What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-08-13 compared with 2019-08-15 · 317 added, 274 removed, 290 unchanged (67% of the section changed)

4 unchanged sentences

EXECUTIVE OVERVIEW

The fiscal years ended June 29, 2019 , June 30, 2018 and July 1, 2017 were each 52-week periods.

The fiscal years ended June 27, 2020 , June 29, 2019 and June 30, 2018 were each 52-week periods.

Tapestry is a leading New York-based house of modern luxury accessories and lifestyle brands.

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Our success does not depend solely on the performance of a single channel, geographic area or brand.

Fiscal 2020 Strategic Initiatives

The company continues to focus on execution in fiscal 2020.

Specifically, in fiscal 2020, the Company intends to:

Ignite brand growth driven by innovation

Drive global growth, with a focus on maximizing opportunities with the Chinese consumer

Invest in our digital and data analytic capabilities

Harness the benefit of the multi-brand structure

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

The Company believes the successful execution of these priorities will fuel desire for the Coach, Kate Spade and Stuart Weitzman brands, driving accelerated revenue growth, higher gross margins and substantial operating leverage across Tapestry’s portfolio.

Key strategies by brand include:

Deepening Engagement with Consumers through enhanced brand and cultural relevance, united by our values and purpose to be authentic, inclusive and embody the courageous spirit of New York City

Creating Innovative and Compelling Product to exceed the expectations of our target consumers by geography and customer segments

Driving Digital Sales and New Customer Recruitment by offering a true omnichannel experience

Accelerating Growth in China through tailored and optimized assortments, enhanced marketing and expanded reach across direct channels and third party online distribution

Enhancing Profitability through more focused assortments and a disciplined approach to promotions, resulting in continued Average Unit Retail ("AUR") improvements and higher gross margin.

In addition, achieving operational excellence by right-sizing SG&A cost structure and store fleet

Crystallizing the Brand’s Purpose and Returning to a Position of Strength by fulfilling our promise as a lifestyle brand representing joy, optimism and color, amplified through unique, best-in-class storytelling on a multi-category lifestyle platform

Instilling a Laser Focus on the Customer across all touchpoints, and fostering a community of women emotionally connected to and inspired by the Kate Spade brand story and values

Reenergizing and Growing Handbags and Leathergoods by reintroducing non-negotiable brand elements, rebuilding the core offering, and capitalizing on a new Signature platform

Leaning into Digital Strength by modernizing and creating engaging brand experiences across all of our digital platforms, fully unleashing the power of Kate Spade community and brand

Capturing Market Share and Improving Profitability by acquiring, re-engaging, and retaining customers, driving top and bottom line growth

Stuart Weitzman

Renewing the Brand’s Reputation for Fit, Comfort and Quality, listening and responding to our customer’s needs in order to design beautiful and on-trend shoes

Growing Key Categories by building a leading presence in boots, booties and sandals and expanding the casual assortment, while dramatically simplifying the product offering

Restoring Profitability by focusing distribution on those markets and channels of greatest opportunity, notably China where the brand has strong momentum and high margins

Strengthening Relationship with Wholesale Partners by providing relevant products and faster, more consistent execution

Establishing a Robust Digital Presence which supports best-in-class multi-media content and depth of assortment

Recent Developments

Covid-19 Pandemic

Tapestry began fiscal 2020 with a focus on profitable growth through innovation, global expansion, investing in digital capabilities, and harnessing the power of a multi-brand model.

However, the Covid-19 pandemic has had significant impacts on our business globally.

As a result, while the Company remains confident in its long-term strategy, its short-term focus has pivoted towards adapting to these challenges.

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, including full and partial store closures.

As a result of the widespread impact of Covid-19, Tapestry had temporarily closed the majority of its directly operated stores in globally for some period of time to help reduce the spread of Covid-19.

As of the end of the fiscal year, the vast majority of the Company's stores have reopened for either in-store or curb-side service.

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.

In response to this challenging environment, the Company's focus is on the following actions:

A Focus on Revenue

Re-opening stores as quickly as possible, while following governmental and public health guidelines;

Aggressively leaning into the global digital opportunity for all brands.

Ensuring that our e-commerce platforms and distribution centers remain operational across all major regions.

Eliminating Non-Essential Operating Costs Across All Key Areas of Spend

Driving SG&A savings through the right-sizing of marketing expenses to adjust to the lower revenue base, while maintaining a focus on digital;

reducing fixed costs such as rent;

driving procurement savings, including reducing external third party services.

Strengthening the Company’s Balance Sheet and Enhancing Financial Flexibility

Tightly managing inventories by reflowing product introductions and cancelling inventory receipts for late summer/early fall 2020;

Reducing capital expenditures by delaying or cancelling new store openings, while prioritizing investment in high-return projects aligned with the multi-year growth agenda, notably in digital.

Preserving Liquidity

Drawing down $700 million from its $900 million Revolving Credit Facility to add to cash balances;

Suspending its quarterly cash dividend beginning in the fourth quarter of fiscal 2020;

Suspending its share repurchase program.

Addressing Organizational Costs

Reducing our corporate and retail workforce;

Applying for available government payroll subsidy programs in various countries to mitigate payroll expense;

A 50% reduction in cash compensation for the Board of Directors and salary reductions of 5% to 20%, depending on salary level, for all corporate employees above a certain salary threshold, expected to remain in effect until up to the end of fiscal year 2021;

Cancellation of our Annual Incentive Plan for fiscal year 2020, which resulted in no bonuses being paid for fiscal 2020;

Elimination of merit salary increases for all employees for fiscal year 2021.

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 income 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.

Acceleration Program

The Company is undergoing a review of its business under the Acceleration Program 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) 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 7, "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.

Fiscal 2020 Impairments

During fiscal 2020, Stuart Weitzman results continued to be negatively impacted by trailing impacts of operational challenges first experienced in 2018.

While the Company addressed these challenges through investment in talent, operational process improvements, and a focus on the fashion sensibility of the core design aesthetic, the Brand experienced a reduction in demand.

This reduction in cash flows generated by the brand as well as the decline in future expected cash flows was exacerbated by the Covid-19 pandemic, which resulted in lower sales driven by full and partial closures of a significant portion of our stores globally.

During fiscal 2020, the Company recorded $210.7 million of impairment charges to goodwill and $267.0 million of impairment charges to indefinite-lived brand intangible assets for the Stuart Weitzman reporting unit.

Refer to "Critical Accounting Policies and Estimates," herein, for further information.

During fiscal 2020, the Company recorded $267.7 million of impairment charges related to store assets, inclusive of lease assets as well as purchase commitments.

