Our teams leverage this data and do detailed planning. What's our media and marketing investment and content needed to drive unaided brand awareness? What's the footprint expansion we need to build there? What's the product and pricing strategy that we need to build behind this?
We're doing this meticulous planning for nearly 200 cities in China, building very, very specific plans to drive this growth. As I mentioned, we do see significant opportunity to drive our footprint. We are looking at about 125 new doors opening for us globally and also in digital expansion from 9 to 26. We are taking a very disciplined approach on this. Every store opening goes through our very strict productivity criteria, and every store has to make money and meet our productivity requirements. That's the foundational way in which we are looking at every investment we make. Adding it all up, first and foremost, we are committed to consistently grow in North America. Internationally, we expect to deliver low double-digit growth in Greater China and Europe, and the rest of the world is going to deliver mid-single-digit growth for us.
To end up, here are the few key takeaways I want to leave with you on why we have confidence to deliver durable growth for the long term. First, as I mentioned, we play in a very attractive and large market with a huge opportunity to grow, and we are expanding the view of that market to include potential qualified consumers. Our focus on point of market entry makes our growth durable because this is a sizable growing segment, and our brands are well positioned to win with them. Three, our brand building capabilities are foundational to what we do. They're a part of what's driving our growth today. They're structural, and they're repeatable. Four, we are investing behind these strategies and these capabilities. Lastly, we see an immense headroom in international markets for further growth, and we're investing behind that. Thank you very much for your time and attention. I'd now like to invite Todd Kahn, CEO of Coach. Thank you.
Thank you. Thank you so much. Thank you, Sandeep. Good morning, everyone. It's great to be here. I get to talk about my favorite subject, Coach. Many of you have been with us for a very long time. I know I see faces around this room who have been covering us since Coach went public. Thank you for that. Some of you are new to our story, so I welcome you. I'm going to cover three things today. I'm going to talk a little bit about how we got here, where we are today. I'm going to talk about our bold ambition for the future. Then I'm going to talk about and give you concrete reasons why I have such conviction around the future. At Coach, you know we love talking about blending magic and logic.
I'm going to give you a little insight into the magic and a lot of insight into the logic. Let's get started. It starts with our vision. Our vision was audacious to be a brand that's loved. Loved is something you really have to work for. This was designed to be a rallying cry for everyone. Equally important was our purpose. Our purpose, again, was designed initially for an internal audience to motivate our people. Today, our purpose is resonating with our clients worldwide. How do you become loved? It doesn't happen overnight. In our case, we have been on an 80-year journey. It started with an incredible origin story, a story that took place actually just a few blocks from here with a husband and wife, entrepreneurs, with a group of artisans who took the most American icon, a baseball glove, and developed a beautiful leather product.
That was our first beginning stages. We moved into the 1960s with Bonnie Cashin, our first design director. Bonnie took everyday items. She literally was inspired by a paper grocery bag and turned that into a beautiful handbag. She was inspired by her convertible, which had the old turn locks to turn down the top. She created our most iconic closure. When some of you started to get interested in our story, we went public in the 2000s, and we launched Accessible Luxury, the concept that you didn't have to be in an exclusive world to engage in luxury, that when we talked about our product or handed you our product, we didn't put on white gloves. We engaged with you. You touched and felt the product. That was incredible. In 2013, Stuart Vevers, my partner, came to Coach and elevated us. He brought us into the fashion conversation.
Then the next phase in 2020, after 12 years of sitting in almost every seat in this company, I was given the opportunity and the privilege to become the CEO, coupled with our acceleration program. Three years ago, here in this room with you, we launched Expressive Luxury, the next phase of growth for Coach. Now today, we're starting a new chapter, a new growth chapter for Coach, and we're going to talk about that. How did we do? What's our three-year report card? First, on revenue, we said we would give you mid-single-digit growth. You know what we did? We gave you mid-single-digit growth. We said we would give you 73% gross margin. We did a little better. We delivered 78% gross margin. We said our operating margin would be around 30%. We delivered 33%.
We say what we're going to do, and we do what we're going to say. That's powerful. That was about 30 seconds of celebration. Now we get to talk about the future and our ambition. Our ambition is bold. Our ambition is to take Coach to $10 billion annually in world best-in-class margins. A couple of years ago, I gave this as a challenge for our internal teams. This was our moonshot. This was the rallying cry for all of our people. Today, I have more conviction that this is an attainable outcome than any time in our history, and I'm going to share with you how we're going to do it. It starts with understanding the game we're playing and having a winning playbook. Sandeep talked about this. The first understanding of the game we're playing is focusing on the consumer.
This view that Sandeep shared with you of unlocking the potential of the consumer and not just sitting here and taking share from one player or the other player, this is the unlock for future growth. This is powerful. The world is a big place, and we're winning and playing in 50 countries. To achieve our goals over the next three years, we need to focus and win in three areas. First, in North America. North America, now I think everybody knows Coach in North America, and everybody should have a handbag in North America. The truth of the matter is, when we look at our focus market, Gen Z, we have only 4% penetration. That's massive headroom here. Second, China. China, as Sandeep talked about, is an incredible opportunity for us.
Coach has been in China for over 25 years, and I almost feel like we have so much new territory to cover. Sandeep and I like talking about Wuhan. We visited Wuhan. To give you perspective, when he talked about the college and university students, that's 5X Boston. 5X Boston, three stores. OK, think about that opportunity. We are going to win in Boston. We are also going to win in Wuhan. Europe and the Middle East. Europe and the Middle East is such an unlock for us. The reason we're winning there is because our value and values resonate with that consumer. They like what they see. They like the value proposition of our product. In fact, Europe and the Middle East have outgrown every other market over the last two years. That's incredible. We know where we're going to play, and we know the game.
Let's talk about the how. The how starts with Expressive Luxury. Expressive Luxury came about from an insight we learned from the consumer, that in fact, the consumer wants to help them give them a sense of belonging and self-expression. They want to build their confidence. They see luxury not just about impressing. That's just a low-level need. They want their confidence. We launched this three years ago. Let's see what that looks like today. What I love about that video is you see our clients, customers emote their love for the brand. That's powerful. That comes about because we have a clear and consistent strategy. Now, Joanne said it. Sandeep said it. Our strategy has been very consistent and stable the last three years. We have not needed to change every quarter or year our strategy because it's working. We hone our strategy.
There are three key pillars to our strategy. First, there's building a connection emotionally. An emotional connection starts with understanding the consumer. We do that quite well. This is where the logic comes in. The logic, and we have big data. We have millions of consumers, and we see that data and unlock that data, and it's rich. We do something else. We use small data. We do ethnographic work. Sandeep mentioned it. You see pictures here of Joanne, Sandeep, myself, and every leader at Coach interacting with our customers, almost always on a no-name basis. There is not a bias in reporting. We interact with them. We hear what they say. What's powerful about this interaction is what people say they're going to do and what they do are not always the same. If you give out surveys, people will say a lot of things in a survey.
That's not always the truth. Let me give you one great example. We were in Japan. We met with a wonderful woman, young, targeted Gen Z client. She loved pink. Pink was her favorite color. In fact, she had pink appliances. That's how powerful pink was in her life. She never wore pink out. She only wore black out. She didn't have the confidence to wear pink. What do you learn from that story? You learn two things. You understand that confidence plays such a key role in their decision-making. We learned that if we can actually help build her confidence through our storytelling, maybe we'll sell her a pink bag that she'll actually wear out. Nevertheless, we'll certainly sell her a black bag. That's powerful insight that we learn from these interactions. I'm going to give you two significant takeaways about Gen Z universally.
First, they're the most connected generation ever. They are seeing, interacting, responding to the same things globally. We see that from, look at the number one hit in Netflix today, a Korean animation that is popular across everyone. I recently watched it on a plane, and I think I got some looks. Why is this older guy watching this Korean animation? It really was for work. It was fabulous. That's one. Second, because they're so connected, because they see and respond and interact to the same things, their fears, their likes, their dislikes are very similar. We can tap into those emotions. We hear it from the consumer. I was tired of not feeling confident. Having the courage to be you and to stand up for who you are is so important.
I could take those words and that attitude and put it in Chinese and put it in Korean and put it in French because the consumer is saying very similar things universally. What do we do with this insight? We turn it into action. We take the insight and the data, and it inspires us. It inspires us fundamentally in two key ways. First, we don't just chase trends. We develop new ideas, new concepts, and we make sure that everything we do is designed to inspire our values, purpose, and our brand positioning of self-expression. Then we don't just lead with product. You know, for a long time, like many fashion houses, we put out an ad. There is a beautiful model. There here's a bag. Usually, they're alone. Sometimes they have a friend. You go through pages and pages of fashion magazines, and you see the same thing.
We don't just do that. We take our beautiful product, and it anchors our storytelling of something much more profound, as Sandeep referenced in our most recent campaign. All of that insight, all of our storytelling, what does it do? It creates desire. This is a year-over-year Google search representation. The size of the bubbles shows the level of interest. Our lawyers would not let me list all the competitors here. I can assure you, they're everyone you think of. They're every brand in our space. They're every pinnacle luxury brand. There are brands with apparel adjacencies. What does desire create? Desire creates customers. You create desire. You bring them into the fold. We have done that with our targeted consumers and everyone else. When you're winning with our core audience, we win with everyone. How are we winning? It's great to tell a compelling story.
It's great to have a purpose. You got to have a wonderful product. We have an amazing product. Our product has been driven by fewer and richer stories. It starts with a goal to take key products and turn them into icons. Our teams can design beautiful products. It's the consumer who will determine if it becomes an icon. The consumer has voted. First, we start with Tabby. Tabby was a bag that we launched in 2019. Tabby has grown every year since. Tabby is iconic to us because of the value, the structure, and of course, the unmistakable C that rounds the entire proposition. Hopefully, when you walked in here, you spent a little time in the Tabby shop to see all of the various ways we can amplify the Tabby Collection. Second, Brooklyn. Brooklyn was the premier anchor of the New York collection.
