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MarketScreener Homepage  >  Equities  >  Nyse  >  Tapestry, Inc.    TPR

TAPESTRY, INC.

(TPR)
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TAPESTRY : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/04/2020 | 04:19pm EST
The following discussion of the Company's financial condition and results of
operations should be read together with the Company's condensed consolidated
financial statements and notes to those financial statements included elsewhere
in this document. When used herein, the terms "the Company," "Tapestry," "we,"
"us" and "our" refer to Tapestry, Inc., including consolidated
subsidiaries. References to "Coach," "Stuart Weitzman," "Kate Spade" or "kate
spade new york" refer only to the referenced brand.
EXECUTIVE OVERVIEW
Tapestry is a leading New York-based house of modern luxury accessories and
lifestyle brands. Tapestry is powered by optimism, innovation and inclusivity.
Our brands are approachable and inviting and create joy every day for people
around the world. Defined by quality, craftsmanship and creativity, our house of
brands gives global audiences the opportunity for exploration and
self-expression. Tapestry is comprised of the Coach, Kate Spade and Stuart
Weitzman brands, all of which have been part of the American landscape for over
25 years.
The Company has three reportable segments:
•Coach - Includes global sales of Coach products to customers through Coach
operated stores, including the Internet and concession shop-in-shops, and sales
to wholesale customers and through independent third party distributors.
•Kate Spade - Includes global sales primarily of kate spade new york brand
products to customers through Kate Spade operated stores, including the
Internet, sales to wholesale customers, through concession shop-in-shops and
through independent third party distributors.
•Stuart Weitzman - Includes global sales of Stuart Weitzman brand products
primarily to customers through Stuart Weitzman operated stores, including the
Internet, sales to wholesale customers and through numerous independent third
party distributors.
  Each of our brands is unique and independent, while sharing a commitment to
innovation and authenticity defined by distinctive products and differentiated
customer experiences across channels and geographies. Our success does not
depend solely on the performance of a single channel, geographic area or brand.
Acceleration Program
The guiding principle of the Company's multi-year growth agenda under the
Acceleration Program is to better meet the needs of each of its brands' unique
customers by:
•Sharpening our Focus on the Consumer: Operating with a clearly defined purpose
and strategy for each brand and an unwavering focus on the consumer at the core
of everything we do
•Leveraging Data and Leading with a Digital-First Mindset: Building significant
data and analytics capabilities to drive decision-making and increase
efficiency; Offering immersive customer experiences across our e-commerce and
social channels to meet the needs of consumers who are increasingly utilizing
digital platforms to engage with brands; Rethinking the role of stores with an
intent to optimize our fleet
•Transforming into a Leaner and More Responsive Organization: Moving with
greater agility, simplifying internal processes and empowering teams to act
quickly to meet the rapidly changing needs of the consumer
In the first fiscal quarter, the Company made meaningful progress against its
previously announced Acceleration Program to sharpen its focus on the consumer,
leverage data to lead with a digital-first mindset and transform into a leaner
and more responsive organization:
•Recruited nearly 800,000 new customers across brands in North America through
our e-commerce channels, meeting consumers where they choose to shop and
leveraging marketing capabilities to drive engagement and enhance the customer's
digital journey;
•Drove significant growth in China through compelling product assortments,
enhanced marketing and expanded reach across direct channels and third party
online distribution; Coach is the number one ranked handbag brand on Tmall;
•Leveraged data and analytics to optimize marketing messaging, assortment
planning and promotional levels to support higher average unit retail ("AUR");
•Made further progress in creating an agile and scalable operating model, with a
streamlined organizational structure and empowered teams, while optimizing our
global fleet with 15 net store closures in the first fiscal quarter
                                       23
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representing a net decrease of 50 stores from the prior year; Remain on track to
achieve gross run-rate savings of $300 million, including gross savings of $200
million in fiscal 2021.
Recent Developments
Covid-19 Pandemic
The Covid-19 virus has impacted regions all around the world, resulting in
restrictions and shutdowns implemented by national, state, and local
authorities. Consequently, the spread of Covid-19 has caused significant global
business disruptions. As a result of the widespread impact of Covid-19, Tapestry
had temporarily closed the majority of its directly operated stores globally for
some period of time to help reduce the spread of Covid-19. As of the end of
fiscal 2020, the vast majority of the Company's stores have reopened for either
in-store or curb-side service and they have continued to operate through the
first quarter of fiscal 2021. Many of our wholesale and licensing partners have
also closed their bricks and mortar stores as required by government orders
during the third and fourth quarter of fiscal 2020, but the majority of stores
have reopened as of the end of the first quarter of fiscal 2021.
In response to the challenges that Covid-19 has imposed on our business, the
Company implemented the following actions to mitigate these headwinds:
•Re-opened stores as quickly as possible, while following governmental and
public health guidelines.
•Driving with a digital-first mindset for all brands. Implemented practices
designed to support the continued operations of our e-commerce platforms and
distribution centers remain operational across all major regions.
•Reduced capital expenditures for the second half of fiscal 2020 and continuing
into the first quarter of fiscal 2021, with reduced planned spend for the
remainder of fiscal 2021 as compared to fiscal 2020, through optimization of our
fleet and prioritizing investment in digital.
•Continue to drive SG&A savings, including actions taken under the Acceleration
Program, through the reduction of corporate and retail workforce, right-sizing
of marketing expenses, reduction of fixed costs such as rent as well as
procurement savings, including reducing external third party services.
•Did not pay out bonuses under the Annual Incentive Plan for fiscal year 2020,
eliminated merit salary increases for all employees and temporarily reduced
compensation for the Board of Directors and corporate employees above a certain
salary threshold.
•Tightly managed inventories by reflowing product introductions and cancelling
inventory receipts as well as planned reduction of stock keeping units ("SKUs").
•Drew down $700 million from its $900 million Revolving Credit Facility to add
to cash balances, subsequently repaying $150 million on October 30, 2020.
•Suspended its quarterly cash dividend and share repurchase program beginning in
the fourth quarter of fiscal 2020.
The Company will continue to consider near-term exigencies and the long-term
financial health of the business as clear steps are taken to mitigate the
consequences of the Covid-19 pandemic.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES
Act") was signed into law in response to the Covid-19 pandemic. The CARES Act
contains numerous tax provisions, such as refundable payroll tax credits,
deferral of the employer portion of certain payroll taxes, net operating loss
carrybacks, modifications to net interest deduction limitations and technical
corrections to tax depreciation methods for qualified improvement property. The
CARES Act require the Company to make significant judgments and estimates in the