Impairment charges recorded in the first quarter related to an accounting policy change made in conjunction with the adoption of the new lease accounting standard, whereas the impairment charges recorded in the third and fourth quarter were primarily driven by lower cash flows due to Covid-19.

Refer to Note 12, "Fair Value Measurements," and Note 18, "Segment Information," for further information.

During fiscal 2020, the Company recorded $104.0 million of increases in inventory reserves, similarly driven by current and expected changes to operations as a result of Covid-19.

ERP Implementation

During fiscal 2018, the Company implemented a global consolidation system which provides a common platform for financial reporting, a point-of-sale system for Coach in North America as well as a human resource information system for Corporate, Coach and Stuart Weitzman employees.

During the second quarter of fiscal 2019, the Company deployed global finance and accounting systems for Corporate, Coach and Stuart Weitzman.

During the third quarter of fiscal 2019, the Company deployed global finance, accounting, supply chain and human resource information systems for Kate Spade.

The ERP implementation was substantially completed in fiscal 2019, with the supply chain functions for Coach and Stuart Weitzman implemented in the beginning of fiscal 2020.

The Company expects to incur charges of approximately $30 to $40 million in fiscal 2020 related to this project.

Stuart Weitzman Production Challenges

During fiscal 2019, Stuart Weitzman results continued to be negatively impacted by the trailing impacts of the supply chain operational challenges which began in the third quarter of fiscal 2018, including production delays, which caused lower than expected sales, as the brand was not prepared for the level of complexity and new development as it transitioned to a new creative vision.

The Company has addressed these challenges through investment in talent, as well as added infrastructure and manufacturing capacity.

As a result of these investments, Stuart Weitzman returned to sales growth in fiscal 2019.

Impact of Tax Legislation

On December 22, 2017, H.R.1, formerly known as the Tax Cuts and Jobs Act (the "Tax Legislation") was enacted.

The Tax Legislation significantly revises the U.S.

tax code by (i) lowering the U.S.

federal statutory income tax rate from 35% to 21%, (ii) implementing a territorial tax system, (iii) imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries ("Transition Tax"), (iv) requiring current inclusion of global intangible low taxed income ("GILTI") of certain earnings of controlled foreign corporations in U.S.

federal taxable income, (v) creating the base erosion anti-abuse tax ("BEAT"), (vi) implementing bonus depreciation that will allow for full expensing of qualified property, (vii) enacting a beneficial rate to be applied against Foreign Derived Intangible Income (“FDII”) and (viii) limiting deductibility of interest and executive compensation expense, among other changes.

Notable changes include the following:

Foreign earnings that generated after December 31, 2017 will generally be eligible for a 100% dividends received deduction, however companies may be subject to the alternative BEAT and GILTI tax regimes which could increase the global effective tax rate.

Conversely, companies may be eligible for a reduced rate to the extent their earnings qualify as FDII, which would reduce their global effective tax rate.

Of these tax provisions, the GILTI and FDII provisions have impacted the Company in fiscal year 2019.

The Company does not anticipate any impact under the BEAT provision.

Under GILTI, a portion of the Company’s foreign earnings will be subject to U.S.

For companies subject to GILTI, the Financial Accounting Standards Board (“FASB”) has indicated that companies are allowed to record tax associated with GILTI as a period cost in the period the earnings are included on the U.S.

The Company has chosen this policy.

The Tax Legislation includes, what many believe, is an unintended consequence that results in certain leasehold improvements, being ineligible for bonus depreciation.

The Company has estimated fiscal year 2019 depreciation expense based on how the law was drafted, with no consideration of the perceived legislative intent.

The Company has estimated its capital expenditures by class to estimate depreciation expense for purposes of calculating the rate change adjustment of our deferred tax balance.

To the extent that legislative actions on Qualified Improvement Property ("QIP") are retroactive, the overall effect associated with the remeasurement of deferred taxes will impact the Company's effective tax rate.

At this time, it is unknown whether certain states in which the Company operates will conform to the Tax Legislation or adopt an alternative regime.

The Company continues to monitor developments;

at this time all material aspects of its provision for income tax for the fiscal year ended June 29, 2019 are recorded based on recent guidance or its historical approach to state tax expense.

The Company applied the guidance in SEC Staff Accounting Bulletin (“SAB”) 118 when accounting for the enactment- date of the Tax Legislation for the twelve-month period following the date of the enactment.

As of the fiscal year ended June 29, 2019, the Company completed the accounting for the enactment date income tax effects of the Tax Legislation pursuant to Accounting Standards Codification (“ASC”) 740, Income Taxes, for the measurement of deferred tax assets and liabilities and one-time transition tax.

The amounts recorded were further adjusted due to additional guidance released during the third quarter of fiscal 2019.

The amounts recorded are subject to adjustment as further regulations or additional guidance becomes available.

Integration and Acquisition Costs

In fiscal 2020, the Company completed its multi-year Enterprise Resource Planning ("ERP") implementation.

Key milestones were achieved as follows:

Implementation of a global consolidation system which provided a common platform for financial reporting.

Deployment of global finance and accounting systems for Corporate, Coach and Stuart Weitzman and global finance, accounting, supply chain and human resource information systems for Kate Spade.

Supply chain functions for Coach and Stuart Weitzman were implemented at the beginning of fiscal 2020.

The Company is also implementing a point-of-sale system which supports all in-store transactions, distributes management reporting for each store, and collects sales and payroll information on a daily basis.

This daily collection of store sales and inventory information results in early identification of business trends and provides a detailed baseline for store inventory replenishment.

The implementation is complete for Coach stores in North America and Europe and expected to be implemented for Stuart Weitzman stores in North America in fiscal 2021 and Kate Spade North America in fiscal 2022.

Organization-related and Integration Costs

During fiscal 2019, the Company acquired certain distributors for the Kate Spade and Stuart Weitzman brands.

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These charges are primarily associated with organization-related costs, professional fees, one-time write-off of inventory and limited life purchase accounting adjustments.

The Company currently estimates that it will incur approximately $20 to $30 million in pre-tax charges, of which the majority are expected to be cash charges, in fiscal 2020.

Refer to Note 5, "Integration and Acquisition Costs," Note 3, "Acquisitions," and the "GAAP to Non-GAAP Reconciliation," herein, for further information.

Operational Efficiency Plan

During the fourth quarter of fiscal 2016, the Company announced a series of operational efficiency initiatives focused on creating an agile and scalable business model (the "Operational Efficiency Plan").

The significant majority of the charges under this plan were recorded within SG&A expense.