Brooklyn was the bag that Stuart walked the runway with. Interestingly, we had a lot of conversations about Brooklyn, and this is where magic comes in. Brooklyn, on its surface, is not a fantastic Coach bag. It doesn't have an adjustable strap. It has very no closure, God forbid. It has very little branding. It's a demure bag. Yet it captured the feelings, the zeitgeist, the authenticity that was always Coach. Beautiful leather, beautiful product, and it feels so right for the era. What's amazing, it's a year old. I think what you saw in the showroom this morning is the amplification of the entire New York family. What a wonderful platform Brooklyn is to take it into other materials beyond just glove-tanned leather. I would not do this justice if I did not talk about Teri
Teri is an outlet bag that is one of our number one recruiters of Gen Z at $200. Think about it. It's a small bag at $200 recruiting new customers. We've taken this learning of developing fewer and richer stories, and we've expanded it into footwear. We've done this with our Soho sneaker. It starts with insight. The insight was, if we want to win with Gen Z, 50% of the Gen Z closet is sneakers. We have to win with sneakers. Soho sneaker, which we launched last February, is at one price across all channels. That is going to be an important point that I'm going to make in a few minutes that we're winning with. I have to talk a little bit about fashion. We walked this Kisslock bag down the runway. It is an oversized frame purse, basically.
If somebody were to tell me an oversized frame purse is going to be the it bag, which Stuart told me, I had some doubts. This is where we create a world where creatives can thrive, where we engage, and we test and learn. Right now, in North America, there are over 92,000 customers who are on a waitlist to get this bag. The two out there, I think we have security watching the two out there because I know this group. Some of you are coveting that bag. What has this model changed? This has been a profound change in our business. We've gone from a highly seasonal to a core business. A core business reduces markdown. It takes away churn. It allows us to go and invest in deeper stories on fewer ideas to cut through those 200 other choices that people can make.
We can put massive amounts of marketing behind these ideas. Here is the best part, because I know what some of you are thinking. No single icon accounts for more than 10% of our sales. There is not overconcentration. It gives us a rich platform to continue to grow.
Have a compelling story. We tell great marketing. We have amazing product. We have to bring it all together, and it has to come together in the environments that the consumer sees, both on digital and in the real world. Everything starts with an insight. Our insight that Gen Z, you know what Gen Z loves to do? They love to shop in the real world again. They love to be part of a community. They love to engage with their friends. Maybe part of it could be because so many formative years were spent in COVID, in lockdowns, and being remote. We want to engage them. Now, the journey may start on their smartphone, but they love being in the real world. When they're in the real world, we engage with them. We get to engage with them in so many different ways.
It could be our future coming at the end of this calendar year, flagship in Ginza, which is going to be incredible because, as you can see, you're going to see that sea from a mile away. Building and leaning in on that brand intellectual property is incredibly powerful. Beyond these big flagships, we win when we go small, when we engage with them in what we call the Coach Play environments, where there are tactical experiences that they get to experience and interact with the product. It's not off-putting. Sandeep talked about deselection barriers. One of the key deselection barriers is something off-putting. This consumer, they spend most of their time looking down. Even the selling habits that we engage with in the past, which interacting, welcome to Coach, look them in the eye. Actually, that doesn't always work.
We have to make sure we meet our client customers where they are and how they want to interact. This has expanded into gaining on all five senses. You experienced, and hopefully you've enjoyed, the Coach coffee, the Tabby cake, the product that this engages. We love building experiential retail, particularly in coffee shops. To be clear, this isn't just a marketing idea. This is a commercial idea. We like commercial ideas here. We like the fact that when there is a coffee shop, the linger time of the customer increases in our main store. That's powerful. What does this look like? We are going to grow our store base across the world, primarily internationally, but for the first time in a dozen years, you will see store growth in North America.
What's powerful about this is we're not limited to the two models historically we were limited by: traditional mall or outlet center. We're going where the Gen Zs are. That can be lifestyle centers. That can be street locations. That can be all over China. Before you get too carried away, because I know some of you are starting to think, okay, 100 and 200 stores model, blah, blah, blah, this is the outcome. Many of these stores are going to be smaller footprint stores. We want to engage the consumer in different formats. Our commitment to you, something Joanne and I made five years ago, stores are commercial ideas. We will make money with our store openings. What is that? We missed the video. Anyways, it's all good. Let me get to the next big idea and something we've hinted to over the last year. One brand, one Coach.
This is a profound change in the way we think about our business. We've talked to you a little bit about putting Tabby in outlet stores and the benefits of that. We've experienced that. It's profoundly different and more important than that. Over the last five years, we've so substantially reduced the discounting in outlets. Over the last five years, the consumer is coming in at higher AURs. Because of the insight we're seeing from the data, the consumer today sees brands, not channels. When they go into Woodbury Common, when they go into Sawgrass, when they go into stores around the world, you know what they want? They want our best product. They want the product that they've seen us market. You know what they're willing to do? Pay full price for it. We have added this complexity and quite unlocked a growth vehicle from our outlet stores.
In the last quarter, our collection product, and that's going to be the nomenclature you're going to hear us talk about, it's not going to be retail and outlet product. Our collection product is penetrating at 10% in our outlets. We're expanding that, thank you, to digital as well. This is really key because what we're able to do digitally is now direct traffic to one site and enhance the productivity of our marketing. When you go to coachoutlet.com, you don't just lead with a discount message. You lead with our purpose and our storytelling. That's why today the tab sites look very similar. Come springtime, we'll have a fully integrated cart in North America. This is really powerful.
All of the data that we have seen, the customer, wherever they land, and given the full assortment, tend to shop up for Coach because they may come there with an idea bag and they may see something even more compelling for them. That's very powerful. Where does it start? It starts with our culture and teams. Many of you are familiar with the old paradigm. The old paradigm had two spheres of influence. You had a very strong CEO with commercial acumen, and you had a very strong Creative Director with real insight, brilliance, creativity. We have that at Coach. I think we've demonstrated that. Today, we've shifted the spheres of influence from just two to the most important sphere of influence, putting the customer at the center of everything we do. Everyone is focused on this customer.
The muse for HR, the muse for procurement, the muse not just for Stuart, is the timeless Gen Z. We all engage in that. That's what brand builders in every seat means. This is what it looks like. We still have the logic and magic. I still drive commercial results. Stuart still drives amazing product creation. It's not limited to just that. We create an environment where great ideas can thrive, where we look at data. We love the gut of our merchants and our designers. It's important, but it's an informed gut because we look to this model. What does that lead us to? Over the last five years, I've worked on some myths that we have heard over the 20 years prior to that. I want to bring a few of them to light and give you the myth and the reality. First myth.
If we focus on Gen Z, we risk alienating our core consumers. Truth, in FY25, we grew across all generations and particularly our Gen Z targeted generation. Myth, this one we hear a lot. I'm supporting you, Gen Z. Gen Z is fickle and hard to retain. Truth, Gen Z year one retention in North America was more than 150 basis points above balance of cohorts. North America has hit its growth ceiling. We're overpenetrated. You already know the answer to this. You saw the TAM, 6% is overpenetrated. The truth is we've been growing in North America over the last three years, and we have a lot more growth ahead of us. My favorite myth of all, outlets dilute brand equity. With our One Coach strategy, outlets are a channel of distribution, and they don't see it that way. They see the brand.
The consumer wants our best product in outlet, and 10% penetration of collection product is the beginning. It's not the endpoint. What does this look like? We take all of this, we give you an algorithm, and the algorithm is powerful. We are committing to mid-single-digit revenue growth, top line, and operating margin expansion over the next three years on our way and our path to $10 billion. I want to be extremely clear on this point. For me, this is our floor. This is our floor. This is what we are committing to you today, given all the uncertainties in the world. We're going to do, I plan on looking at even greater opportunities for our future. What are our building blocks to get there? We have a lot of drivers. First, it starts with customer acquisitions. Spending 11% on marketing is not just about storytelling.
It's about acquiring new customers. That's why we're doing it. That's what's driving. That's the fuel. You can't have lifetime value of a customer if they don't repeat. Our customers are repeating. They're repeating because we keep innovating in our core category of handbags, but then we're giving them so much more. We're giving them bag charms. We're giving them jewelry. We're giving them sneakers. This is powerful. You know, it's fascinating. We have a fantastic bag charm business. Really great. I didn't see the UPT moving materially, even though, wait a minute, we're selling a bag and we're selling a charm. Here's the insight we got. The consumer's coming back. They may come day one, buy the bag. They may come back a week or two weeks later to buy the charm. How great is that?
We get to interact with them twice in a shorter period and keeping that desire. Of course, our wonderful sales associates show them the next bag that they need to wish for. AUR growth. We have AUR growth ahead of us. We have AUR growth ahead of us with some very simple ways of getting there. Less discounting, more collection product in outlet, leaving aside the inherent white space that exists between us and some of the traditional European luxury players. We are going to stay focused on our $200 to $500 price points to make sure we capture this younger consumer. That's the win. That's the opportunity. Even in those price points, we will see AUR grow. New store opportunities.
Again, probably a smaller number here compared to everything else, yet powerful because we want to engage with them in multiple places, multiple locations, geographies, and the new city growth that we can see in Asia is remarkable. That all leads to a beautiful, sustainable, long-term outcome. What do I hope to leave you with? If you have to remember one number for my presentation, remember $10 billion. That is our goal. That is our opportunity. That is something we will achieve, and we will achieve it the right way. We will achieve it from profitable margin and sustainable growth, not just get there to get there.
We will continue to build our icons through our brand and through new customers. That's the engine that fuels everything. We will win in our three largest markets: North America, Greater China, and Europe and the Middle East. We have clarity that this floor that we have set for you is very achievable. Thank you very much. Now I let you have a wonderful dessert break, and we'll re-engage shortly. Thank you.
The program will now continue. Please return to your seat. Thank you. As a reminder, please make sure your cell phone is silenced. Now, please welcome Ava Erdmann, CEO and Brand President, Kate Spade, to the stage to begin the second half of our program.
Good morning. I'm Ava Erdmann, CEO and Brand President of Kate Spade. It's been 10 months. Ten months since I stepped into this brand after more than two decades of building brands in the beauty industry for LVMH and L'Oréal. I saw something rare. I saw a brand with massive potential. I saw a brand with a very unique emotional connection with the consumer. I saw a market that still hasn't seen the best of it, and I knew we could do better. Here's the truth for you today. We are not talking about fixing a broken brand. Today, we are talking about unlocking an underused asset that millions of consumers already know and like, but don't always choose first today. To say that, I'm not guessing. I'm looking at the data. In the U.S. today, Kate Spade ranks top five in unaided brand awareness.