interpretation of the law and in the calculation of the provision for income
taxes. However, additional guidance may be issued by the Internal Revenue
Service ("IRS"), the Department of the Treasury, or other governing body that
may significantly differ from our interpretation of the law, which may result in
a material adverse effect on our business, cash flow, results of operations, or
financial conditions.
Since March 2020, the governments of numerous countries in which we operate have
issued relief packages in response to Covid-19. These packages include, amongst
other things, extended filing deadlines, wage subsidies, social security relief,
rent relief and deferred tax payments. The Company is seeking relief under these
provisions where eligible. As noted above in relation to the CARES Act, the
Company does have to make certain judgements in interpretation of the law and/or
await guidance from the local authorities.
Acceleration Program
The Company is undergoing a review of its business under the Acceleration
Program and expects to incur certain costs reflecting: (i) actions to streamline
the Company's organization; (ii) select store closures as the Company optimizes
its fleet (including store closure costs incurred as the Company exits certain
regions in which it currently operates); and (iii)
                                       24
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professional fees and compensation costs incurred as a result of the development
and execution of the Company's comprehensive strategic initiatives aimed at
increasing profitability. Including charges taken in fiscal 2020, Company
expects to incur total pre-tax charges of approximately $185 - $200 million
related to the Acceleration Program with most of the remaining charges expected
in fiscal 2021. Refer to Note 6, "Restructuring Activities," and the "GAAP to
Non-GAAP Reconciliation," herein, for further information. The Company estimates
that it will realize approximately $300 million in gross run rate expense
savings from these initiatives, including $200 million projected for fiscal
2021.
Current Trends and Outlook
The environment in which we operate is subject to a number of different factors
driving global consumer spending. Consumer preferences, macroeconomic
conditions, foreign currency fluctuations and geopolitical events continue to
impact overall levels of consumer travel and spending on discretionary items,
with inconsistent patterns across channels and geographies.
As previously noted, Covid-19 was officially declared a global pandemic by the
World Health Organization in March 2020. The virus has impacted regions all
around the world, resulting in restrictions and shutdowns implemented by
national, state, and local authorities. These requirements have resulted in full
and partial store closures globally, causing a significant reduction in sales
starting in the third quarter of fiscal 2020. While the vast majority of the
Company's stores have reopened for either in-store or curb-side service as of
the end of fiscal 2020 and they have continued to operate through the first
quarter of fiscal 2021, stores may be required to close again for an extended
period of time due to the possibility of a resurgence of increased infections.
Covid-19 may also cause disruptions in the Company's supply chain, resulting in
facility closures, labor instability, potential inability to source raw
materials and disrupted operating procedures in attempts to curb the spread of
Covid-19 within our third-party manufacturers, distribution centers, and other
vendors. The Company's e-commerce sites continue to operate, subject to the
local guidance related to Covid-19 surrounding our distribution centers.
The disruptions related to Covid-19 have materially adversely impacted our
operations, cash flow, and liquidity. There is uncertainty around the duration
of these disruptions and the possibility of other effects on the business. We
will continue to monitor the rapidly evolving situation pertaining to the
Covid-19 outbreak, including guidance from international and domestic
authorities. In these circumstances, the Company will need to make adjustments
to our operating plan. Refer to Part I, Item 1A. "Risk Factors" in the Company's
Annual Report on Form 10-K for the fiscal year ended June 27, 2020 for further
information.
Several organizations that monitor the world's economy, including the
International Monetary Fund, observed that global expansion has declined
significantly in the last year and the outbreak of the Covid-19 pandemic has
negatively shocked the global economy, contributing to further anticipated
declines for the remainder of calendar 2020. These organizations expect recovery
to be more gradual than initially anticipated based on the economic activity
displayed by economies with declining infection rates. Economic activity has
been marked by persistent social distancing and declines in productivity as
businesses struggle to ramp up operations in response to risks and regulations
related to Covid-19. For economies that struggle with infection control, the
negative impacts will be amplified due to lengthier lockdown provisions. While
intensifying uncertainty surrounds future economic growth, multilateral
cooperation and support from local policymakers is pivotal in shaping the
economic outlook.
Furthermore, currency volatility, political instability, such as the uncertainty
associated with the potential impact of the new policies that may be implemented
depending on the results of the U.S. Presidential election and potential changes
to trade agreements may contribute to a worsening of the macroeconomic
environment. Since fiscal 2019, the Trump Administration and China have both
imposed new tariffs on the importation of certain product categories into the
respective country. Continued increases in trade tensions could impact the
Company's ability to grow its business with the Chinese consumer globally.
Additional macroeconomic impacts include but are not limited to the United
Kingdom ("U.K.") voting to leave the European Union ("E.U."), commonly known as
"Brexit." The U.K. officially terminated its membership of the E.U. on January
31, 2020 under the terms of a withdrawal agreement concluded between the U.K.
and E.U. and has now entered into a transition phase until December 31, 2020.
During the transition phase, the U.K. will generally continue operating as if it
were still a member of the E.U. Trade talks between the E.U. and U.K., to
determine their future relationship, are still underway. The U.K. passed on the
opportunity to extend the transition phase beyond December 31, 2020, and as
such, if a trade deal is not reached by December 31, 2020, the U.K. can expect
checks and tariffs on products going to and coming from the E.U. beginning on
January 1, 2021. The Company does not expect Brexit to materially impact our
business.
As part of our efforts to improve our working capital efficiency, we have worked
with certain suppliers to revisit terms and conditions, including the extension
of payment terms. As an alternative to our payment terms, available to certain
suppliers is a voluntary supply chain finance ("SCF") program that enables our
suppliers to sell their receivables from the Company to a global financial
institution on a non-recourse basis at a rate that leverages our credit rating.
We do not have the ability to refinance or modify payment terms to the global
financial institution through the SCF program. No guarantees are provided by the
Company or any of our subsidiaries under the SCF program.
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We will continue to monitor these trends and evaluate and adjust our operating
strategies and cost management opportunities to mitigate the related impact on
our results of operations, while remaining focused on the long-term growth of
our business and protecting the value of our brands.
For a detailed discussion of significant risk factors that have the potential to
cause our actual results to differ materially from our expectations, see Part
II, Item 1A. "Risk Factors" herein and Part I, Item 1A. "Risk Factors" disclosed
in our Annual Report on Form 10-K for the fiscal year ended June 27, 2020.