These charges were associated with organizational efficiencies, primarily related to the reduction of corporate staffing levels globally, as well as accelerated depreciation, mainly associated with information systems retirement, technology infrastructure charges related to the initial costs of replacing and updating our core technology platforms, and international supply chain and office location optimization.

Under this plan, the Company incurred charges of $87.4 million.

The plan was completed in fiscal 2018.

Refer to Note 6, "Restructuring Activities," and "GAAP to Non-GAAP Reconciliation," herein, for further information.

The Company does not expect there to be any charges in fiscal 2021.

Refer to Note 6, "Integration," Note 4, "Acquisitions," and the "GAAP to Non-GAAP Reconciliation," herein, for further information.

Chief Executive Officer and Chief Financial Officer Changes

On September 4, 2019, the Company announced that Victor Luis departed as the Company’s Chief Executive Officer and resigned from the Board of Directors, effective as of September 3, 2019.

On September 4, 2019, the Company named Jide Zeitlin, Chairman of the Board of Directors, as the Company’s Chief Executive Officer.

In connection with Mr.

Luis’s departure, the Company and Mr.

Luis entered into a separation and mutual release agreement.

On July 21, 2020, the Company announced that Jide Zeitlin resigned as the Company’s Chairman, Chief Executive Officer and from the Company's Board of Directors, effective July 20, 2020.

Effective July 21, 2020, the Company appointed Joanne Crevoiserat, the Company's Chief Financial Officer, as Interim Chief Executive Officer.

The Company also appointed Andrea Shaw Resnick, the Company's Global Head of Investor Relations and Corporate Communications, as Interim Chief Financial Officer.

Refer to Note 22, "Subsequent Events," for further information.

Current Trends and Outlook

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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.

Global consumer retail traffic trends remain under pressure.

This, along with other factors, has led to a more promotional environment in the fragmented retail industry due to increased competition and a desire to offset traffic declines with increased levels of conversion.

Further declines in traffic could result in store impairment charges if expected future cash flows of the related asset group do not exceed the carrying value.

Several organizations that monitor the world's economy, including the International Monetary Fund, observed that global expansion is slowing at a rate that is somewhat faster than expected.

These organizations expect continued softening of the growth rates in the United States throughout the next two years, and also observed challenging economic growth across markets around the globe recently.

Furthermore, there are factors noted that may pressure the economic growth levels currently anticipated.

As a result, the current global outlook remains uncertain.

It is still too early to understand what kind of sustained impact these trends or changes in trade agreements and tax legislations will have on consumer discretionary spending.

Risk of volatility or a worsening of the macroeconomic environment remains, including currency devaluation, due to political uncertainty and potential changes to international trade agreements.

During the first quarter of fiscal 2019, the Trump Administration began to impose duties of 10% related to certain Chinese-made imported products.

In May 2019, the United States increased the tariff rate from 10% to 25% on $200 billion of imports of select product categories into the U.S.

On August 1, 2019, the Trump Administration announced that the U.S.

plans to implement an additional tariff of 10% on the remaining $300 billion of products imported into the U.S.

from China on September 1, 2019.

The Company continues to monitor this development closely and supports strategies that help diffuse these trade tensions with China.

We expect these changes to have a modest impact on gross margin in fiscal 2020.

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 the fiscal year, stores may be required to close again for an extended period of time due to the possibility of a "second wave" 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” 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 and potential changes to trade agreements may contribute to a worsening of the macroeconomic environment.

During fiscal 2020, Hong Kong SAR, China has been the subject of worsening political unrest, as demonstrated through ongoing public demonstrations and protests, which has impacted and is expected to continue to impact our business.

In addition, during fiscal 2019 and continuing into fiscal 2020, 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.

Beginning in the second quarter of fiscal 2019, the Company noted volatility in the spending patterns of certain North American customers, believed to be resellers, in advance of changes in Chinese e-commerce laws effective January 1, 2019.

The volatility experienced during this period may continue in the near-term.

The Company also observed an acceleration in local customer demand in mainland China which has helped to partially offset this trend.

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." On March 29, 2017, the U.K.

triggered Article 50 of the Lisbon Treaty formally starting negotiations with the E.U.

announced in March 2018 an agreement in principle to transitional provisions under which E.U.

law would remain in force in the U.K.

for an agreed period, but this remains subject to the successful conclusion of a final withdrawal agreement between the parties and the ratification by U.K.

As of the date of this report, the withdrawal agreement has been voted against three times by U.K.

As a consequence, the E.U.

agreed to postpone Brexit until October 31, 2019.

This date will be accelerated to anytime between now and October 31, 2019 if a withdrawal agreement is successfully concluded between the parties and ratified by U.K.

Increased uncertainty surrounds future Brexit talks due to the new leadership of the British government following Theresa May's resignation as Prime Minister on June 7, 2019 and the election of Boris Johnson on July 23, 2019.

In the absence of a withdrawal agreement there would be no transitional provisions and a "hard" Brexit would occur on October 31, 2019, resulting in potential increased legal and regulatory complexities and divergent laws between the U.K.

triggered Article 50 of the Lisbon Treaty formally starting a 2 year negotiation period with the E.U., which was subsequently extended to January 31, 2020.

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 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.

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.

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.

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SG&A expenses

Operating income

Operating income (loss)

Interest expense, net

Income before provision for income taxes

Other expense (income)

Income (Loss) before provision for income taxes

Provision for income taxes

Net income per share:

Net income (loss)

Net income (loss) per share:

NM - Not meaningful

GAAP to Non-GAAP Reconciliation

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Fiscal 2020 Items

June 29, 2019

Fiscal Year Ended June 27, 2020

Items affecting comparability

(As Reported)

ERP Implementation

Integration & Acquisition

Impact of Tax Legislation

Organization-related & Integration costs

Acceleration Program

Non-GAAP Basis

1 unchanged sentence

(millions, except per share data)

Stuart Weitzman

Gross profit (1)

Stuart Weitzman

SG&A expenses

Operating income

Income before provision for income taxes

Stuart Weitzman

Operating income (loss)

Provision for income taxes

Diluted net income per share

Net income (loss)

Net income (loss) per diluted common share

(1) Adjustments within Gross profit are recorded within Cost of sales.

In fiscal 2020 the Company incurred charges as follows:

ERP Implementation - Total charges of $36.9 million primarily represent technology implementation costs.

ERP Implementation - Total charges represent technology implementation costs.

Refer to the "Executive Overview" herein for further information.

Integration & Acquisition - Total charges of $94.4 million primarily represent integration and acquisition costs related to organization-related costs, professional fees, one-time write-off of inventory and limited life purchase accounting adjustments.