Without any doubt, she knows our name. When you ask her to name the first brand that comes to mind, we are not there. If you're not there when she's deciding between two or three handbag brands, you are invisible at the cash register. Second fact, she considers us. Here again, we rank top five in consideration in the U.S. today, which means that she sees us in her universe. That's phenomenal. At the point of sale, we lose her. She tells us that the offer that she sees is confusing, overwhelming, and most importantly, not relevant enough. That gap between knowing us and buying us is our single biggest growth lever. That's why becoming top of mind and truly relevant is the unlock. Not with scattershot campaigns, but with disciplined, cohesive brand expression, with strong product storytelling, and flawless execution. I'm sure it sounds familiar.
These are exactly the same principles that have fueled the growth at our sister brand, Coach. Our focus is crystal clear. Build brand heat and relevance to drive acquisition and invest in brand media to put Kate Spade in her first thought. Focus on fueling relevant handbag blockbusters and invest in them over the long term. Deliver a consumer experience so compelling that all these selection barriers disappear. We will get there by being consumer-led in every decision we make across the consumer journey, ensuring excellence in execution, and of course, practicing financial discipline. This is how I'm confident that we will see sequential improvements in fiscal 2026, especially in the back half, and return to profitable growth by 2027. Kate Spade has massive potential, and we are going to fully leverage it. Now let's unpack how we're going to make that happen.
I've always believed that the transformative journey of a brand starts with the consumer. Today, the younger generation is telling us they're going through a cultural shift. They are yearning for connection and enjoyment. They are also redefining the cause of luxury, looking for innovation and quality at the right pricing. Good news, Kate Spade is perfectly poised for all of that. Remember, 30 years ago, Kate Spade was founded on a pioneering vision and became a cultural phenomenon. Why? Because Kate Spade was talking to a younger generation and offering something that didn't exist in the market, a unique vision of the American joie de vivre, with the desire to spark something beautiful in every life moment, and offering timeless handbags with function, femininity, and a touch of wit.
Today, we are reigniting that original emotional connection that made Kate Spade distinctive and modernizing it for a new generation of consumers. We are living into our very rich heritage while building relevance for a clear target, the Gen Z connector. From all the consumer work we have done, we know she has high affinity with Kate. She's genuine. She's caring. She's an expert at bringing people together. Her style is feminine, and she puts a lot of effort into looking effortlessly put together. She uses touches of colors to share her approachable personality. When it comes to handbags, she's looking for something versatile, functional, with something a little special. Most importantly, the connector is a sizable segment of the market, 15% of the market, the third biggest segment. A sizable segment of the market with high affinity with Kate.
A sizable segment of the market with high affinity with Kate, high awareness, and high consideration. That's a huge potential to unlock. We aim to increase our Gen Z penetration by 60%. For that, we are concretely embedding her at the center of all we do, from products to campaigns to pricing to experiences. We have reset our cultures and ways of working, embracing always-on consumer testing. Internally, we call it, we test before we invest. To match perfectly her very optimistic personality, our brand territory is an uplifting vision of luxury, where every day becomes a bit more radiant. We design feminine, functional, and versatile handbags with, of course, a touch of wit. To become top of mind, we have also revamped our media strategy. I'm sure you're going to remember that slide and those three words: more, longer, and better.
More because we're going to be increasing brand marketing investment by over 60%. Longer because we're going to move from intermittent spikes to spikes and sustain all year long to increase always-on top-of-mind awareness. Better with always-on consumer testing and inflight optimization. Onto our second pillar. We have sharpened our product strategy around three principles: driving relevance, focus, and importantly, create desire. For that, we have reinvented our design process. It starts with the consumer and testing at every stage with our Gen Z connector. Every idea is filtered through the lens of our uplifting luxury territory. We bring the Kate Spade kick. We are uncompromising on design relevance with focus on what brings value to our Gen Z connector. Finally, we test again before we invest with our Gen Z connector. This closed loop of innovation doesn't just deliver handbags that are desirable and distinctive.
It ensures they are the right product: relevant, validated, and commercially scalable. We are doubling down on those blockbusters over time with amplified resources and investment marketing. Also, to make sure that they're going to cut through and be seen, we are streamlining our assortment, reducing styles by 40%. We are also simplifying our lifestyle categories, consolidating them into one Kate across channels. This discipline ensures that every product we put forward has the scale, the visibility, and the longevity to become a true icon. Building that relevance in our product is one of the steps to become desire-driven versus discount-driven. Along a compelling pricing structure, making sure we get the right price upfront to increase full price selling and recruitment. A higher perceived value, offering the functionality, the versatility she cares about. Of course, a promotional pullback.
All of this will help us grow AUR and gross margin over time. Here's a preview of how product is coming together. Onto our third pillar. Excellence in execution is a non-negotiable. This is how we eliminate all barriers of this election. It starts with one cohesive voice. From paid media to organic social, from site to stores, across mainline and outlet, we now deliver one consistent and relevant brand message. We have re-engineered our processes to make sure we can deliver an uncompromising 360 consistent consumer journey. It also requires excellence in the experience we are building for the consumer because cohesion only matters if the experience matches. That is why we are revamping our website, optimizing our stores with a clear target to uplift NPS and increasing productivity. Finally, of course, meeting the consumer where they are.
We are evolving our fleet, closing non-profitable doors, opening new Gen Z relevant locations by 2028 to make sure we are where our consumer lives, shops, and plays. Finally, of course, our financial discipline is the backbone of this transformative journey to become durable, profitable growth. Our investment areas are a precise reflection of our strategic focus: increase brand investment to accelerate relevancy and acquisition, distorting investment in North America first to improve trends by 2026, and driving blockbuster styles with higher AUR and gross margin, investing in their inventory while cutting the long tail. Over the next three years, our objective and commitment are to deliver profitable growth starting from fiscal 2027. We are informed by the journey of Coach, and that is why we know that our turnaround path will have three phases.
We will streamline in 2026, invest in the brand for the long term while maintaining financial discipline. In this phase, we are expecting modest operating loss with sequential improvement of the top line in the back half. We will be solidifying in fiscal 2027, strengthening our healthy and streamlined foundation, and returning to profitability and low single-digit growth. In 2028, we will shift to scale, accelerating growth and operating margin. We will not wait for those lagging indicators to tell us how we are doing. We are managing ahead of the curve, adjusting in real time as we learn. The brand turnaround will show up first in these leading indicators, improving step by step alongside the consumer journey. Step one, first, we must get on the consumer's mind and stay top of mind. Here we are going to be tracking consideration lift from campaigns and unaided brand awareness.
Step two, we focus on moving from interest to intent. Here we measure search intensity and traffic growth. Step three, success in awareness and consideration naturally converts to acquisition and sales growth. This disciplined focus on leading indicators gives us the ability to course-correct early, accelerate what works, and build momentum towards sustainable sales growth. We all know that turnarounds take time, but we also know how to make that happen. We have learned a lot from Coach's playbook, and we have the Tapestry brand building growth capabilities. I'm confident, I'm very confident in the path forward because we are consumer-led. She's embedded in every decision we make. We are focused. Winning in North America with handbag blockbusters is our top priority because we are investing more than ever in brand building to build for the long term. We are agile. The tracking leading KPIs allow us to act quickly.
We are reinforced with new talents and resources to build for growth. In short, we are not just turning Kate Spade around. We are reigniting it for the long term with consumers at the center, investment behind the brand, and a strategy to build icons, setting the stage for long-term profitable growth. Yes, we know where we are today, and we know the work we have to do and the time it takes. As the CEO of this brand, let me tell you this with conviction, we know exactly where we are going and how to get there. Thank you for your attention. Now, it's my pleasure to welcome on stage Peter Charles, Chief Supply Chain Officer. Thank you very much.
Good morning, everybody. It's such a pleasure to be with you today. For those that haven't had the opportunity to meet me, my name is Peter Charles. I'm Chief Supply Chain Officer here at Tapestry. I've worked for the company for the last nine years. I've been practitioning supply chain for more than nine years. It's an absolute pleasure and privilege to be here today to talk to you. Three things I'm going to share with you today. First of all, I'm going to talk a little bit about something that I'm passionate about, which is Tapestry Supply Chain. First of all, what we've built. Secondly, how we've navigated through what have been absolutely unprecedented challenges over the last few years. Thirdly, most importantly, I'm going to talk a little bit about where we're going in the future and what we're focused on. Let's talk a little bit about craftsmanship.
You've heard from Joanne, and you heard from Todd in their presentations, and they referenced the word craftsmanship. At Tapestry Supply Chain, we talk a lot about craftsmanship at scale because in essence, that's really what we deliver to our consumers. That craftsmanship at scale is built on the foundation of three fundamental pillars. First of all, it's built on the pillars of our internal talent, the internal talent and institutional knowledge that we have built up over many, many years here at Tapestry. Secondly, it's built on our manufacturing DNA. Coach started life in 1941 as a domestic manufacturing company, and those threads run all the way through our business and through our teams today, over 80 years later. Thirdly, it is built on the foundation of the relationships that we have built with our strategic partners around the world that have been developed and built over 30 years.
Consistently delivering craftsmanship at scale. Every single one of our leather goods are made by hand, handcrafted. On average, each of our bags takes over three hours of work content to produce. Think about that. Three hours of individual work content that goes into each of our leather goods. Each of our bags has, on average, over 35 cut pieces that go into the construction and the engineering of that product. It's not just the craftsmanship that separates Tapestry. It's the ability to deliver that at scale that is really the competitive advantage that we have. Here are four data points that illustrate that. First of all, 50 million units of leather goods production a year, produced by over 60,000 artisans working in our service providers and in our factories around the world that are touching that product every single day.
They're made in 45 individual manufacturing facilities in 11 different countries, and then finally distributed to our customers and our consumers within 20 fulfillment points of distribution around the world, two of which we own here in the United States, in Jacksonville, Florida, and in northern Las Vegas. What are the results of craftsmanship at scale? If you take nothing from my presentation today, these two facts are things that I would like you to leave with you today. First of all, we deliver and execute product excellence and an outstanding value for money proposition that's unparalleled in the industry. It has led Coach to be ranked in a recent survey number one in terms of value proposition for the consumer. In tandem with that, we've also delivered AUC reductions that have delivered over 200 basis points of gross margin expansion over the last three years.