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FIRST QUARTER FISCAL 2021 COMPARED TO FIRST QUARTER FISCAL 2020
The following table summarizes results of operations for the first quarter of
fiscal 2021 compared to the first quarter of fiscal 2020. All percentages shown
in the table below and the discussion that follows have been calculated using
unrounded numbers.
                                                                                Three Months Ended
                                       September 26, 2020                           September 28, 2019                            Variance
                                                                        

(millions, except per share data)

                                                        % of                                         % of
                                Amount               net sales               Amount               net sales              Amount                %
Net sales                    $  1,172.2                    100.0  %       $  1,357.9                    100.0  %       $ (185.7)              (13.7) %
Gross profit                      830.2                     70.8               914.5                     67.3             (84.3)               (9.2)
SG&A expenses                     628.0                     53.6               862.9                     63.5            (234.9)              (27.2)
Operating income (loss)           202.2                     17.3                51.6                      3.8             150.6                     NM
Interest expense, net              19.4                      1.7                12.3                      0.9               7.1                58.0
Other expense (income)             (2.6)                    (0.2)               12.7                      0.9             (15.3)                    NM
Provision for income taxes        (46.3)                    (4.0)                6.6                      0.5             (52.9)                    NM
Net income (loss)                 231.7                     19.8                20.0                      1.5             211.7                     NM
Net income (loss) per share:
Basic                        $     0.84$     0.07$   0.77                     NM
Diluted                      $     0.83$     0.07$   0.76                     NM




NM - Not meaningful
GAAP to Non-GAAP Reconciliation
The Company's reported results are presented in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). The
reported results during the first quarter of fiscal 2021 and fiscal 2020 reflect
the costs attributable to the CARES Act Tax Impact, the Acceleration Program,
ERP system implementation efforts, Organization-related and Integration costs
and Impairment charges, as noted in the following tables. Refer to "Non-GAAP
Measures" herein for further discussion on the Non-GAAP measures.
















                                       27
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First Quarter Fiscal 2021 Items

                                                                Three 

Months Ended September 26, 2020

                                                                           Items Affecting
                                                                            Comparability
                                                                                                                                          Non-GAAP Basis
                                                 GAAP Basis              CARES Act Tax                  Acceleration                        (Excluding
                                                (As Reported)               Impact                         Program                            Items)
                                                                  (millions, except per share data)
Coach                                                  644.9                         -                             -                             644.9
Kate Spade                                             154.1                         -                             -                             154.1
Stuart Weitzman                                         31.2                         -                             -                              31.2
Gross profit(1)                               $        830.2          $              -                $            -                      $      830.2

Coach                                                  374.9                         -                          10.7                             364.2
Kate Spade                                             130.9                         -                           1.0                             129.9
Stuart Weitzman                                         31.2                         -                          (2.4)                             33.6
Corporate                                               91.0                         -                          17.3                              73.7
SG&A expenses                                 $        628.0          $              -                $         26.6                      $      601.4

Coach                                                  270.0                         -                         (10.7)                            280.7
Kate Spade                                              23.2                         -                          (1.0)                             24.2
Stuart Weitzman                                            -                         -                           2.4                              (2.4)
Corporate                                              (91.0)                        -                         (17.3)                            (73.7)
Operating income (loss)                       $        202.2          $              -                $        (26.6)$      228.8

Provision for income taxes                             (46.3)                    (91.7)                         (5.8)                             51.2
Net income (loss)                             $        231.7          $           91.7                $        (20.8)$      160.8

Net income (loss) per diluted common share $ 0.83 $

      0.33                $        (0.08)$       0.58




(1)Adjustments within Gross profit are recorded within Cost of sales.
In the first quarter of fiscal 2021 the Company incurred charges as follows:
•CARES Act Tax Impact - Total amount relates to the income tax benefits under
the CARES Act, most notably the Net Operating Loss ("NOL") carryback claim.
Refer to Note 15, "Income Taxes" for further information.
•Acceleration Program - Total charges incurred under the Acceleration Program
are primarily professional fees incurred as a result of the development and
execution of the Company's strategic initiatives, as well as actions to
streamline the Company's organization, which include severance. Refer to the
"Executive Overview" and Note 6, "Restructuring Activities," herein for further
information.
These actions taken together increased the Company's SG&A expenses by $26.6
million and reduced Provision for income taxes by $97.5 million, positively
impacting Net income by $70.9 million or $0.25 per diluted share.
                                       28
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First Quarter Fiscal 2020 Items

                                                                   Three 

Months Ended September 28, 2019

                                                                       Items Affecting Comparability
                                                                                                                                               Non-GAAP Basis
                                     GAAP Basis                                           Organization-related &                                 (Excluding
                                    (As Reported)       ERP Implementation                   Integration costs              Impairment             Items)
                                                                     (millions, except per share data)
Coach                                    677.6                         -                                    (0.1)                   -                 677.7
Kate Spade                               191.5                         -                                    (1.2)                   -                 192.7
Stuart Weitzman                           45.4                         -                                    (2.8)                   -                  48.2
Gross profit(1)                     $    914.5          $              -                $                   (4.1)         $         -          $      918.6

Coach                                    478.1                         -                                     0.3                 41.5                 436.3
Kate Spade                               198.7                         -                                     0.1                 25.2                 173.4
Stuart Weitzman                           64.7                         -                                    (2.4)                 8.9                  58.2
Corporate                                121.4                      14.5                                    22.7                    -                  84.2
SG&A expenses                       $    862.9          $           14.5                $                   20.7          $      75.6$      752.1

Coach                                    199.5                         -                                    (0.4)               (41.5)                241.4
Kate Spade                                (7.2)                        -                                    (1.3)               (25.2)                 19.3
Stuart Weitzman                          (19.3)                        -                                    (0.4)                (8.9)                (10.0)
Corporate                               (121.4)                    (14.5)                                  (22.7)                   -                 (84.2)
Operating income (loss)             $     51.6          $          (14.5)               $                  (24.8)         $     (75.6)$      166.5

Provision for income taxes                 6.6                      (3.5)                                   (5.4)               (12.1)                 27.6
Net income (loss)                   $     20.0          $          (11.0)               $                  (19.4)         $     (63.5)$      113.9
Net income (loss) per diluted
common share                        $     0.07          $          (0.04)               $                  (0.07)         $     (0.22)$       0.40