Refer to the "Executive Overview" herein and Note 5, "Integration & Acquisition Costs," for more information.

Impact of Tax Legislation - Total charges of $9.2 million primarily related to the net impact of the transition tax and re-measurement of deferred tax balances.

Refer to the "Executive Overview" herein and Note 15, "Income Taxes," for further information.

Organization-related & Integration Costs - Total charges represent integration costs primarily related to professional fees.

Refer to the "Executive Overview" herein and Note 6, "Integration," for more information.

Impairment - Total charges are primarily due to impairment charges on the indefinite-lived brand intangible asset and goodwill for Stuart Weitzman, impairment charges on property and equipment assets and lease ROU assets, as well as increases in inventory reserves.

Refer to Note 12, "Fair Value Measurements," Note 15, "Goodwill and Other Intangible Assets," and Note 18, "Segment Information," for further information.

Acceleration Program - Total charges, incurred under the Acceleration Program, are primarily due to organization-related costs as a result of severance and store closures charges.

Store closure charges represent lease termination penalties, removal or modification of lease assets and liabilities established in connection with the adoption of the new lease accounting standard, establishing inventory reserves, accelerated depreciation and severance.

Refer to the "Executive Overview" and Note 7, "Restructuring Activities," herein for further information.

These actions taken together increased the Company's SG&A expenses by $871.2 million , Cost of sales by $118.0 million and Provision for income taxes by $65.9 million , negatively impacting net income by $923.3 million , or $(3.31) per diluted share.

The following table summarizes the GAAP to Non-GAAP Reconciliation by reportable segment through operating income for fiscal 2019 :

June 29, 2019

(As Reported)

Stuart Weitzman

Non-GAAP Basis

(Excluding Items)

Cost of sales

Integration & Acquisition

SG&A expenses

Integration & Acquisition

ERP Implementation

SG&A expenses

Operating income

Fiscal 2019 Items

June 30, 2018

Fiscal Year Ended June 29, 2019

Items affecting comparability

(As Reported)

Operational Efficiency Plan

ERP Implementation

Integration & Acquisition

3 unchanged sentences

(millions, except per share data)

Stuart Weitzman

Gross profit (1)

Stuart Weitzman

SG&A expenses

Operating income

Income before provision for income taxes

Stuart Weitzman

Operating income (loss)

Provision for income taxes

Diluted net income per share

Net income (loss)

Net income (loss) per diluted common share

(1) Adjustments within Gross profit are recorded within Cost of sales.

In fiscal 2019 the Company incurred adjustments as follows:

Operational Efficiency Plan - Total charges of $19.5 million primarily related to technology infrastructure costs.

Refer to the "Executive Overview" herein and Note 6, "Restructuring Activities," for further information regarding this plan.

Integration & Acquisition - Total charges of $301.6 million , primarily attributable to the integration and acquisition of Kate Spade, and to a lesser extent the acquisition of certain distributors for the Coach and Stuart Weitzman brands and assumed operational control of the Kate Spade Joint Ventures.

Provision for income taxes includes a one-time benefit of $40.7 million as a result of the reversal of certain valuation allowances that relate, in part, to the enactment of Tax Legislation.

These charges include:

◦ Limited life purchase accounting adjustments

◦ Professional fees

◦ Severance and other costs related to contractual agreements with certain Kate Spade executives

◦ Organizational costs as a result of integration

◦ Inventory reserves established primarily for the destruction of inventory

Refer to the "Executive Overview" herein and Note 5, "Integration & Acquisition Costs," for more information.

Impact of Tax Legislation - Total charges of $178.2 million primarily related to the net impact of the transition tax and re-measurement of deferred tax balances.

ERP Implementation - Total charges represent technology implementation costs.

Refer to the "Executive Overview" herein for further information.

Integration & Acquisition - Total charges primarily represent integration and acquisition costs related to organization-related costs, professional fees, one-time write-off of inventory and limited life purchase accounting adjustments.

Refer to the "Executive Overview" herein and Note 6, "Integration," for more information.

Impact of Tax Legislation - Total charges primarily related to the net impact of the transition tax and re-measurement of deferred tax balances.

Refer to the "Executive Overview" herein and Note 16, "Income Taxes," for further information.

These actions taken together increased the Company's SG&A expenses by $204.7 million , cost of sales by $116.4 million and provision for income taxes by $41.3 million, negatively impacting net income by $362.4 million , or $1.25 per diluted share.

The following table summarizes the GAAP to Non-GAAP Reconciliation by reportable segment through operating income for fiscal 2018 :

June 30, 2018

(As Reported)

Stuart Weitzman

Non-GAAP Basis

(Excluding Items)

Cost of sales

Integration & Acquisition (1)

SG&A expenses

Integration & Acquisition (1)

Operational Efficiency Plan

SG&A expenses

Operating income

During the first quarter of fiscal 2018, the Company completed its acquisition of Kate Spade & Company.

During the third quarter of fiscal 2018, the Company completed its acquisition of certain distributors for the Coach and Stuart Weitzman brands and obtained operational control of the Kate Spade Joint Ventures.

The operating results of the respective entity have been consolidated in the Company's operating results commencing on the date of each acquisition.

These actions taken together increased the Company's SG&A expenses by $103.5 million and cost of sales by $27.8 million , decreased the provision for income taxes by $26.0 million , negatively impacting net income by $105.3 million , or $0.36 per diluted share.

Tapestry, Inc.

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The change in net sales and gross margin in fiscal 2020 compared to fiscal 2019 has been presented both including and excluding currency fluctuation effects.

Net sales in fiscal 2019 increased 2.5% or $147.1 million to $6.03 billion .

Excluding the effects of foreign currency, net sales increased by 3.6% or $213.8 million .

Excluding the effects of foreign currency, net sales increased across all brands.

Gross profit increased 5.3% or $205.2 million to $ 4.05 billion in fiscal 2019 from $ 3.85 billion in fiscal 2018 .

Net sales in fiscal 2020 decreased 17.7% or $1.07 billion to $4.96 billion .

Excluding the effects of foreign currency, net sales decreased by 17.5% or $1.05 billion .

This decrease was driven by the impact of the Covid-19 outbreak on our business.

Gross profit decreased 20.1% or $814.4 million to $ 3.24 billion in fiscal 2020 from $ 4.05 billion in fiscal 2019 .

Gross margin for fiscal 2020 was 65.3% as compared to 67.3% in fiscal 2019 .