Doing one of those things is really impressive. Doing both of those things together is really impressive. We've delivered that by not cheating on the product, by not cheapening the product. We've done it by maintaining an outstanding quality and execution across our supply chain. How have we done this? This is the product creation process. Five simple steps. It looks really easy, right? Behind this are hundreds of processes that our supply chain organization manages, drives, and controls at every single stage of the product creation lifecycle, from ideation all the way through to the production phase. Long ago, Tapestry gave up being a domestic manufacturing company. The manufacturing DNA and philosophy that we learn through that functional capability drives this entire process. With our teams around the world, we touch every single stage of this process, and we add value. We have our own internal sample facilities.
You'll see after the Q&A today, on the ninth floor here, our craftsman shop here in Hudson Yards. We cut our own patterns. We make our own samples. We have teams of people that understand not how to talk about leather, but actually understand how to make leather. We test our own product in our own laboratories. We have our own engineering standards in which we create our product. Those engineering standards are the standards that our manufacturers produce the product to in 41 facilities in 11 different countries. It is this product lifecycle, and it is this craftsmanship at scale model that delivers outstanding quality, delivered to consumers on time, at a value for money proposition that's unparalleled in the industry. You've heard a lot on many earnings calls from Joanne and Scott about our diversified supply chain. This has been decades in the making.
This strategy has been intentional, and it's been strategic. It has not been in response to the recent challenges we've seen in the market. This has been an intentional drive to create resiliency and agility over a long period of time. Twenty years ago, 95% of our product was made in mainland China. Ten years ago, 35% of our product was made in mainland China. Today, less than 6% of our product is made in China, and we've built out this supply c hain into multiple countries.
That has been done in the partnership and with the partnership of our suppliers, not just tier one suppliers in the finished goods space, but we have built an ecosystem of a supply base, from raw materials suppliers to finished goods suppliers that is the envy of the industry. This has created a resiliency and agility that has allowed us to navigate through the last several years of unprecedented challenges. It has also been done around product capability. When we think about building this, we think about four Cs. We think about capability, we think about capacity, we think about cost, and we think about compliance. Of those four Cs, the first C that we think about is capability. We don't just chase lowest cost denominator product.
We drive value to consumers, and we always think through the lens of security of supply and delivering outstanding quality to our consumers. Several years ago, most people didn't really understand what supply chain actually did. That has changed, and it's changed forever. The reality is we are living in a complicated macro geopolitical environment, and we don't think that's going to slow down. What we have been able to do is not just survive during this period, but actually thrive. As Joanne said in her opening remarks, we have used these challenges to transform our capabilities across our business, and supply chain is no exception to that. We have built intentional competitive advantages and capabilities that have been built over many, many years. I've talked to you about a couple of those already. One is our scale, and the other one is around our diversified footprint.
I want to draw attention to two others. One is our internal talent. We have the best in class supply chain in the industry. Joanne talks about the best teams in retail. I believe, and we believe, we have the best team in supply chain. It is a point of real differentiation for our business. Secondly, the suppliers and the relationships that we have built over decades, through good business conditions and bad business conditions, these are partnerships that have survived over time. We communicate constantly with those suppliers, and we've built true, inextricably linked strategic partnerships that have helped us and continue to help us. The other capability that I'd like to also talk about is technology and data. You've heard a lot this morning about the way in which we've used data and technology and analytics to mine data with our direct-to-consumer model.
We are continuing to lean in on supply chain around data and technology. No human being today can optimize supply chain. They're too complicated. We have to lean into this, and we are, and you'll see some of that capability in the Craftsman workshop later after the Q&A. As Joanne likes to say, we're just getting started. What are we focusing on? We're not just looking around corners in supply chain. We're looking out over the horizon. I say to my team all the time, in supply chain, you have to manage forward six months. You have to plan three years out. You have to pour the concrete to build the foundations on which you can build your business and grow our brands. That is what we're doing. Three key areas around that today. First of all, product innovation.
Product has always and will always be at the absolute center of our business. We do not sell supply chain to consumers. We sell great product to consumers at outstanding value. We are continuing to collaborate and work with our design and merchandising partners to develop techniques, product capability, and particularly thinking about next generation sustainable materials that will delight consumers and drive towards our decarbonization goals. Secondly, as I've mentioned, AI and analytics. It's not a shiny object for us. It's something we believe in, and we're going to double down on it. From digital product creation, which you will see later after the Q&A today, and the technology we're employing to help us create product, to the ways we're looking at streamlining our planning and operational processes, and the use of data and technology is going to be a central plank of a three-year ambition.
Finally, leveraging automation and robotics in the four walls of our own distribution centers in North America, not only to streamline processes, reduce costs, but also deliver on the evolving needs of our consumers. In conclusion, four key takeaways I'd like to leave you with today. Number one, craftsmanship at scale. It's a proven model. It works, and our teams around the world are adding value at every single touchpoint in that process. Secondly, resilience. We have a proven track record with a diversified footprint of security of supply and delivering outstanding product quality. Thirdly, we add value. Gross margin expansion in an inflationary environment, really difficult to do. We have done it.
Finally, we believe that we're uniquely positioned to take advantage of technology as we think about the future, and we think about supporting the growth ambitions that you've heard here today for our brands and for our business. With that, I'm going to turn it over to Scott Roe, my friend and partner, our COO and CFO, and somebody who I don't think he needs any introduction to this group. With that, thank you for your attention and your time, and I'll hand it over to Scott. Thank you so much.
Love that music. My goodness. My goodness. If I were an influencer, that's what you'd listen to. I'm not. Thank you, Peter. You know what? It's great to get a peek for you all to get a peek behind the curtain. I'm so happy you got to see what Peter's up to. Please do come over around the corner, those of you in the room, into the workshop and see what craftsmanship at scale really looks like. I think it'll blow your mind. It's pretty cool stuff. I am so glad to be here. Thank you for your attention in our story. I think it's a pretty compelling story. I guess you'll be the judge. You've seen a lot about our strategies. You've seen the building blocks of growth from our great brand leaders. You've seen craftsmanship at scale. Now we're going to bring it all home, right?
We're going to talk about the so what. What does all this mean financially? Let's dive in. I'm going to talk about four things. First of all, we're going to take a little bit of a tour backwards. We're going to talk about it's almost three years, almost to the day, that we were here talking to you about future speed. We'll do a little tale of the tape. We'll talk about what's happened over the last three years financially at the Tapestry level. Next, we're going to talk about the categories in which we play. I think this is what I would call structural advantages of our business. These are things that I think are differentiators. We'll dive into a little bit about what that means. Next, we'll talk about a compounding financial model. You expect me to talk about that, right?
This is, I think, a competitive advantage of ours because we prepared for this moment, and we're ready to take advantage of the great opportunities that we have in these great brands. Finally, we generate a lot of cash, a whole lot of cash. We're going to talk about what we're going to do with that cash and how do we make those decisions and what are the priorities from a capital allocation standpoint. Let's go, right? Track record, how we've done over the last three years. You saw this earlier from Joanne's presentation. We have found a new gear of growth. The acceleration most recently in the last year, really led by Coach, has led us over this three-year period to a 10% top-line compounded annual growth rate, right? 10%. This is a business that grew in the low single digits for a long period of time.
Over the last three years, we found that new gear of growth. We've invested heavily into our business, right? We've essentially tripled our marketing investment. We've invested in foundational capabilities around data, AI, and technology. We've invested in our stores. Even with that, we've got almost two full turns in the operating margin, 180 basis points expansion in operating margin and EPS of almost 50%. Remember, we returned a lot of cash. In future speed, we talked about $3 billion return of cash to shareholders, and that's through dividends and significant repurchases. What'd y'all think? I guess you liked it, right? We're up 47%. Compounded annual return over this period, that's double the S&P 500 and almost 15 times the retail index of our peer companies. Here's the best part of this slide from my perspective.
I appreciate the recognition of what I think is a unique and differentiated model, but we're just getting started, right? For the rest of this presentation, let's talk about what amplifying upon the strong base of future speed looks like. I mentioned attractive categories where we play. One of the things I like to remind ourselves of in our management team is what are the most important decisions that you can make as a business leader is where to play. The difference between tailwinds and headwinds is significant. We are really fortunate because we play in some very attractive categories. Let's break that down. I'll start with where Sandeep left off, which is we have opened the aperture, and we're talking to a much larger audience than maybe has traditionally been done here, or I would argue with some of our peer set.
While many are talking to millions of consumers, we're talking to billions of consumers, right? Almost 2 billion. That's an order of magnitude, I think 11 times the size of the potential customer base. Why is that important? We're not going to grow through just trading share. In fact, some have said, you're just benefiting from a trade down. That math doesn't work. There's not enough units, right? There's not enough consumers. We've opened this aperture, and we're looking at a much broader audience. That gives us, that's one of the reasons we have great confidence in our ability to grow. Let's talk about our core categories. The way this chart works, the bottom, the yellow is leather goods, handbags, and small leather goods, and the top is footwear. It's over an extended period of time. You can see that these categories are resilient.
They've grown at a mid-single-digit rate since the millennial, right? Since the turn of the century. Think about what's happened during that period of time, right? We had a recession. We've had COVID. We've had so many disruptions at a macro level. Yet these categories continue to be durable. Let's talk about the biggest category, about 80% of our business, handbags and leather goods. This is also a unique category for another reason. It's both utilitarian. People need to carry their stuff, right? You want to have something that will functionally work, but it's also emotional, sometimes kind of irrationally so. At a time like COVID, when people weren't even leaving their house, they were buying handbags, right? Because there is something that buying that handbag says about them as a person. You heard our brand leaders. You heard Sandeep talk about that.
That's one of the reasons we love this category. By the way, it's high margin too. Let's talk about footwear. Also resilient, right? You've seen that this has been a large and growing category. For us, that's mostly sneakers, which is the sweet spot of that. We like this also for a couple of other reasons. Not only is it a great growing category, but the frequency of purchase is significantly higher. These are more opportunities or touch points for us to talk to our consumers and interact with them. Also, that target, remember Gen Z, the younger consumer, they love this category. They're very attached to it. When you look at how do we access and find more ways to acquire consumers, this is an acquisition. This is one of the vehicles with which we can acquire those new consumers.