(1)Adjustments within Gross profit are recorded within Cost of sales.
In the first quarter of fiscal 2020, the Company incurred the following:
•ERP Implementation - Total charges represent technology implementation costs.
Refer to the "Executive Overview" herein for further information.
•Organization-related and Integration costs - Total charges represent
organization-related costs as a result of the departure of the Company's CEO in
September 2019 and integration costs related to inventory and share-based
compensation. Refer to Note 5, "Integration," for more information regarding
integration costs.
•Impairment - Total charges are primarily due to impairment charges on property
and equipment assets and lease ROU assets. Refer to the Note 13, "Fair Value
Measurements," for further information.
  These actions taken together increased the Company's Cost of sales by $4.1
million, SG&A expenses by $110.8 million and reduced Provision for income taxes
by $21.0 million, negatively impacting Net income by $93.9 million or $0.33 per
diluted share.
Tapestry, Inc. Summary - First Quarter of Fiscal 2021
Currency Fluctuation Effects
The change in net sales and gross margin for the first quarter of fiscal 2021
compared to the first quarter of fiscal 2020 has been presented both including
and excluding currency fluctuation effects. All percentages shown in the tables
below and the discussion that follows have been calculated using unrounded
numbers.
                                       29
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Net Sales
                                    Three Months Ended                                Variance
                           September 26,           September 28,                                                    Constant Currency
                               2020                    2019                 Amount                  %                     Change
                                                             (millions)
Coach                    $        875.4$        965.9$    (90.5)                 (9.4) %                    (9.6) %
Kate Spade                        240.4                   305.5               (65.1)                (21.3)                     (21.4)
Stuart Weitzman                    56.4                    86.5               (30.1)                (34.8)                     (35.2)
Total Tapestry           $      1,172.2$      1,357.9              (185.7)                (13.7)                     (13.9)


Net sales in the first quarter of fiscal 2021 decreased 13.7% or $185.7 million
to $1.17 billion. Excluding the effects of foreign currency, net sales decreased
by 13.9% or $188.6 million.
•Coach Net Sales decreased 9.4% or $90.5 million to $875.4 million in the first
quarter of fiscal 2021. Excluding the impact of foreign currency, net sales
decreased $92.6 million or 9.6%. This decrease in net sales is primarily
attributed to a net decline of $89.5 million in net global retail sales driven
by lower sales in North America stores due to the impact of Covid-19, which was
partially offset by an increase in e-commerce sales in North America and retail
sales in mainland China.
•Kate Spade Net Sales decreased 21.3% or $65.1 million to $240.4 million in the
first quarter of fiscal 2021. Excluding the impact of foreign currency, net
sales decreased 21.4% or $65.5 million. This decrease is primarily due to a
decline of $34.4 million in net global retail sales driven by lower sales in
North America due to the impact of the Covid-19 outbreak, partially offset by an
increase in e-commerce sales. Wholesale sales also declined $31.9 million due to
a strategic pullback in disposition and lower demand as a result of the Covid-19
outbreak.
•Stuart Weitzman Net Sales decreased 34.8% or $30.1 million to $56.4 million in
the first quarter of fiscal 2021. Excluding the impact of foreign currency, net
sales decreased 35.2% or $30.5 million. This decrease was primarily due to lower
shipments in the wholesale business of $16.2 million due to a decline in demand
as a result of the Covid-19 outbreak. Additionally, retail sales decreased $14.3
million, which is attributed to both a decline in demand as a result of the
Covid-19 outbreak and store closures as a result of market exits.
Gross Profit
                                                                          Three Months Ended
                                  September 26, 2020                        September 28, 2019                           Variance
                                                                              (millions)
                             Amount           % of Net Sales           Amount           % of Net Sales          Amount                %
Coach                     $    644.9                  73.7  %       $    677.6                  70.1  %       $  (32.7)               (4.8) %
Kate Spade                     154.1                  64.1               191.5                  62.7             (37.4)              (19.5)
Stuart Weitzman                 31.2                  55.3                45.4                  52.5             (14.2)              (31.4)
Tapestry                       830.2                  70.8          $    914.5                  67.3             (84.3)               (9.2)


Gross profit decreased 9.2% or $84.3 million to $830.2 million in the first
quarter of fiscal 2021 from $914.5 million in the first quarter of fiscal 2020.
Gross margin for the first quarter of fiscal 2021 was 70.8% as compared to 67.3%
in the first quarter of fiscal 2020. Excluding items affecting comparability of
$4.1 million in the first quarter of fiscal 2020 as discussed in the "GAAP to
non-GAAP Reconciliation" herein, gross profit decreased 9.6% or $88.4 million to
$830.2 million in the first quarter of fiscal 2021. Excluding items affecting
comparability, gross margin increased 320 basis points to 70.8% compared to
67.6% in the first quarter of fiscal 2020, and on a constant currency basis,
gross margin increased 310 basis points from the first quarter of fiscal 2020.
The Company includes inbound product-related transportation costs from our
service providers within Cost of sales. The Company, similar to some companies,
includes certain transportation-related costs due to our distribution network in
SG&A expenses rather than in Cost of sales; for this reason, our gross margins
may not be comparable to that of entities that include all costs related to
their distribution network in Cost of sales.
                                       30
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•Coach Gross Profit decreased 4.8% or $32.7 million to $644.9 million in the
first quarter of fiscal 2021 from $677.6 million in the first quarter of fiscal
2020. Gross margin increased to 73.7% in the first quarter of fiscal 2021 from
70.1% in the first quarter of fiscal 2020. Excluding items affecting
comparability of $0.1 million in the first quarter of fiscal 2020, gross profit
decreased 4.8% or $32.8 million from $677.7 million in the first quarter of
fiscal 2020. Excluding items affecting comparability, gross margin increased to
73.7% from 70.2% in the first quarter of fiscal 2020, and on a constant currency
basis gross margin increased 350 basis points from the first quarter of fiscal
2020. This increase in gross margin was primarily due to reduced promotional
activity.
•Kate Spade Gross Profit decreased 19.5% or $37.4 million to $154.1 million in
the first quarter of fiscal 2021 from $191.5 million in the first quarter of
fiscal 2019. Gross margin increased to 64.1% in the first quarter of fiscal 2021
from 62.7% in the first quarter of fiscal 2020. Excluding items affecting
comparability of $1.2 million in the first quarter of fiscal 2020, gross profit
decreased 20.0% or $38.6 million to $154.1 million from $192.7 million in the
first quarter of fiscal 2020. Excluding items affecting comparability, gross
margin increased to 64.1% from 63.1% in the first quarter of fiscal 2020, and on
a constant currency basis gross margin increased 100 basis points from first
quarter of fiscal 2020. This increase in gross margin was primarily due to
favorable channel mix including a strategic pullback in disposition, which was
partially offset by the impact of directly operating the footwear business.
•Stuart Weitzman Gross Profit decreased 31.4% or $14.2 million to $31.2 million
during the first quarter of fiscal 2021 from $45.4 million in the first quarter
of fiscal 2020. Gross margin increased to 55.3% in the first quarter of fiscal
2021 from 52.5% in the first quarter of fiscal 2020. Excluding items affecting
comparability of $2.8 million in the first quarter of fiscal 2020, Stuart
Weitzman gross profit decreased 35.4% or $17.0 million to $31.2 million from
$48.2 million in the first quarter of fiscal 2020. Excluding items affecting
comparability, gross margin decreased to 55.3% from 55.7% in the first quarter
of fiscal 2020, and on a constant currency basis gross margin decreased 160
basis points from the first quarter of fiscal 2020. This decrease in gross
margin was primarily due to actions taken to exit certain markets.
Selling, General and Administrative Expenses ("SG&A")
                                                                          Three Months Ended
                                  September 26, 2020                        September 28, 2019                           Variance
                                                                              (millions)
                             Amount           % of Net Sales           Amount           % of Net Sales          Amount                %
Coach                     $    374.9                  42.8  %       $    478.1                  49.5  %       $ (103.2)              (21.6) %
Kate Spade                     130.9                  54.5               198.7                  65.0             (67.8)              (34.1)
Stuart Weitzman                 31.2                  55.2                64.7                  74.8             (33.5)              (51.8)
Corporate                       91.0                       NA            121.4                       NA          (30.4)              (25.0)
Tapestry                       628.0                  53.6               862.9                  63.5             234.9               (27.2)