Excluding Non-GAAP charges of $27.8 million in fiscal 2019 and $116.4 million in fiscal 2018 , as discussed in the "GAAP to Non-GAAP Reconciliation" herein, gross profit increased 2.9% or $116.6 million to $4.08 billion in fiscal 2019 , and gross margin increased to 67.7% in fiscal 2019 from 67.4% in fiscal 2018 .

This increase in gross profit is primarily driven by increases in Coach of $62.7 million and increases in Kate Spade of $57.7 million partially offset by decreases in Stuart Weitzman of $3.8 million .

Excluding items affecting comparability of $118.0 million in fiscal 2020 and $27.8 million in fiscal 2019 , as discussed in the "GAAP to Non-GAAP Reconciliation" herein, gross profit decreased 17.7% or $724.2 million to $3.36 billion in fiscal 2020 , and gross margin remained at 67.7% in fiscal 2020 and fiscal 2019 .

This decrease in gross profit is primarily driven by decreases in Coach of $524.7 million , in Kate Spade of $153.5 million and in Stuart Weitzman of $46.0 million .

Selling, General and Administrative Expenses

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SG&A expenses increased 17.2% or $556.1 million to $3.79 billion in fiscal 2020 as compared to $3.23 billion in fiscal 2019 .

As a percentage of net sales, SG&A expenses decreased to 53.8% during fiscal 2019 as compared to 54.0% during fiscal 2018 .

Excluding non-GAAP charges of $103.5 million in fiscal 2019 and $204.7 million in fiscal 2018 , SG&A expenses increased 5.5% or $163.1 million from fiscal 2018 ;

As a percentage of net sales, SG&A expenses increased to 76.4% during fiscal 2020 as compared to 53.7% during fiscal 2019 .

Excluding items affecting comparability of $871.2 million in fiscal 2020 and $103.5 million in fiscal 2019 , SG&A expenses decreased 6.8% or $211.6 million to $2.92 billion from $3.13 billion in fiscal 2019 ;

and SG&A expenses as a percentage of net sales increased to 58.8% in fiscal 2020 from 51.9% in fiscal 2019 .

This increase is primarily due to increases in Kate Spade of $68.7 million , Corporate expenses of $41.2 million , Coach of $27.1 million and Stuart Weitzman of $26.1 million .

Corporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment, increased 6.0% or $25.4 million to $448.8 million in fiscal 2019 as compared to $423.4 million in fiscal 2018 .

Excluding non-GAAP charges of $66.9 million and $82.7 million in fiscal 2019 and fiscal 2018 , respectively, SG&A expenses increased 12.2% or $41.2 million to $381.9 million in fiscal 2019 as compared to $340.7 million in fiscal 2018 .

This increase in SG&A expenses was primarily driven by ongoing expenses as a result of the new system implementations, as well as higher employee related costs including compensation.

Operating Income

Operating income increased 21.4% or $143.3 million to $814.1 million during fiscal 2019 as compared to $670.8 million in fiscal 2018 .

This decrease in SG&A expenses is primarily due to decreases in Coach of $154.4 million , Corporate expenses of $42.8 million , Kate Spade of $8.1 million and Stuart Weitzman of $6.3 million .

Corporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment, decreased 5.2% or $23.1 million to $419.5 million in fiscal 2020 as compared to $442.6 million in fiscal 2019 .

Excluding items affecting comparability of $86.6 million and $66.9 million in fiscal 2020 and fiscal 2019 , respectively, SG&A expenses decreased 11.4% or $42.8 million to $332.9 million in fiscal 2020 as compared to $375.7 million in fiscal 2019 .

This decrease in SG&A expenses was primarily due to lower compensation cost mostly related to the cancellation of our Annual Incentive Plan for fiscal year 2020.

Operating Income (Loss)

Operating income decreased $1.37 billion to an operating loss of $550.8 million during fiscal 2020 as compared to operating income of $819.7 million in fiscal 2019 .

Operating margin was (11.1)% in fiscal 2020 as compared to 13.6% in fiscal 2019 .

Excluding non-GAAP charges of $131.3 million in fiscal 2019 and $321.1 million in fiscal 2018 , operating income decreased 4.7% or $46.5 million to $945.4 million from $991.9 million in fiscal 2018 ;

Excluding items affecting comparability of $989.2 million in fiscal 2020 and $131.3 million in fiscal 2019 , operating income decreased 53.9% or $512.6 million to $438.4 million from $951.0 million in fiscal 2019 ;

and operating margin was 8.8% in fiscal 2020 as compared to 15.8% in fiscal 2019 .

This decrease in operating income is primarily driven by an increase in Corporate expenses of $41.2 million as well as declines in operating income in Stuart Weitzman of $29.9 million and Kate Spade of $11.0 million , partially offset by increases in Coach of $35.6 million .

This decrease in operating income is primarily driven by declines in operating income in Coach of $370.3 million , in Kate Spade of $145.4 million and in Stuart Weitzman of $39.7 million , partially offset by a decrease in Corporate expenses of $42.8 million .

Interest Expense, net

Net interest expense decreased 35.2% or $26.1 million to $47.9 million in fiscal 2019 as compared to $74.0 million in fiscal 2018 .

The decrease in interest expense, net is due to repayments made in the third quarter of fiscal 2018 related to the Company's debt borrowings.

Net interest expense increased 25.2% or $12.2 million to $60.1 million in fiscal 2020 as compared to $47.9 million in fiscal 2019 .

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 the fiscal year.

Other Expense (Income)

Other expense increased $7.7 million to $13.3 million in fiscal 2020 as compared to $5.6 million in fiscal 2019 .

This increase in other expense is related to an increase in foreign exchange losses.

Provision for Income Taxes

The effective tax rate was (4.5)% in fiscal 2020 as compared to 16.0% in fiscal 2019 .

Excluding non-GAAP charges, the effective tax rate was 16.6% in fiscal 2019 as compared to 17.2% in fiscal 2018 .

The decrease in our effective tax rate was primarily attributable to geographic mix of earnings.

Net income increased 61.8% or $245.9 million to $643.4 million in fiscal 2019 as compared to $397.5 million in fiscal 2018 .

Excluding non-GAAP charges, net income decreased 1.5% or $11.2 million to $748.7 million in fiscal 2019 from $759.9 million in fiscal 2018 .

This decrease was primarily due to lower operating income, partially offset by a decrease in net interest expense as well as a decrease in the provision for income taxes.

Net Income per Share

Net income per diluted share increased 60.6% to $2.21 in fiscal 2019 as compared to $1.38 in fiscal 2018 .