This is a chart that depicts what we've said in words many times. I've said it. Joanne said it. Todd said it. We like our position from a value standpoint. We deliver superior products that are innovative at a price point that is accessible for many. Remember, if we're going to talk to billions of people, that served market has to have a price point which is accessible to them. The great news is we have that. We're bringing superior product at a compelling price. Remember, emotion and innovation are the primary drivers, not price. A deselection barrier can be if something is out of people's ability to purchase it, they're not going to be able to buy it. We love this positioning, right? We love this positioning. Let's talk about the way this chart works.
Over the last five years, through the acceleration program, you've heard us, it's been oft quoted that we've increased our AURs for some categories and brands more than 50%. That can sound like you're out of room, right? How much more is there? That's a frequent question from all of you. If you zoom out a couple of clicks and you look at this over a broader perspective, over a longer horizon, this one goes back to 2009, you'll see that we're just now getting back, even with those big AUR increases, we're just getting back roughly to where we were 15 years ago or so, right? That's during a time when the top, say, traditional European luxury has consistently taken price up every year.
Whereas we had a gap between a similar bag from Coach and the European luxury 15 years ago that was two to three times in terms of the gap, today that's more like five to ten. Two to ten. It's never been wider. Let me tell you what that means and what that doesn't mean. What that means is when Ava and Todd talk about the sustainability of our AUR growth, you can believe it, right? That price value has never been more compelling. On the other hand, what it doesn't mean is that we're going to close the gap, right? We're not telling you that we can get all the way there, but we are telling you that we like our positioning and we think that's something that we're going to guard very carefully. We've prepared for this moment, right?
We've done a lot of hard work to establish a financial model that is a flywheel. It's reinforcing. Let's go back three years ago and we talked about the fact that we weren't chasing sales. We were focused on growing high-quality sales. For a while, you didn't see the top line move. I remember these conversations from many of you people out here in the audience. What we did was we increased our gross margins. We saw new customer acquisitions that were increasing, and it took a while for us to see the acceleration in the top line. We set the foundation based on strong fundamentals. Now, as we're seeing this new gear of growth, as we're seeing this acceleration in the top line, you marry that acceleration in the top line with strong operational discipline and the ability to grow our margins and drive efficiency through the model.
That allows us to do two things. Number one, to reinvest back in that growth for the future. We're continuing to invest in this long-range plan that we've just laid out and in things like marketing and things like capabilities, technology, AI, et cetera. It also means we can deliver superior earnings and cash returns at the same time. That's the flywheel, right? Focus on quality sales, invest back into those sales while delivering superior returns, and that flywheel keeps going. That's one of the things that gives us confidence in the durability of this growth is all the levers that we have and the ability to continue to invest in our business while still giving you the returns that we laid out. Here it is. You've seen it in pieces. Maybe you've seen it all, I guess, by now. Here's the famous model.
Hopefully, at the break, you got your muffin. Here's the model, right? It was an organic muffin, by the way. Did you notice that? Did you notice that? Actually, the lawyers told me I can't say that because that actually is not organic. Don't hold me to that. You know our 2026 guidance. I'm really focused on the ongoing and durable algorithm, 2027, 2028, and beyond, right? We found that new gear of growth, as I said, mid-single digits on a sustainable basis. That's with reinvesting, remember the flywheel, reinvesting back in the business and continuing to expand what we would say are superior margins. Over two full turns, plus 22% plus from an operating margin standpoint and EPS at low double digits. That's the algorithm going forward. As it relates to the growth portion of this, let's break that down in a little more detail.
Here it is by brand. You saw all these pieces already. Mid-single digits at the Tapestry level led by Coach, which Todd unpacked, and then we're inflecting the growth at Kate Spade. This is a breakdown by category. Remember, we talked about the durability of our primary categories. 80%, more than 80% of our growth is coming from our core handbags and leather goods. That's great news, right? Our core is strong. We're focused on maintaining the core. Again, oh, by the way, really good margin structure. We're pretty good at it from a supply chain standpoint. The other biggest category, the second, as I said earlier, is footwear, and that's with a particular focus on the sneakers within footwear. By channel, we are and will continue to be a direct-to-consumer business. We are pretty good operators in retail.
In fact, as I came into this organization, one thing that really impressed me and frankly blew me away was the quality of our retail associates and the experience that we deliver for our consumers in store. It is truly exceptional. Hopefully, you'll go downstairs and experience that to some degree if you haven't recently. That's always been a core and a differentiator of us, of our business. That coupled with our digital business, which is sizable, about a third of the business online, is the majority of our go-to-market breakdown. Why else do we love that? Because we own the experience. We know that our consumers, you heard this from the brand presentations, we know that our consumers want to be in physical stores. They want to be online. They want to interact with us. We love to have them there.
We're going to follow them wherever they want to go. The other thing we like about it is we own the data. We get real-time first-party data based on those interactions. That gives the consumers at the center of everything we do. These feedback loops are really critical for us to understand where we get it right, where we get it wrong. We do get it wrong. If we get it wrong, we can react more quickly and mitigate it. Where we get it right and we see those signals, we can lean in and chase those opportunities. This is a differentiator for us. Sandeep outlined and Todd and Ava underscored some of the international opportunities. I won't unpack that in detail, but I will say this. North America is and will continue to be the bedrock of our business. We're growing in North America.
We're very optimistic about our North American business, but it's also the one we've been in the longest, right? We have the most penetration. When we look at Europe, goodness, we're just getting started. It's only 6% of our business with a strong UK footprint and an extension into France. The rest of the continent is ours to expand. When we look at Asia, we have broad-based growth opportunities across Asia. They're anchored by China. When you think about our positioning, the brand momentum that we have, and the rising middle class in China, we are perfectly positioned to continue to grow significantly in that region. You can't have a presentation with me without talking about margins. It's a particular, I think, strength of this business model.
Let me just unpack in this waterfall a little bit how we intend to have two full turns plus of margin from an operating margin standpoint. First of all, it's underpinned by continued expansion in gross margin. What gives us that confidence? A couple of things. We talked about AUR. Hopefully, you now see that we have the emotional connection, the investment, and the price-value relationship that will allow us to continue to take AUR gains or increases over time. We also have a structural advantage. 75% of our business or of our growth is going to come outside of the U.S. That's good for us from both a gross margin and an operating margin standpoint. That's a mixed benefit, right? That's structural. That's going to continue based on the growth profile that we see. Lastly, Peter just talked about AUC, our ability to effectively manage the supply chain.
This is not taking money out of somebody's pocket and putting it into ours. That's not sustainable. This is working smarter and disintermediating the supply chain because we grew up as makers, right? We understand it end to end. By us taking active roles and working smarter across that supply chain, we continue to find opportunities to bring efficiency and reduce cost, never compromising quality, never compromising our innovation. We believe that our gross margin expansion is durable and sustainable. That underpins a lot of the model, if you will. We've also worked hard to find efficiency across our expense base and make sure that we're focused on the things that are difference making, those platform capabilities that give us alpha value, right? That will help us be a little bit better than our competition. Those things we've talked quite a bit about, right?
In terms of insights, understanding the consumer, and marketing. We're going to continue to invest in marketing over 200 basis points in marketing. Leveraging the rest of SG&A, increased marketing expense allows that gross margin to fall through and expand our operating margin. The other thing I would say is we've created a more variable cost basis. By putting so much money in marketing, by putting diligence around our store fleet, you know, our average lease term is four years. We have a lot. Two-thirds of our fleet is variable rent. All these things also give us protection in the event of a downturn, but mostly give us confidence in our ability to keep that durable growth on the top side, on the top line. Tariffs, anybody want to talk about tariffs? Seems like the topic du jour.
As you know from our last earnings call, we had a significant impact from the tariffs. I want to unpack this just a little bit. First of all, even with the significant increase in cost due to tariffs, we're growing our operating margin this year. That's based on the outlook that we've already given that we just affirmed this morning. We have great confidence in our ability to grow both gross margins and operating margins in 2027 and beyond. Some of you had said, gosh, why not earlier? Of course, we could take more price early, right? We have brand heat. We have momentum. There are options available. Just because we can do that doesn't mean that we should.
When Todd and Ava are looking so intently at their consumer and understanding, and we apply elasticity models using AI to really understand that price-value relationship, we've taken a fairly non-traditional or maybe even you could say controversial point of view as it relates to pricing. We don't think about it as cost plus. We didn't work backwards to say how much price do we need. Of course, we know what that number is, but we didn't say, that's the price. We're looking at the value that the consumer sees, and we're very protective of that because we believe that positioning and that trust that our consumer has is one of the reasons we can speak to billions of people, not just millions of people. Can we do more? Let's see, right? The consumer will lead us. They decide, by the way, not us.
They decide what they're willing to pay. We're going to be very protective of that. What you should take away from this is we have great confidence that we will return to both gross and operating margin growth as we look at 2027 and beyond. We'll be opportunistic in the meantime based on what we can see the consumer is willing to go with us and where they perceive their value. We're going to grow the top line. We've got operational discipline and the ability to transfer that into earnings. That also means we can translate that into cash flow. I'm just going to leave this number up here for a minute, $4 billion. We talked three years ago about $3 billion, right? We delivered, right? We delivered upon that.
Now, based on the higher level of growth, the maturity of the model, increasing margins, we see $4 billion of cash generation over the next three years based on the algorithm we just laid out. That's a big number. What are we going to do with it? What are our allocation priorities? How do we deploy that $4 billion? Here's the great news. Our priorities are completely unchanged. These are the same priorities that we've been talking about now for a number of quarters, right? Since our pivot to an organic model. Let me just unpack them here. First of all, we're always going to make the first bite of the apple a reinvestment in our brands. We have momentum. We want to continue that momentum and seed it. That starts with Coach. That includes the Kate opportunities that we see. That's our number one priority.
We also believe in the dividend. I'll give you a little more about that. We believe that the dividend is an important part of the equation. We will continue to grow the dividend, at least with earnings. Lastly, even exhausting those first two priorities, we still have a lot of cash. You saw in our press release $3 billion authorization from our board of directors for share repurchases over this, I guess it's not time bound. We have a $3 billion authorization from our board of directors. Let me talk about the fourth priority, right? Strategic portfolio management, code for M&A. Once again, our priorities are unchanged. We established bright lines which we won't cross. One of those is return to profitable and sustainable growth in Kate Spade. The second bright line is the continued profitable growth at Coach. That's a hard red line, right?