SG&A expenses decreased 27.2% or $234.9 million to $628.0 million in the first
quarter of fiscal 2021 as compared to $862.9 million in the first quarter of
fiscal 2020. As a percentage of net sales, SG&A expenses decreased to 53.6%
during the first quarter of fiscal 2021 as compared to 63.5% during the first
quarter of fiscal 2020. Excluding items affecting comparability of $26.6 million
and $110.8 million in the first quarter of fiscal 2021 and fiscal 2020,
respectively, SG&A expenses decreased 20.0% or $150.7 million to $601.4 million
from $752.1 million in the first quarter of fiscal 2020. SG&A as a percentage of
sales decreased to 51.3% as compared to 55.4% during the first quarter of fiscal
2020. This decrease in SG&A expenses is primarily attributed to actions taken as
part of the Acceleration Program, as well as reduced variable expenses.
•Coach SG&A Expenses decreased 21.6% or $103.2 million to $374.9 million in the
first quarter of fiscal 2021 as compared to $478.1 million in the first quarter
of fiscal 2020. SG&A expenses as a percentage of net sales decreased to 42.8%
during the first quarter of fiscal 2021 from 49.5% during the first quarter of
fiscal 2020. Excluding items affecting comparability of $10.7 million and $41.8
million in the first quarter of fiscal 2021 and fiscal 2020, respectively, SG&A
expenses decreased 16.5% or $72.1 million to $364.2 million during the first
quarter of fiscal 2021; and SG&A expenses as a percentage of net sales decreased
to 41.6% in the first quarter of fiscal 2021 from 45.2% in the first quarter of
fiscal 2020. This decrease in SG&A expenses is primarily due to a decline in
compensation costs, occupancy costs and depreciation expense.
•Kate Spade SG&A Expenses decreased 34.1% or $67.8 million to $130.9 million in
the first quarter of fiscal 2021 as compared to $198.7 million in the first
quarter of fiscal 2020. As a percentage of net sales, SG&A expenses decreased to
54.5% during the first quarter of fiscal 2021 as compared to 65.0% during the
first quarter of fiscal 2020. Excluding items affecting comparability of $1.0
million and $25.3 million in the first quarter of fiscal 2021 and fiscal 2020,
                                       31
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respectively, SG&A expenses decreased 25.1% or $43.5 million to $129.9 million
during the first quarter of fiscal 2021; and SG&A expenses as a percentage of
net sales decreased to 54.0% in the first quarter of fiscal 2021 from 56.7% in
the first quarter of fiscal 2020. This decrease in SG&A expenses is primarily
due to a decline in compensation costs, occupancy costs, marketing spend and
depreciation expense.
•Stuart Weitzman SG&A Expenses decreased 51.8% or $33.5 million to $31.2 million
in the first quarter of fiscal 2021 as compared to $64.7 million in the first
quarter of fiscal 2020. As a percentage of net sales, SG&A expenses decreased to
55.2% during the first quarter of fiscal 2021 as compared to 74.8% during the
first quarter of fiscal 2020. Excluding items affecting comparability of $(2.4)
million and $6.5 million in the first quarter of fiscal 2021 and fiscal 2020,
respectively, SG&A expenses decreased 42.3% or $24.6 million to $33.6 million
during the first quarter of fiscal 2021 from $58.2 million during the first
quarter of fiscal 2020; and SG&A expenses as a percentage of net sales decreased
to 59.5% in the first quarter of fiscal 2021 from 67.2% in the first quarter of
fiscal 2020. This decrease is primarily due to store closures mainly as a result
of certain market exits, a decline in marketing spend, true up of reserves and
reduced depreciation expense.
•Corporate expenses, which are included within SG&A expenses discussed above but
are not directly attributable to a reportable segment, decreased 25.0% or $30.4
million to $91.0 million in the first quarter of fiscal 2021 as compared to
$121.4 million in the first quarter of fiscal 2020. Excluding items affecting
comparability of $17.3 million and $37.2 million in the first quarter of fiscal
2021 and fiscal 2020, respectively, SG&A expenses decreased 12.4% or $10.5
million to $73.7 million in the first quarter of fiscal 2021 as compared to
$84.2 million in the first quarter of fiscal 2020. This decrease in SG&A
expenses was primarily driven by a gain realized on the sale of our corporate
office in Hong Kong.
Operating Income (Loss)
                                                                           Three Months Ended
                                  September 26, 2020                         September 28, 2019                            Variance
                                                                               (millions)
                             Amount           % of Net Sales           Amount            % of Net Sales           Amount                %
Coach                     $    270.0                  30.8  %       $    199.5                   20.7  %       $    70.5                35.4  %
Kate Spade                      23.2                   9.6                (7.2)                  (2.4)              30.4                     NM
Stuart Weitzman                    -                     -               (19.3)                 (22.2)              19.3                     NM
Corporate                      (91.0)                      NA           (121.4)                       NA            30.4                25.0
Tapestry                       202.2                  17.3                51.6                    3.8              150.6                     NM