Excluding non-GAAP charges, net income per diluted share decreased 2.2% or $0.06 to $2.57 in fiscal 2019 from $2.63 in fiscal 2018 , due to lower net income and an increase in shares outstanding.

Excluding items affecting comparability, the effective tax rate was 25.7% in fiscal 2020 as compared to 16.6% in fiscal 2019 .

The increase in our effective tax rate was primarily attributable to impact of permanent tax adjustments on lower net sales and the geographic mix of earnings.

Net Income (Loss)

Net income decreased $1.3 billion to a net loss of $652.1 million in fiscal 2020 as compared to a net income of $643.4 million in fiscal 2019 .

Excluding items affecting comparability, net income decreased 63.8% or $477.5 million to $271.2 million in fiscal 2020 from $748.7 million in fiscal 2019 .

This decrease was primarily due to lower operating income, partially offset by a decrease in the provision for income taxes.

Net Income (Loss) per Share

Net loss per diluted share was $2.34 in fiscal 2020 as compared to net income per diluted share of $2.21 in fiscal 2019 .

Excluding items affecting comparability, net income per diluted share decreased 62.3% or $1.60 to $0.97 in fiscal 2020 from $2.57 in fiscal 2019 , primarily due to lower net income.

Segment Performance - Fiscal 2020

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Operating income

Coach Net Sales increased 1.2% or $49.4 million to $4.27 billion in fiscal 2019 .

Excluding the unfavorable impact of foreign currency, net sales increased 2.4% or $101.4 million .

This increase was due to an increase in comparable store sales of $67.1 million or 2% compared to fiscal 2018 , including a benefit of approximately 1% driven by an increase in global e-commerce.

The increase in comparable store sales is primarily due to increases in Japan, Greater China, Other Asia and Europe primarily due to traffic and conversion.

Non-comparable store sales increased by $36.9 million, primarily driven by direct ownership of the business in Australia and New Zealand, as well as non-comparable store sales in Greater China and Europe, partially offset by a decrease in Japan and North America related to store closures.

Coach Gross Profit increased 2.2% or $64.9 million to $3.00 billion in fiscal 2019 from $2.93 billion in fiscal 2018 .

Gross margin increased to 70.2% in fiscal 2019 as compared to 69.4% in fiscal 2018 .

Excluding non-GAAP charges of $1.9 million and $4.1 million in fiscal 2019 and in fiscal 2018 , respectively, Coach gross profit increased 2.1% or $62.7 million to $3.00 billion from $2.94 billion in fiscal 2018 , and gross margin increased 70 basis points to 70.2% in fiscal 2019 from 69.5% in fiscal 2018 on a non-GAAP basis.

Coach Net Sales decreased 17.4% or $745.2 million to $3.53 billion in fiscal 2020 .

Excluding the impact of foreign currency, net sales decreased 17.2% or $736.4 million .

This decrease was primarily attributed to a net decline of $661.3 million in bricks and mortar retail sales globally due to the impact of the Covid-19 outbreak, which was partially offset by an increase in e-commerce sales globally.

Wholesale sales also declined $75.4 million due to lower demand as a result of the Covid-19 outbreak.

Coach Gross Profit decreased 19.5% or $584.8 million to $2.41 billion in fiscal 2020 from $3.00 billion in fiscal 2019 .

Gross margin decreased to 68.4% in fiscal 2020 as compared to 70.2% in fiscal 2019 .

Excluding items affecting comparability of $62.0 million and $1.9 million in fiscal 2020 and in fiscal 2019 , respectively, Coach gross profit decreased 17.5% or $524.7 million to $2.47 billion from $3.00 billion in fiscal 2019 , and gross margin remained at 70.2% in fiscal 2020 and in fiscal 2019 on a non-GAAP basis.

Excluding the impact of foreign currency in both periods, gross margin increased 30 basis points.

The increase in gross margin was primarily due to improved product costing, partially offset by promotional activity.

Coach SG&A expenses increased 1.9% or $33.7 million to $1.85 billion in fiscal 2019 as compared to $1.81 billion in fiscal 2018 .

Coach SG&A expenses decreased 1.4% or $25.8 million to $1.82 billion in fiscal 2020 as compared to $1.85 billion in fiscal 2019 .

As a percentage of net sales, SG&A expenses increased to 51.7% in fiscal 2020 as compared to 43.3% in fiscal 2019 .

Excluding non-GAAP charges of $7.1 million and $0.5 million in fiscal 2019 and fiscal 2018 , respectively, SG&A expenses increased 1.5% or $27.1 million .

The $27.1 million increase is primarily due to higher compensation expenses and higher store-related costs.

Coach Operating Income increased 2.8% or $31.2 million to $1.15 billion in fiscal 2019 , resulting in an operating margin of 26.9% , as compared to $1.12 billion and 26.5% , respectively in fiscal 2018 .

Excluding non-GAAP charges, Coach operating income increased 3.2% or $35.6 million to $1.16 billion from $1.12 billion in fiscal 2018 ;

Excluding items affecting comparability of $135.7 million and $7.1 million in fiscal 2020 and fiscal 2019 , respectively, SG&A expenses decreased 8.4% or $154.4 million to $1.69 billion in fiscal 2020 from $1.84 billion in fiscal 2019 .

SG&A expenses as a percentage of sales increased from 47.8% in fiscal 2020 from 43.1% in fiscal 2019 .

This decrease in SG&A expenses is primarily due to a decline in compensation costs, mainly related to the cancellation of the Annual Incentive Plan for fiscal year 2020, and lower variable selling costs due to store closures in relation to Covid-19.

Coach Operating Income decreased 48.7% or $559.0 million to $589.4 million in fiscal 2020 , resulting in an operating margin of 16.7% , as compared to $1.15 billion and 26.9% , respectively in fiscal 2019 .

Excluding items affecting comparability, Coach operating income decreased 32.0% or $370.3 million to $787.1 million from $1.16 billion in fiscal 2019 ;

and operating margin was 22.3% in fiscal 2020 as compared to 27.1% in fiscal 2019 .

The increase in operating income was due to an increase in gross profit, partially offset by higher SG&A expenses.

This decrease in operating income was due to a decrease in gross profit, partially offset by lower SG&A expenses.

Fiscal Year Ended

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Operating income (loss)

NM - Not meaningful

On July 11, 2017, the Company completed its acquisition of Kate Spade.

The operating results of the Kate Spade brand have been consolidated in the Company's operating results commencing on July 11, 2017.

Kate Spade Net Sales increased 6.4% or $82.1 million to $1.37 billion in fiscal 2019 .