While we believe in the future, there is an opportunity to grow this platform because of the capabilities, this plan is really focused on our organic business, right? The way I would characterize that is as it relates to M&A, not no, but not now, right? This is an organic plan. CapEx, the reinvestment back in the business. Where is that going to go? Remember, our consumers love our stores. 70% of our CapEx, which we're planning 2.5%- 3.5% of sales for CapEx, 70% of that's going to go into stores. That's some store openings. That's obviously the normal refurbishment of the stores that takes place. The store openings will be predominantly Coach. We are opening stores in North America. By numbers, there will be more outside of the U.S. than inside. Just to double down on one thing that Todd said, not all stores are created equal.
I know many of you are trying to model this. These will generally be different formats, smaller formats. If you want to do the math, this should account for a little less than 1% of sales over this three-year period based on our estimates of the new store growth. The other 30% is mostly in the technology area. One of the things I love to point out when we talk about technology is a lot of the unsexy money, a lot of the tech debt is behind us, right? We're on one instance of ERP on the cloud. We have a patented data management system, a data platform, which is patented and allows us to take advantage of more sophisticated technologies like machine learning and AI. I hear a lot of people say, gosh, companies are making huge investments in AI and there's no payback. Here's the good news.
Actually, AI for us is more of a cultural issue than a money issue. The hard work has been done. We are investing in AI, and we have ample opportunity to continue to invest in AI. We don't look at AI as a destination. We are focused on business outcomes. The question always from Yang, who's in the audience here, who runs this for us, is not how do we use AI? It's how do we achieve this outcome? Oh, is AI an enabler, right? The interesting thing, or the great news from my perspective, is there are multiple use cases where we are getting better, smarter, faster by using technology. That's only possible because of the hard work that's been done in the preparation for this moment. Let's talk about cash returns, right? Something near and dear to your heart.
The dividend, I mentioned that we believe in the dividend. We intend to grow it at least with earnings. We have a targeted payout ratio of about 30%, right? The dividend is one key part. When you do that math and think about it, we still have a significant amount available for share repurchases. To reiterate, the board has authorized a $3 billion share repurchase authorization. That means that 100% of that $4 billion that we talked about is coming to you, the shareholder, through dividends and through share repurchases. As an organic plan, we have the cash. We're going to return it back to you. How do we make these decisions? You saw the four lenses before. It hasn't changed, right? We have the same criteria. As I said before, strategically, how to play and where to play and how to win. Really important decisions. Great news.
We really like where we play from a category and a brand standpoint. We're investing in those capabilities, which we think are leverageable and give us a discernible and meaningful point of difference over time. This is where we hope to create that alpha value based on those capabilities that Tapestry uniquely employs. We have a financial lens on all big decisions around capital, right? What's accretive from a TSR standpoint? We have the rigor to do that. On the other hand, we're going to risk adjust that, right? We're going to take the execution risk and adjust all of those options as we think about how to deploy capital. We have some rating agencies in the room. I want you to know that we believe and strongly defend our investment grade rating. Our balance sheet is in great shape.
You'll notice that we define investment grade as less than 2.5 times gross debt to EBITDA over a long period of time. We're about a full turn below that. You know what? That's okay. In this uncertain environment, in the macro conditions that we're at, we're okay with a little less leverage in this environment. We like where we are. It's not a presentation without a TSR waterfall for me, right? I've had a number of you pick me off in the hallway and ask, are we going to see the waterfall? Yes, you are going to see the waterfall. Here's the waterfall. It's pretty intuitive, I think. We got mid-single digit growth from a revenue standpoint. Again, remember, we're going to invest heavily back in the business and invest in our future growth, but still deliver 200 basis points of margin expansion.
That $3 billion of cash returned to you via share repurchases is another 5%. Dividend yield, I'm making the assumption it's around 2%. All that gets you to a low teens TSR delivery, roughly twice the expectation of the market according to BCG. What's notable that's not here is any change in the PE. That's obviously your decision, right? You guys will determine what happens to our multiple. I tell you what we believe and what I believe personally. I believe the intrinsic value, and we've done the math, the intrinsic value of this plan is significantly above where we trade today. As a result, we're putting our money where our mouth is. We're investing. We have an authorization for $3 billion worth of share repurchases, investing in ourselves. We're investing in Tapestry.
We think that's, as we look at the cascade of choices against that four lens framework, one of the best investments that we can make. I hope you agree. In summary, you know, we stood here three years ago, and I would say we gave you a plan which was based on a lot of understanding of the consumer. It was based on the strategies that we had laid out, but it was a hypothesis. It was an educated guess, right? There was a lot of work that needed to be done. As we stand here today, we now know and have more conviction that these brand-building principles work when we apply them correctly. The evidence is out there empirically, right? You look at what's happened at Coach. You look at what we're deploying at Kate Spade. We know that these are proven brand-building principles.
That gives us even more conviction on the durability of our growth on a long-term basis. I'd ask you to remember three things as we conclude here. Number one, we found a new gear of growth. This business has moved from low single digits to mid-single digits on a sustainable, durable basis in the long term. We have aspirations for even more. Second, I would say the operational discipline that you've come to know in this organization is still intact. Think what happens when you put a little bit more growth against that discipline and the strong margin profile that we have. You get earnings, and you get cash flow. The last thing is $4 billion, right? $4 billion, 100% of which is returned to you, the investor, via dividends and share repurchases. I think it's a compelling story. I hope you agree. I thank you for your attention and your time. Can you put me back on? We're going to Q&A. Stay tight.
Hi, good morning. I'm Christina Colone, and I have the privilege of leading investor relations here at Tapestry. I'm pleased to be here with you to lead the Q&A. If you have a question, please indicate so with your hands. I will call on you, and someone will bring around a mic. Please introduce yourself and your firm. I also have the ability to take questions from the webcast. Let's dive in. Ike, why don't we start with you here in the back?
Thanks. Ike Boruchow , Wells Fargo. Thanks for the presentation, everybody. I think I'm going to focus on a multi-part question for Todd. You know, we all kind of understand the Coach momentum today. I think it might be helpful given some context. Just historically, maybe just what wasn't working in the 10 years prior to the inflection. To that point, what are the largest changes you've noticed behind Coach brand from then to today? Really, when did you see the inflection coming?
Right. It's a powerful question, and we could probably use up most of the Q&A on that. I'll try to be a little more precise. I joke a little bit. We're an overnight success story five years in the making. It really has been this five years. Something I think I said in the video, it was incremental. It's progress and progress and a little bit. You do something. I remember when we first launched our first purpose campaign. You know what happened for the first three months? Nothing. It took a while to kick in. When I look in, and I think about this a lot, because I was here during maybe the tail end of one of the great chapters of Coach, and then maybe a low period. I think it comes down to just a couple of key things. First, humility. I think we absolutely lacked humility.
We were winning. We had won for a very long time. When you don't have humility, you immediately think you have all the right answers. You're not curious. Something that Joanne and I talk about a lot, staying curious is powerful. We had a comp mentality. Comp the comp. Comp the comp. When you get into that vicious cycle, you do dumb things. We did a lot of dumb things. We also were such a closed loop system. Whether it was our sales vehicles, we didn't think about acquiring a new customer. That was really one of the most powerful things that we did not do. We talked about market share. We talked about TAM. We didn't open the aperture that you're seeing us do today, which then led to we had a very efficient P&L. Efficiency at what cost? We spent 3% on marketing.
We didn't acquire a new customer. With that efficiency, with that comp mentality, with that protectionism, it led to bad results. I think we're starting with the acceleration program that we launched five years ago, starting with a different mindset, curiosity, humility, we unlocked where we are today. I think those ways of working are now amplified. Not only will we do it, but you heard from Ava, you'll see it at Kate as well.
Thank you. Michael.
Thank you. Michael Binetti, Evercore. Thanks for all the detail today and having us out. Maybe just Joanne, what are some of the key inputs to drive retention and AUR progression over the three years in the plan with the new consumer, the Gen Z that you focused on so much today? When you think about evolving the loyalty programs, the CRM, some of the experiential retail, and refining the marketing to deepen the lifetime value that you guys, I know, are focused on more behind the scenes. Maybe a second one for Scott. At a high level, if we exclude tariffs, I think the guidance is for about 260 basis points of EBIT margin expansion this year. Really good if we exclude tariffs, which, and that's on low single digit revenue growth. After this year, it looks like we get 80, 85 basis points on mid-single digit revenue growth.
Is that some harvesting of cost opportunity this year to help get through tariff, or is there something different in the interchange as we get out to fiscal 2027 and 2028 that we should think about? Thank you.
Joanne, why don't you start?
Sure. I'll kick it off. On your question about customer acquisition and driving our growth, I think it is important to talk about the fundamental capability that we're building, which is this curiosity and listening to our customer and understanding them, really understanding them deeply. That is what we translate, that we take those insights and translate them into action. I said a couple of times in the presentation earlier that that's where we see the payoff. We've worked over the last five years to embed the capability to take an insight and have it lead to an action in our business, whether that be a different place where we're marketing and putting our brand content.
If we're going to put it on YouTube, what is the content that the customer is expecting to see on that channel versus Instagram or TikTok or Douyin or any of the other myriad of platforms that the customer is moving to? First, we have to stay close to our customer because they're not staying in one place for long. It's the embedded disciplines of listening to the customer and taking an action. It's interesting you mentioned loyalty programs. Our focus is on capturing a new consumer at point of market entry. As Sandeep said in his presentation, we talk about it all the time in our business. We have to make sure they have a great first date or we're not going to get a second date.
It doesn't matter if we have somebody signed up for a loyalty program and we hit them over the head with 16 emails to say you've got 10 points, please come back. We need to make that experience terrific. We do that at every touchpoint. It's really in our marketing. It's our brand building and storytelling. It's the incredible innovation and creativity we're bringing behind those insights. Todd talked about this gut and merchant instinct is important, but it's informed, right? The creativity here is, I think, unparalleled, but it's informed creativity. We're bringing really relevant product and experiences forward. That's how we're maintaining. We've seen as we invest in marketing, that's the other real trigger for driving our growth.
We're investing in the opportunity to reach these customers where they are with a new level of investment that allows us to sustain our campaign messages, our purpose messages so that we stay top of mind. That, as you heard from Todd, we launched our first campaign, nothing happened. The important thing was that we didn't stop there. We continued to invest to sustain the message so that we cut through to our target consumer and remain top of mind. Pretty soon the customer starts telling our story for us. I can toss it to Sandeep. We could go on and on and build on this.