Operating income increased $150.6 million to an operating income of $202.2
million in the first quarter of fiscal 2021 as compared to operating income of
$51.6 million in the first quarter of fiscal 2020. Operating margin was 17.3% in
the first quarter of fiscal 2021 as compared to 3.8% in the first quarter of
fiscal 2020. Excluding items affecting comparability of $26.6 million and $114.9
million in the first quarter of fiscal 2021 and fiscal 2020, respectively,
operating income increased $62.3 million to an operating income of $228.8
million in the first quarter of fiscal 2021 from an operating income of $166.5
million in the first quarter of fiscal 2020; and operating margin increased to
19.5% in the first quarter of fiscal 2021 as compared to 12.3% in the first
quarter of fiscal 2020.
•Coach Operating Income increased 35.4% or $70.5 million to $270.0 million in
the first quarter of fiscal 2021, resulting in an operating margin of 30.8%, as
compared to $199.5 million and 20.7%, respectively, in the first quarter of
fiscal 2020. Excluding items affecting comparability, Coach operating income
increased 16.3% or $39.3 million to $280.7 million from $241.4 million in the
first quarter of fiscal 2020; and operating margin was 32.1% in the first
quarter of fiscal 2021 as compared to 25.0% in the first quarter of fiscal 2020.
This increase in operating income was due to lower SG&A expenses, partially
offset by lower gross profit.
•Kate Spade Operating Income increased $30.4 million to operating income of
$23.2 million in the first quarter of fiscal 2021, resulting in an operating
margin of 9.6%, as compared to an operating loss of $7.2 million and operating
margin of (2.4)% in the first quarter of fiscal 2020. Excluding items affecting
comparability, Kate Spade operating income increased $4.9 million to an
operating income of $24.2 million from an operating income of $19.3 million in
the first quarter of fiscal 2020; and operating margin was 10.1% in the first
quarter of fiscal 2021 as compared to 6.3% in the first quarter of fiscal 2020.
This increase in operating income was due to lower SG&A expenses, partially
offset by lower gross profit.
•Stuart Weitzman Operating Loss decreased $19.3 million to $0.0 million in the
first quarter of fiscal 2021, as compared to an operating loss of $19.3 million
in the first quarter of fiscal 2020. Excluding items affecting
                                       32
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comparability, Stuart Weitzman operating loss decreased $7.6 million to $2.4
million from an operating loss of $10.0 million in the first quarter of fiscal
2020; and operating margin was (4.2)% in the first quarter of fiscal 2021 as
compared to (11.5)% in the first quarter of fiscal 2020. This decrease in
operating loss was due to lower SG&A expenses, partially offset by lower gross
profit.
Interest Expense, net
Interest expense, net increased 58.0% or $7.1 million to $19.4 million in the
first quarter of fiscal 2021 as compared to $12.3 million in the first quarter
of fiscal 2020. The increase in interest expense, net is due to lower interest
income and the additional interest expense related to the draw down on the
Revolving Credit Facility in the fourth quarter of fiscal 2020.
Other Expense (Income)
Other expense decreased $15.3 million to income of $2.6 million in the first
quarter of fiscal 2021 as compared to expense of $12.7 million in the first
quarter of fiscal 2020. The decrease in other expense is related to a decrease
in foreign exchange losses.
Provision for Income Taxes
The effective tax rate was (25.0)% in the first quarter of fiscal 2021 as
compared to 24.8% in the first quarter of fiscal 2020. Excluding items affecting
comparability, the effective tax rate was 24.1% in the first quarter of 2021 as
compared to 19.6% in the first quarter of fiscal 2020. The increase in our
effective tax rate was primarily attributable to the geographic mix of earnings
and excess tax shortfall related to the vesting of equity compensation awards.
Net Income (Loss)
Net income increased $211.7 million to $231.7 million in the first quarter of
fiscal 2021 as compared to $20.0 million in the first quarter of fiscal 2020.
Excluding items affecting comparability, net income increased $46.9 million to a
net income of $160.8 million in the first quarter of fiscal 2021 as compared to
a net income of $113.9 million in the first quarter of fiscal 2020. This
increase was primarily due to higher operating income.
Net Income (Loss) per Share
Net income per diluted share was $0.83 in the first quarter of fiscal 2021 as
compared to $0.07 in the first quarter of fiscal 2020. Excluding items affecting
comparability, net income per diluted share was $0.58 in the first quarter of
fiscal 2021 as compared to $0.40 in the first quarter of fiscal 2020. This
change was primarily due to higher net income.


                                       33
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NON-GAAP MEASURES
The Company's reported results are presented in accordance with GAAP. The
reported gross profit, SG&A expenses, operating income, provision for income
taxes, net income and earnings per diluted share in the first quarter of fiscal
2021 and fiscal 2020 reflect certain items, including the impact of ERP
Implementation, Organization-related and Integration costs and Impairment
charges in fiscal 2020, as well as Acceleration Program costs and CARES Act Tax
Impact in fiscal 2021. As a supplement to the Company's reported results, these
metrics are also reported on a non-GAAP basis to exclude the impact of these
items, along with a reconciliation to the most directly comparable GAAP
measures.
The Company has historically reported comparable store sales, which reflects
sales performance at stores that have been open for at least 12 months, and
includes sales from the Internet. The Company excludes new stores, including
newly acquired locations, from the comparable store base for the first twelve
months of operation. The Company excludes closed stores from the calculation.
Comparable store sales are not adjusted for store expansions. Due to the
uncertain business environment resulting from the impact of the Covid-19
pandemic, comparable store sales are not reported for the three months ended
September 26, 2020 as the Company does not believe this metric is currently
meaningful to the readers of its financial statements for this period.
These non-GAAP performance measures were used by management to conduct and
evaluate its business during its regular review of operating results for the
periods affected. Management and the Company's Board utilized these non-GAAP
measures to make decisions about the uses of Company resources, analyze
performance between periods, develop internal projections and measure management
performance. The Company's internal management reporting excluded these items.
In addition, the Human Resources Committee of the Company's Board uses these
non-GAAP measures when setting and assessing achievement of incentive
compensation goals.
The Company operates on a global basis and reports financial results in U.S.
dollars in accordance with GAAP. Fluctuations in foreign currency exchange rates
can affect the amounts reported by the Company in U.S. dollars with respect to
its foreign revenues and profit. Accordingly, certain material increases and
decreases in operating results for the Company and its segments have been
presented both including and excluding currency fluctuation effects. These
effects occur from translating foreign-denominated amounts into U.S. dollars and
comparing to the same period in the prior fiscal year. Constant currency
information compares results between periods as if exchange rates had remained
constant period-over-period. The Company calculates constant currency results by
translating current period Net sales and Cost of sales, in local currency using
the prior year period's currency conversion rate. The constant currency gross
margin results are reported excluding items affecting comparability.
We believe these non-GAAP measures are useful to investors and others in
evaluating the Company's ongoing operating and financial results in a manner
that is consistent with management's evaluation of business performance and
understanding how such results compare with the Company's historical
performance. Additionally, we believe presenting certain increases and decreases
in constant currency provides a framework for assessing the performance of the
Company's business outside the United States and helps investors and analysts
understand the effect of significant year-over-year currency fluctuations. We
believe excluding these items assists investors and others in developing
expectations of future performance.
By providing the non-GAAP measures, as a supplement to GAAP information, we
believe we are enhancing investors' understanding of our business and our
results of operations. The non-GAAP financial measures are limited in their
usefulness and should be considered in addition to, and not in lieu of, GAAP
financial measures. Further, these non-GAAP measures may be unique to the
Company, as they may be different from non-GAAP measures used by other
companies.
For a detailed discussion on these non-GAAP measures, see Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