Excluding the unfavorable impact of foreign currency, net sales increased 7.1% or $90.8 million .

The increase was due to an increase in non-comparable store sales of $192.2 million, which benefited from new store openings in North America, Japan, and Europe, taking operational control of Kate Spade Joint Ventures in Greater China and the direct ownership of the businesses in Australia, Singapore, and Malaysia.

In addition, there were increases related to the additional days under Tapestry ownership in the first quarter of fiscal 2019 when compared to the same period in the prior year.

These increases were partially offset by a decline in comparable store sales of $75.8 million or 7%, including a benefit of approximately 4% driven by an increase in global e-commerce.

The decrease in comparable store sales was primarily due to decreased traffic and conversion.

In addition, there was a decline in wholesale sales of $33.3 million primarily due to lower wholesale sales in North America including the strategic pullback, as well as the impact of the direct ownership of the business in Australia, Singapore and Malaysia being transitioned from wholesale sales to direct sales.

Kate Spade Gross Profit increased 22.4% or $157.9 million to $863.6 million in fiscal 2019 from $705.7 million in fiscal 2018.

Gross margin increased to 63.2% in fiscal 2019 from 54.9% in fiscal 2018.

Excluding non-GAAP charges of $6.3 million and $106.5 million in fiscal 2019 and fiscal 2018 respectively, Kate Spade gross profit increased 7.1% or $57.7 million to $869.9 million from $812.2 million in fiscal 2018, and gross margin increased 40 basis points to 63.6% from 63.2% in fiscal 2018.

The gross margin increase of 40 basis points is primarily due to improved product costing as a result of synergies, partially offset by promotional activity within North America outlet.

Kate Spade SG&A Expenses decreased 4.2% or $30.5 million to $697.9 million in fiscal 2019 from $728.4 million in fiscal 2018.

As a percentage of net sales, SG&A expenses decreased to 51.1% during fiscal 2019 as compared to 56.7% in fiscal 2018.

Excluding non-GAAP charges of $14.5 million and $113.7 million in fiscal 2019 and fiscal 2018, respectively, SG&A expenses increased 11.1% or $68.7 million to $683.4 million in fiscal 2019 compared to $614.7 million in fiscal 2018;

Kate Spade Net Sales decreased 15.9% or $217.3 million to $1.15 billion in fiscal 2020 .

Excluding the impact of foreign currency, net sales decreased 16.0% or $218.4 million .

This decrease is primarily due to a decline of $190.5 million in retail sales mainly in North America due to full and partial store closures related to the Covid-19 outbreak.

Furthermore, wholesale sales declined $23.4 million due to lower demand as a result of the Covid-19 outbreak.

Kate Spade Gross Profit decreased 21.0% or $180.7 million to $682.9 million in fiscal 2020 from $863.6 million in fiscal 2019 .

Gross margin decreased to 59.4% in fiscal 2020 from 63.2% in fiscal 2019 .

Excluding items affecting comparability of $33.5 million and $6.3 million in fiscal 2020 and fiscal 2019 respectively, Kate Spade gross profit decreased 17.6% or $153.5 million to $716.4 million from $869.9 million in fiscal 2019 , and gross margin decreased 130 basis points to 62.3% from 63.6% in fiscal 2019 .

The gross margin decrease of 130 basis points is primarily due to promotional activity, unfavorable channel mix and the impact of directly operating the footwear business.

Kate Spade SG&A Expenses increased 12.0% or $84.0 million to $782.2 million in fiscal 2020 from $698.2 million in fiscal 2019 .

As a percentage of net sales, SG&A expenses increased to 68.0% during fiscal 2020 as compared to 51.1% in fiscal 2019 .

Excluding items affecting comparability of $106.6 million and $14.5 million in fiscal 2020 and fiscal 2019 , respectively, SG&A expenses decreased 1.2% or $8.1 million to $675.6 million in fiscal 2020 compared to $683.7 million in fiscal 2019 ;

and SG&A expenses as a percentage of sales increased to 58.8% in fiscal 2020 from 50.0% in fiscal 2019 .

This increase was due to taking operational control of the Kate Spade Joint Ventures in Greater China and the direct ownership of the businesses in Australia, Singapore and Malaysia, additional store-related costs as a result of new store openings, as well as the additional days under Tapestry ownership in the first quarter of fiscal 2019 when compared to the prior fiscal year.

Kate Spade Operating Income increased $188.4 million to $165.7 million in fiscal 2019 , resulting in an operating margin of 12.1% as compared to an operating loss of $22.7 million and operating margin of (1.8)% in fiscal 2018.

Excluding non-GAAP charges, Kate Spade operating income decreased 5.5% or $11.0 million to $186.5 million from $197.5 million in fiscal 2018, resulting in an operating margin of 13.6% as compared to 15.4% in fiscal 2018.

The decrease in operating income was due to higher SG&A expenses, partially offset by an increase in gross profit.

This decrease was due to a decline in compensation costs, mostly related to the cancellation of the Annual Incentive Plan for fiscal 2020, and lower variable selling costs due to store closures in relation to Covid-19, partially offset by new store openings and increased marketing expenses.

Kate Spade Operating Income decreased $264.7 million to an operating loss of $99.3 million in fiscal 2020 , resulting in an operating margin of (8.6)% as compared to an operating income of $165.4 million and operating margin of 12.1% in fiscal 2019 .

Excluding items affecting comparability, Kate Spade operating income decreased 78.1% or $145.4 million to $40.8 million from $186.2 million in fiscal 2019 , resulting in an operating margin of 3.6% as compared to 13.6% in fiscal 2019 .

The decrease in operating income was due to lower gross profit, partially offset by lower SG&A expenses.

Stuart Weitzman

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Operating loss

NM - Not meaningful

Stuart Weitzman Net Sales increased by 4.2% or $15.6 million to $389.4 million in fiscal 2019 .

Excluding the unfavorable impact of foreign currency, net sales increased 5.8% or $21.6 million .

This increase was primarily due to higher sales in the retail business of $39.8 million, primarily due to the direct ownership of the business in mainland China and new store openings, partially offset by a decline in comparable store sales.

This was partially offset by a decline in wholesale sales of $17.8 million primarily due to trailing impacts as a result of supply chain operational challenges.

Stuart Weitzman Net Sales decreased by 26.5% or $103.2 million to $286.2 million in fiscal 2020 .

Excluding the impact of foreign currency, net sales decreased 25.6% or $99.5 million .

This decrease was primarily due to lower shipments in the wholesale business of $74.2 million and a decline in the retail business of $25.3 million as a result of the Covid-19 outbreak partially offset by an expanded store network.