If you don't mind, I'll just add one thing. I mean, I did talk about the strategies that drive acquisition, also other strategies that drive retention. I'm going to make three key points on this. First, the reason people come back to buy us is brand heat, right? Which is also the reason they buy us for the first time. Maintaining that brand heat is important. Second reason they come back is because they had a great experience the first time they did. Third reason they come back is they love the product when they wear it on that. I think those three strategies hold true when you're acquiring a new customer or bringing them back. They're more important than any form of loyalty programs. That doesn't mean we don't reach out to our consumers. We have a really strong client telling program. We do reach out.
We reach out to them on messages that are relevant to them versus just, you know, pushing discount messages or points, as Joanne said. That's how we're looking at it. We're seeing amazing success in this. People don't feel fatigued and annoyed with us just emailing them 10 times a week or sometimes even 10 times a day, which you may get from some brands.
And Scott.
Yeah, and Michael on the EBIT margin. A couple of things I would say is, number one, you know, we're talking about a long-term sustainable algorithm, which has investment back into the business. We talked about marketing. We have investment in growth. We're also disciplined. This is the only marketing guy I've ever seen that when I say, Sandeep, I got more money, and he's like. I don't want it now.
I don't want it now. We joke that we switch places sometimes. I guess the point in that is, you know, these investments in growth are based on facts. They're based on KPIs, and we're going to be disciplined around this. We have ample investment to drive sustainable growth over a long period of time, but we're not going to spend it just to spend it. You know, that's one thing that I want to say to you. As it relates also to the pace of AUR growth, I mentioned this in the comment around tariffs and also maybe a little bit on where we're positioned. We have demonstrated our ability to take AUR, but we're very cautious, right, about the way we do that to make sure that it is perceived well by the consumer.
There are times when we will see AURs grow even faster than we expect, and that's good for margins, EBIT margins all the way through. We're going to let the natural growth rate develop based on what we're bringing in terms of innovation, product, and brand engagement. I think what you should take away from this is we are solid on our ability to deliver this algorithm, and we have multiple factors in our more variable expense space to drive that growth. We're also going to remain disciplined to make sure the investments that we make pay off. You asked me about EBIT margin, but maybe I'll just throw in one more thing as you think about earnings, right? We have assumed some modest increase in the tax rate in our earnings algorithm due to Pillar 2. Let's see if that happens. That would be in the out years, 2027 and 2028, not in 2026. That's another factor just to keep in mind as you think about this algorithm going forward.
Lorraine.
Thank you. Just to continue on that conversation about AUR, I was wondering when you think about the mid-single digit growth at the Coach brand, will that continue to be driven by AUR in your model? How big of a factor is that, Scott, in your 180 basis point gross margin expansion target?
Yeah, maybe I'll start, Todd, and go just to give you the numbers on it. AUR has been one of the primary drivers looking back. It's notable that over the last couple of quarters, we've inflected a positive unit growth. That's a really important milestone. As we look forward, we will have both unit growth and AUR, but most of the majority of that growth will still come from AUR.
Margin growth is AUC and AUR.
Yeah, that's right. You were talking specifically, I was thinking of top-line growth. Yeah. I don't know if you heard what Joanne said. Don't forget AUC. The most underappreciated part of our story, Peter.
Not anymore.
That's what I'd like to say anyway. Did we answer your question?
Thank you.
OK.
Matt.
Great. Matt Boss, J.P. Morgan. Joanne, could you speak to segmentation strategies in place and the foundation today that gives you confidence to expand the lens to the larger consumer total addressable market that you cited? I think it was just less than 1% today for the Coach brand.
Yeah, for our business, we've really opened the aperture to look at all potential consumers of our products. The reason we're doing that is because we're having such success in acquiring new customers, particularly at point of market entry when young consumers are entering the market. We believe we can expand the category. You know, when Coach was at its best, that's what we did. We expanded the category and brought new users into the category. That's what we're seeing happen with Coach today around the world. We're seeing tremendous success. You asked about segmentation. You're talking about market segmentation and where our brands play. We have very distinct brand identities. We did all the math, and we did all the homework on understanding the full market and where each of our brands play. These are brands that are distinctive, each and unto themselves.
We didn't create this positioning because we wanted them to be different. They are different. When we look at the overall market and who our brands, who their target customer is for these brands, it is very clear. It was very clear in the work that we did that these are very differentiated brands in the market. As we talked about, it's a huge market. We have tons of headroom in the market to grow our brands where they are in our current positioning. Of course, the market segmentation and market positioning also has a halo effect on the full market. Maybe Sandeep, you want to comment?
Yeah, again, look, we've used demand spaces to kind of look at what are the segments each brand goes against. Again, to the point Joanne said, it's the mapping of the brand positioning with those segments. Now, they're pretty sizable. I mean, Ava talked about 16% for Coach timeless Gen Z. The timeless segment is about 19%. The halo spaces are massive, right, on that. On one side, they're sizable and distinctive, but also they halo in a large space. A point of market entry strategy is what differentiates them, because they have the highest halo or reverse influence, as we're seeing across large parts of that. That's why we are able to design against those target audiences. That's why it's important to define who are you designing against. That design has a large aspiration over much big spaces in that.
One thing just to add, and I think this is clear, but just in case there's any doubt, that 275 million consumers we're talking about are in markets we play now. This is not some hypothetical, we're going to grow 100 million people in Africa, or we're, you know, India is going to be the next big growth driver. That will come at some point, but we don't have to get there now to get to our ambition.
Thank you.
Scott, in the basis points margin expansion that you outlined, what have you embedded for recapture of the tariff headwind? I think this year it was a little more than 150 basis points.
You remember my little chart. We said we would continue to make progress and, in fact, grow growth and operating margins in 2027 and beyond. We will fully mitigate the impacts of tariff through this three-year period. In fact, I would argue we already have, but we can debate that.
Paul.
Thanks. Thanks, guys. Paul Legerwey, Citigroup. You put out some numbers in terms of top-line growth algos by region. You also talked about store growth a little bit. Can you maybe just break that down a little bit? How much of those top-line numbers that you put out there are being driven by square footage growth versus what do you assume for comp growth by region? In that store growth, how much of that is full-price stores being open versus factory in some of these international regions?
Yeah, Paul, have you not listened? First of all, there's no such thing as a factory store anymore. OK, let's start with that.
I was just going to clarify the number. We didn't give it exactly in the detail that you just asked, but we said less than 1%, slightly less than 1% is the impact of the new stores, which you can infer from that. They're going to be generally smaller in format. Remember, while we are opening stores in the U.S., the majority of these are going to be outside of the U.S., with China as kind of the center of the bullseye. Todd, if you want to add.
Yeah, again, you are going to hear us talk far less about channels of distribution. If in theory I have an outlet store that is penetrating 25% in collection product, if my discount rate is half what it historically was, if we're attracting new consumers who the best mall in their location happens to be an historic outlet store, if the mall is something like a hybrid mall, like outside of Boston, Assembly Row, is that an outlet store? Is that just a great place to interact with our customer? That's the mind shift. That's the difference. That starts from product creation to the merchants to the way we're running our stores. It is going to be materially different. We've done all this work now to get there. That's why, particularly when you look at our digital footprint, that will change as well.
Adrienne.
Thank you very much, Adrienne from Barclays. I guess, Todd and Ava, my question for you is you're both targeting the same kind of point of market entry, the 18- 27-year-old. How do you ensure that between the two brands that you keep a distinct kind of target and positioning? Along those same lines, what have you found in your price elasticity work at each of the brands? How do you know when you can take more price? Do you just look at kind of the turns on full price selling? If they're going really fast, you've probably underpriced it for the market. Just some characteristics on the elasticity side of that. Thank you.
Yeah, I can kick it off. Honestly, we have two very distinct targets. She. What a llow us also to build very different brands. First of all, we have a very different heritage, and I'm sure you're going to say more about that, but also the consumer we're going after is very different. I think you saw it in the video of Sandeep. There are Gen Z, they are young, but they are interestingly like a very different person, and they are not looking for the same kind of products. They are not considering fashion for the same reason. They are not buying a handbag for the same reason. The Gen Z connector is used, she cares about connecting with people. She cares about fitting in. This is what does matter for her. Today, when she buys a handbag, in her mind, she wants to use this to show that she's approachable.
She wants to use this as a pretext to connect with people, to trigger a discussion. It's a very different motivation than the Gen Z, the timeless Gen Z of Coach. She's looking for something different. She's looking for something very feminine. She's looking for something with more thoughtful details that show that she's nice and kind and friendly. It's a very different target. We see that. Of course, you will always have a consumer that will buy both brands or more brands, but they're looking for something very different. When you focus on that consumer, when everything you do is at the lens of this consumer, you're developing for them and with them, then you build something that's very distinctive.
Yeah, Ava said it really well. I mean, the brands sit in different places, different reasons to buy them. If somebody has 200 brands, if they don't buy us, I'm happy for them to buy Kate. It's a big, big audience that we're attracted. On the pricing side, sometimes, historically, I say we were too cute by half, because sometimes we prided ourselves on incredibly dynamic pricing. Every day we can switch prices and we can play with the discounting. We walk into a store and it's one thing and then the next day it's another thing. First of all, we change the conversation. We don't even lead with discounting. The first interaction is not, "Welcome to Coach, here's a 20% off coupon." That fundamentally changes things. Our shift from seasonality to core has also changed things. Do we always get pricing 100% right? No.
Have we taken up pricing in a thoughtful, systemic way? Absolutely. We put new collections together. Sometimes we don't know. Predictive pricing for a future collection, even with all of our technology, is the hardest thing to unlock. Actually, we are using AI to help us with that quite a bit. Over time, our learning models have gotten better. It's not just our great merchants and our great people who are involved in pricing, but it is technology. The guardrail here is not to absolutely get the final best price. The guardrail is to ensure we show value for this consumer. Somebody asked me last night, you know, why aren't you going after more $1,500, $2,000 bags? We have some, and we'll have a sprinkling of that for the halo impact. That's not where we're going to win.
We are going to win with bringing these new customers into the category between $200 and $500. Now, three years from now, that might be $300 to $600. We're going to be very thoughtful in our approach.
May I just add one thing? I mean, these are very clear and distinct audiences, but the thing we need to remember is there are 275 million consumers, and both brands put together a penetration is only 0.6% on that. There is enough space for these two brands to kind of grow.