                                       34
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LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
                                                                              Three Months Ended
                                                            September 26,           September 28,
                                                                2020                    2019                Change
                                                                                  (millions)

Net cash provided by (used in) operating activities $ 90.0

       $          5.7          $   84.3
Net cash used in investing activities                               (2.0)                  (73.6)             71.6
Net cash used in financing activities                               (8.4)                 (377.4)            369.0
Effect of exchange rate changes on cash and cash
equivalents                                                          8.0                    (1.8)              9.8
Net decrease in cash and cash equivalents                 $         87.6    

$ (447.1)$ 534.7



The Company's cash and cash equivalents increased by $87.6 million in the first
three months ended of fiscal 2021 as compared to a decrease of $447.1 million in
the first three months ended of fiscal 2020, as discussed below.
Net cash provided by (used in) operating activities
Net cash provided by operating activities increased $84.3 million due to higher
net income of $211.7 million and changes in operating assets and liabilities of
$77.4 million, partially off by the impact of non-cash adjustments of $204.8
million.
The $77.4 million increase in changes in operating asset and liability balances
were primarily driven by the following:
•Accounts payable were a source of cash of $135.1 million in the first three
months ended of fiscal 2021 compared to a source of cash of $37.1 million in the
first three months ended of fiscal 2020, primarily due to the extension of
payment terms to certain vendors.
•Inventories were a use of cash of $57.5 million in the first three months ended
of fiscal 2021 compared to a use of cash of $116.7 million in the first three
months ended of fiscal 2020, primarily driven by more disciplined inventory
management.
•Other assets were a use of cash of $66.4 million in the first three months
ended of fiscal 2021 compared to a use of cash of $17.9 million in the first
three months ended of fiscal 2020, primarily related to an increase in income
tax receivable due to the NOL carryback claim under the CARES Act, partially
offset by lower receivables related to other taxes.
•Accrued liabilities were a use of cash of $61.2 million in the first three
months ended of fiscal 2021 as compared to a use of cash of $14.1 million in the
first three months ended of fiscal 2020, primarily driven by the timing of tax
payments as well as accruals for expected severance, partially offset by the
Annual Incentive Plan payment in the first quarter of fiscal 2020 when compared
to fiscal 2021, as the Company did not pay out under its Annual Incentive Plan
during fiscal 2021.
Net cash used in investing activities
Net cash used in investing activities in the first three months ended of fiscal
2021 was $2.0 million as compared to a use of cash of $73.6 million in the first
three months ended of fiscal 2020, resulting in a $71.6 million decrease in net
cash used in investing activities.
The $2.0 million use of cash in the first three months ended of fiscal 2021 is
primarily due to capital expenditures of $26.0 million partially offset by
proceeds from the sale of building of $23.9 million.
The $73.6 million use of cash in the first three months ended of fiscal 2020 is
primarily due to capital expenditures of $71.9 million.
Net cash used in financing activities
Net cash used in financing activities was $8.4 million in the first three months
ended of fiscal 2021 as compared to a use of cash of $377.4 million in the first
three months ended of fiscal 2020, resulting in a net decrease in use of cash
for financing activities of $369.0 million.
The $8.4 million of cash used in the first three months ended of fiscal 2021 was
primarily due to taxes paid to net settle share-based awards of $8.2 million.
                                       35
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The $377.4 million use of cash in the first three months ended of fiscal 2020
was primarily due to repurchases of common stock of $267.0 million and dividend
payments of $96.8 million.
Working Capital and Capital Expenditures
As of September 26, 2020, in addition to our cash flows from operations, our
sources of liquidity and capital resources were comprised of the following:
                                                           Sources of             Outstanding           Total Available
                                                            Liquidity            Indebtedness             Liquidity(1)
                                                                                    (millions)
Cash and cash equivalents(1)                             $    1,513.9          $            -          $       1,513.9
Short-term investments(1)                                         8.5                       -                      8.5

Revolving Credit Facility(2)                                    900.0                   700.0                    200.0

3.000% Senior Notes due 2022(3)                                 400.0                   400.0                        -
4.250% Senior Notes due 2025(3)                                 600.0                   600.0                        -
4.125% Senior Notes due 2027(3)                                 600.0                   600.0                        -

Total                                                    $    4,022.4$      2,300.0$       1,722.4