Brooke.
Brooke Roach, Goldman Sachs, thank you for taking the question. I wanted to dive a little bit deeper into the Coach China strategy and what you're doing to capture that new customer there, specifically the inflection to new store growth in a market that is a little bit uncertain. What gives you confidence in delivering that targeted sales growth over the three-year period when others have been struggling a little bit more?
Sandeep, do you want to start and then turn to Todd?
I'll start. Firstly, look, I'll start with something that we've already shared. We are already delivering 18% growth in China when the overall market is in the negative double digits on that. This really starts with the brand heat that we are creating there and the desire we are building for the Coach brand. We have the right value equation for that market to win in. Now, I talked about 25 million women turning 18 every year over the next 10 years. 5 million of them are going to be in China. There is a huge TAM out there, especially when we're talking point of market entry. The way we're working is with precision on how do we target these consumers in the market. These consumers are coming into the market. They are going to make their handbag purchases. They're looking for a brand that fits their expression, right?
For both Coach and Kate Spade, that's a massive opportunity. Yes, we're going to expand our footprint. I gave the example of Wuhan, and we're building that across other cities. The key point is keeping a couple of things in mind. One, got to be very disciplined on those store openings, right? Two is those stores open where these consumers are and shopping. Sometimes it doesn't have to be one of those traditional high-end malls. If you look at malls like In Time, which is more high-end luxury, the traffic is very low. On the other hand, you look at malls like Mixi in China, where there's so much traffic and so many young college students out there. All of those decisions are going into that. I'll just end by saying before I pass over to Todd that there's a massive TAM there.
There's a lot of point of market entry consumers. Our brand has the right heat at this point and momentum in terms of building, and we have the right value equation.
That 5 million, just to clarify, is qualified consumers who have the ability, purchasing power, right?
Thank you for building that.
Building on something Sandeep said, Brooke, it's our brand position that is going to allow us to win. This idea of expressive luxury, this idea it's not just about impressing. For a long period of time, China, almost like a developing market, was all about impressing. I'm going to save six months of salary to buy the impressive bag. There's a cultural shift that's happened in China that we will capitalize on because the idea that you have to save three, four, five months of salary to buy a handbag, even if you're living at home with your parents and don't have all the expenses, has fallen out of fashion. There is really something in the air where some of those very traditional European luxury brands that price themselves so high have lost some of that opportunity because it's not resonating with the customer in the correct way.
Because we've changed our approach, that allows us now to do exactly what Sandeep said. We don't have to just go to the mall in the city that was adjacent to very traditional European luxury players. We can go to wonderful places. We're in cities and in locations that are very different because I don't even have to look at the adjacencies. By the way, that also helps in negotiating because when they want us in a location and we may be the absolute pinnacle of luxury in a location, negotiating looks a little different there. We like that.
Oliver.
Hi everybody, Oliver Chen, TD Cowen. The Coach brand has done so well. Is it at peak margins in terms of wanting to make sure you offer value to the consumer? Should you reinvest the AUC to give product back to the consumer? The international opportunity is huge. What are the toughest decisions you're making or the tougher problems, opportunities as you pursue international? How would you rank a couple? As we think about Kate Spade, just would love your take on establishing icons. You know, it's very important and you're revisiting a lot of the whimsical and wit, but icons and cutting the SKUs sounds like a really great idea.
Todd, why don't you start and then we'll go to Ava?
Okay. No, we have more room. I'm going to be definitive there to take margin. On the make, I want to be very clear. You know, Peter's partnership and his team's partnership, we're not taking value out of the brand. Everything we look at on an AUC basis has to meet a couple of criteria. By the way, it's not just Peter, it's the Coach CFO who works with Scott who does this, and it's Stuart as well. Stuart and our CFO at the Coach brand have led an AUC drive. What's important is we will not cheapen the product. We will do things that look to, that are, you can't even see. I'll give you one quick example. I think I've given this example in the past, but just for clarification. It's not a Coach bag unless it has a story patch. We all know that.
You see it, open up your Coach bag. There was an extra stitch that we put in the story patch making that took an extra step. Remember, this is a story patch inside a bag. When you think about our scale of tens of millions of units, there was a $1 million savings not doing that extra stitch. No consumer will ever know or see the durability. We tested it. We pulled it. We'll ever see that change. That's an intellectual, interesting, aggressive approach to looking at this. Remember what we're trying to do. Yes, can we keep growing gross margins? We will. We're also taking the Tapestry Coach flywheel to put that money into our marketing, be very stingy on non-marketing SG&A, and put that in to keep fueling this consumer. Any of us have ever made a campfire. You know, to keep the campfire going, you got to keep throwing more wood in it. That's what we're doing. Eva.
Yeah, answering your question on Kate. Yes, building icons is crucial if you want to make the brand a destination, if you want to build for the long term. Our strategy is made to build those icons over time. How we do this, to your point, of course, is making space for them, but also making sure we develop relevant products. That's what's our strategy. We have different steps. First of all, making sure we're developing something that's relevant. For this, we're going to test everything along the way and select the winning designs for the consumer. We're going to invest in them in inventory. We're going to invest in them in marketing. I'm not talking one campaign. I'm talking over time to make sure we can build them as an icon. We're going to continue animating, to your point, with new colors, new design, new idea around that icon.
This is the cycle we can create to build icons over time. I'm going to give you an example. Maybe you saw in the video or you saw in the showroom or even in stores, the duo bag that we have today. This is exactly how it has been developed. It has been developed with the consumer. It has been tested. Everything has been tested in this bag. Down to the name. Down to the pricing. Everything. We've been investing. Now it's a one very cohesive experience for the consumer. If you go to the website, if you go to our stores, in the windows, as you said, the training, everything is focused on building this as an icon. We're going to continue animating it over time.
Alex.
Hi, Alex Strait at Morgan Stanley. Maybe for Todd, just on that $10 billion target for Coach, can you just help us bridge from the end of this plan to there? I see you're smiling. You've probably prepared for this. Just how we get there, how we get there, and maybe Scott can chime in just from the end of this plan too.
As I said, this plan is our floor. I don't want to leave you with this is our highest aspiration. A long-term plan is a long-term plan. We see clarity that we have a $10 billion opportunity at the margins we want. You know, can I always add a billion dollars? Of course we can. We've seen what that looks like if we don't do it thoughtfully. We are going to do this quarter after quarter in a sustainable way. The consumer is going to vote. We have a lot of opportunity. There may be times where all of a sudden the quarter or period does much better. It's not going to be artificially driven. It's going to be driven by a steady march forward. What that looks like, we'll see. What I hope you appreciate and take away is I have a great deal of confidence that we will achieve that number.
The only thing I would add to that, Alex, is what I think the main message is this brand is just getting started, right? As you look at the runway and the potential to grow, it's not limited by this short or somewhat arbitrary three-year plan that we have laid out. It's important to do that for all the reasons that we know. We established what we think is a very durable base that you can build from. The potential here is massive. We know it based on the way these guys have reframed the market and the aperture that we're looking at. It's changing everything on how you think about what the potential of this brand can be over time.
We'll take our final question from Dana.
Thank you. Thank you for the presentation today. As you think about, and it's Dana Telsey from Telsey, as you think about the marketing spend on each brand, what's appropriate in the long-term targets of what you see as you're developing? Lastly, other categories you talked about footwear. Is footwear in men's an opportunity? I think years ago we talked about men's at one point. Thank you.
Yeah, I'd love to start, Christina.
Please.
Marketing is definitely an unlock. I hope what you heard from us today is not just this three-year plan, but the durability of this model over time. The building blocks of growth, we talked about opening the aperture, but we know where we're going to source our growth from, how many new customers we need to acquire to drive that growth, and how many of those customers will buy leather goods, our core category, to drive that growth. 80%, over 80% will be in leather goods. Where around the world we're going to drive that growth informs our investment. If you think about new customer acquisition, we are winning with new customers. It is really driving our growth right now. We see the opportunity to continue that momentum as we move forward. As we drive that momentum, we will feed marketing. We're not spending marketing with a hope.
We have a lot of KPIs that we manage, and we manage our marketing spend in a very disciplined way. Some of the capabilities that we've built, I think, are a differentiator of our company. We understand what content to put on what platform to reach which customers. We're really clear about what those are. When we talk about the target customer, timeless Gen Z for Coach, and the Gen Z connector for Kate, we're laser-focused on how to hit the radar and be relevant to them with the storytelling, with the marketing, the spike and sustain. That requires investment, but it's not investment without discipline. It's discipline investment. We'll continue to feed that engine. That's the flywheel that Scott talked about.
That is the Tapestry flywheel that drives our brand heat, allows us to expand margins, and allows us to drive that disciplined growth that we talked about with high margin that allows us then to reinvest back into our business. Can marketing spend go higher? I think absolutely it can. Actually, in the presentation, we showed you we expect it to go higher. It will go higher with the return that we expect as well. That will drive the discipline. We're talking mid-single-digit growth for this three-year time horizon, but well into the future. We think that is a very compelling value creation model for us.
Just quickly on men's, this morning, we were very, very focused on our female customer. We have a big men's business, and there's huge opportunity. Footwear is an area where we're leading with that. Our sneaker, the Soho and the Highland, the two major sneakers, are all gender. If you hadn't noticed in the clip, Charles Melton without a shirt on, selling the men's sneaker, has very massive appeal. You'll hear us keep talking in the future more about our men's, but we like our brand positioning here. Interestingly, who buys men? You know, if you're winning with women's, you're winning in all gender.
Great, Joanne. Now I'll turn it to you for some closing remarks.
I can't believe we're done already. This has been really fun. I hope that you take away a lot from our presentations today. The one thing I hope you take away is the durability of our growth. I just talked about it. We have momentum in our business, and our growth is durable, not just for these three years, but in the long term. That's going to create a lot of value for all of our stakeholders. Thank you for coming today. I do want a couple of housekeeping announcements. If you haven't taken the time to browse the Coach assortment out here, have a Coach coffee, please do that. The showroom upstairs for Kate Spade, I encourage you to go see what's brewing up at Kate Spade. We are delighted to be able to share with you our workshop here on the ninth floor.
It is unique to our business. Peter talked about craftsmanship at scale. You'll be able to see that in real life, touch it, and feel it. Thank you for coming today and enjoy the rest of your day.