(1)  As of September 26, 2020, approximately 39% of our cash and short-term
investments were held outside the United States. The Company will likely
repatriate some portion of available foreign cash in the foreseeable future, and
has recorded deferred taxes on certain earnings of non-US subsidiaries that are
deemed likely to be repatriated.
(2)  In October 2019, the Company entered into a definitive credit agreement
whereby Bank of America, N.A., as administrative agent, the other agents party
thereto, and a syndicate of banks and financial institutions have made available
to the Company a $900.0 million revolving credit facility, including
sub-facilities for letters of credit, with a maturity date of October 24, 2024
(the "Revolving Credit Facility"). Borrowings under the Revolving Credit
Facility bear interest at a rate per annum equal to, at the Borrowers' option,
either (a) an alternate base rate (which is a rate equal to the greatest of (i)
the Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate in
effect on such day plus ½ of 1% or (iii) the Adjusted LIBO Rate for a one month
Interest Period on such day plus 1%) or (b) a rate based on the rates applicable
for deposits in the interbank market for U.S. Dollars or the applicable currency
in which the loans are made plus, in each case, an applicable margin. The
applicable margin will be determined by reference to a grid, defined in the
Credit Agreement, based on the ratio of (a) consolidated debt plus operating
lease liability to (b) consolidated EBITDAR. Additionally, the Company pays a
commitment fee at a rate determined by the reference to the aforementioned
pricing grid. On May 19, 2020, the Company entered into Amendment No. 1 (the
"Amendment") to the Revolving Credit Facility. Under the terms of the Amendment,
during the period from the Effective Date until October 2, 2021, the Company
must maintain available liquidity of $700 million (with available liquidity
defined as the sum of unrestricted cash and cash equivalents and available
commitments under credit facilities, including the Revolving Credit Facility).
Following the period from the Effective Date until the compliance certificate is
delivered for the fiscal quarter ending July 3, 2021 (the "Covenant Relief
Period"), the Company must comply on a quarterly basis with a maximum net
leverage ratio of 4.0 to 1.0. In addition, the Amendment provides that during
the Covenant Relief Period, if any two of the Company's three credit ratings are
non-investment grade, the Revolving Credit Facility will be guaranteed by the
Company's material domestic subsidiaries and will be subject to liens on
accounts receivable, inventory and intellectual property, in each case subject
to customary exceptions. The Amendment also contains negative covenants that
limit the ability of the Company and its subsidiaries to, among other things,
incur certain debt, incur certain liens, dispose of assets, make investments,
loans or advances, and engage in share buybacks during the Covenant Relief
Period. An increased interest rate will be applicable during the Covenant Relief
Period when the Company's gross leverage ratio exceeds 4.0 to 1.0. The $900
million aggregate commitment amount under the revolving credit facility remains
unchanged. As of September 26, 2020, $700.0 million of borrowings were
outstanding under the Revolving Credit Facility. Refer to Note 12, "Debt," for
further information on our existing debt instruments and Note 18, "Subsequent
Events" for further information on the repayment of outstanding borrowings under
the Revolving Credit Facility.
(3) In March 2015, the Company issued $600.0 million aggregate principal amount
of 4.250% senior unsecured notes due April 1, 2025 at 99.445% of par (the "2025
Senior Notes"). Furthermore, in June 2017, the Company issued $400.0 million
aggregate principal amount of 3.000% senior unsecured notes due July 15, 2022 at
99.505% of par (the "2022 Senior Notes"), and $600.0 million aggregate principal
amount of 4.125% senior unsecured notes due July 15, 2027 at 99.858% of par (the
"2027 Senior Notes"). Furthermore, the indentures for the 2025 Senior Notes,
2022 Senior Notes and 2027 Senior
                                       36
--------------------------------------------------------------------------------

Notes contain certain covenants limiting the Company's ability to: (i) create
certain liens, (ii) enter into certain sale and leaseback transactions and (iii)
merge, or consolidate or transfer, sell or lease all or substantially all of the
Company's assets. As of September 26, 2020, no known events of default have
occurred. Refer to Note 12, "Debt," for further information on our existing debt
instruments.
We believe that our Revolving Credit Facility is adequately diversified with no
undue concentrations in any one financial institution. As of September 26, 2020,
there were 12 financial institutions participating in the Revolving Credit
Facility, with no one participant maintaining a combined maximum commitment
percentage in excess of 14%.
We have the ability to draw on our credit facilities or access other sources of
financing options available to us in the credit and capital markets for, among
other things, acquisition or integration-related costs, our restructuring
initiatives, settlement of a material contingency, or a material adverse
business or macroeconomic development, as well as for other general corporate
business purposes.
Management believes that cash flows from operations, access to the credit and
capital markets and our credit lines, on-hand cash and cash equivalents and our
investments will provide adequate funds to support our operating, capital, and
debt service requirements for fiscal 2021 and beyond. There can be no assurance
that any such capital will be available to the Company on acceptable terms or at
all. Our ability to fund working capital needs, planned capital expenditures,
and scheduled debt payments, as well as to comply with all of the financial
covenants under our debt agreements, depends on future operating performance and
cash flow. This future operating performance and cash flow are subject to
prevailing economic conditions, which is uncertain as a result of Covid-19, and
to financial, business and other factors, some of which are beyond the Company's
control.
Reference should be made to our most recent Annual Report on Form 10-K and other
filings with the SEC for additional information regarding liquidity and capital
resources. The Company expects total fiscal 2021 capital expenditures to be
approximately $150 million.
Seasonality
The Company's results are typically affected by seasonal trends. During the
first fiscal quarter, we build inventory for the holiday selling season. In the
second fiscal quarter, working capital requirements are reduced substantially as
we generate higher net sales and operating income, especially during the holiday
months of November and December. Accordingly, the Company's net sales, operating
income and operating cash flows for the three months ended September 26, 2020
are not necessarily indicative of that expected for the full fiscal 2021.
However, fluctuations in net sales, operating income and operating cash flows of
the Company in any fiscal quarter may be affected by the timing of wholesale
shipments and other events affecting retail sales, including adverse weather
conditions or other macroeconomic events.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in Note 3 to the audited
consolidated financial statements in our fiscal 2020 10-K. Our discussion of
results of operations and financial condition relies on our condensed
consolidated financial statements that are prepared based on certain critical
accounting policies that require management to make judgments and estimates
which are subject to varying degrees of uncertainty. While we believe that these
accounting policies are based on sound measurement criteria, actual future
events can and often do result in outcomes that can be materially different from
these estimates or forecasts.
For a complete discussion of our critical accounting policies and estimates, see
the "Critical Accounting Policies and Estimates" section of the Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
fiscal 2020 10-K. As of September 26, 2020, there have been no material changes
to any of the critical accounting policies.
The Company performs its annual impairment assessment of goodwill as well as
brand intangibles at the beginning of the fourth quarter of each fiscal year. In
all fiscal years, the fair values of our Coach brand reporting units
significantly exceeded their respective carrying values. The fair values of the
Kate Spade brand reporting unit and indefinite-lived brand as of the fiscal 2020
testing date exceeded their respective carrying values by approximately 13% and
35%, respectively. Several factors could impact the Kate Spade brand's ability
to achieve expected future cash flows, including continued economic volatility
and potential operational challenges related to the Covid-19 pandemic, the
reception of new collections in all channels, the success of international
expansion strategies including the direct operation of certain previous
distributor and joint venture businesses, the optimization of the store fleet
productivity, the impact of promotional activity in department stores, and the
simplification of certain corporate overhead structures and other initiatives
aimed at increasing profitability of the business. Given the relatively small
excess of fair value over carrying value as noted above, if profitability trends
decline during fiscal 2021 from those that are expected, it is possible that an
interim test, or our annual impairment test, could result in an impairment of
these assets.
                                       37

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