Stuart Weitzman Gross Profit decreased 25.3% or $48.9 million to $144.8 million in fiscal 2020 from $193.7 million in fiscal 2019 .

Gross margin decreased 670 basis points to 49.8% in fiscal 2019 from 56.5% in fiscal 2018 .

Excluding non-GAAP charges of $19.6 million in fiscal 2019 and $5.8 million in fiscal 2018 , Stuart Weitzman gross profit decreased 1.8% or $3.8 million to $213.3 million from $217.1 million in fiscal 2018 , and gross margin decreased 330 basis points to 54.8% in fiscal 2019 from 58.1% in fiscal 2018 .

The year over year change in gross margin was negatively impacted by foreign currency rates by 220 basis points.

Excluding the impact of foreign currency, there was a decrease in gross margin of 110 basis points primarily due to lower

wholesale margins from the trailing impacts as a result of supply chain operational challenges, partially offset by the direct ownership of the business in mainland China.

Stuart Weitzman SG&A Expenses increased 15.6% or $33.3 million to $244.9 million in fiscal 2019 as compared to $211.6 million in fiscal 2018 .

As a percentage of net sales, SG&A expenses increased to 62.9% in fiscal 2019 as compared to 56.7% in fiscal 2018 .

Excluding non-GAAP charges of $15.0 million in fiscal 2019 and $7.8 million in fiscal 2018 , SG&A expenses increased 12.7% or $26.1 million to $229.9 million in fiscal 2019 ;

Gross margin increased 80 basis points to 50.6% in fiscal 2020 from 49.8% in fiscal 2019 .

Excluding items affecting comparability of $22.5 million in fiscal 2020 and $19.6 million in fiscal 2019 , Stuart Weitzman gross profit decreased 21.6% or $46.0 million to $167.3 million from $213.3 million in fiscal 2019 , and gross margin increased 370 basis points to 58.5% in fiscal 2020 from 54.8% in fiscal 2019 .

The year over year change in gross margin was positively impacted by foreign currency rates by

120 basis points.

Excluding the impact of foreign currency, the increase in gross margin of 250 basis points is primarily due to favorable channel mix.

Stuart Weitzman SG&A Expenses increased $521.0 million to $766.2 million in fiscal 2020 as compared to $245.2 million in fiscal 2019 .

Excluding items affecting comparability of $542.3 million in fiscal 2020 and $15.0 million in fiscal 2019 , SG&A expenses decreased 2.8% or $6.3 million to $223.9 million in fiscal 2020 from $230.2 million in fiscal 2019 ;

and SG&A expenses as a percentage of net sales increased to 78.2% in fiscal 2020 from 59.1% in fiscal 2019 .

This increase is primarily due to the direct ownership of the businesses in mainland China and new store openings.

Stuart Weitzman Operating Loss increased $50.9 million to an operating loss of $51.2 million in fiscal 2019 , resulting in an operating margin of (13.1)% , as compared to an operating loss of $0.3 million and operating margin of (0.1)% in fiscal 2018 .

Excluding non-GAAP charges, Stuart Weitzman operating income decreased $29.9 million to an operating loss of $16.6 million from an operating income of $13.3 million in fiscal 2018 ;

This decrease is primarily due to a decrease in marketing expenses and compensation costs partially offset by additional store-related costs as a result of new store openings.

Stuart Weitzman Operating Loss increased $569.9 million to an operating loss of $621.4 million in fiscal 2020 , as compared to an operating loss of $51.5 million in fiscal 2019 .

Excluding items affecting comparability, Stuart Weitzman operating loss increased $39.7 million to an operating loss of $56.6 million from an operating loss of $16.9 million in fiscal 2019 ;

and operating margin was (19.8)% in fiscal 2020 as compared to (4.3)% in fiscal 2019 .

The decrease in operating income was due to higher SG&A expenses and a decrease in gross profit.

The increase in operating loss was due to a decrease in gross profit partially offset by lower SG&A expenses.

FISCAL 2019 COMPARED TO FISCAL 2018

The comparison of fiscal 2018 to 2017 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended June 30, 2018, filed on August 16, 2018, as well as the Form 8-K, furnished with the SEC on October 30, 2018.

The comparison of fiscal 2019 to 2018 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended June 29, 2019 , filed on August 15, 2019.

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 fiscal 2019 and fiscal 2018 reflect certain items, including the impact of the ERP Implementation in fiscal 2019, Integration and Acquisition costs for acquired companies by Tapestry, the impact of Tax Legislation and in fiscal 2018, the Operational Efficiency Plan.

The reported gross profit, SG&A expenses, operating income, provision for income taxes, net income and earnings per diluted share reflect certain items, including the impact of the Impairment charges and Acceleration Program costs in fiscal 2020, ERP Implementation and Organization-related and Integration charges in fiscal 2020 and 2019, and the impact of Tax Legislation in fiscal 2019.

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.

Comparable store sales, which is a non-GAAP measure, reflects sales performance at stores that have been open for at least 12 months, and includes sales from the Internet.

In certain instances, orders placed via the Internet are fulfilled by a physical store;

such sales are recorded by the physical store.

The Company excludes new, including newly acquired locations, from the comparable store base for the first twelve months of operation.

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 have not been adjusted for store expansions.

Comparable store sales for Kate Spade have been calculated beginning on the acquisition date.

Comparable store sales are not adjusted for store expansions.

Due to extensive full and partial store closures resulting from the Covid-19 pandemic, comparable store sales are not reported for fiscal year ended June 27, 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.

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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.

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.

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Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

The Company’s cash and cash equivalents decreased by $274.2 million in fiscal 2019 compared to a decrease of $1.43 billion in fiscal 2018 , as discussed below.

Net increase (decrease) in cash and cash equivalents

The Company’s cash and cash equivalents increased by $457.1 million in fiscal 2020 compared to a decrease of $274.2 million in fiscal 2019 , as discussed below.

Net cash provided by operating activities

Net cash provided by operating activities decreased $205.0 million primarily due to changes in operating assets and liabilities of $442.5 million and lower non-cash charges of $8.4 million , partially offset by higher net income of $245.9 million .

The $442.5 million de crease in changes in our operating asset and liability balances was primarily driven by:

Net cash provided by operating activities decreased $385.4 million primarily due to changes in operating assets and liabilities of $192.3 million , the impact of non-cash charges of $717.8 million and changes in net income of $1.30 billion .

The $192.3 million change in our operating asset and liability balances was primarily driven by:

Other liabilities changed by $18.0 million .

They were a use of cash of $55.8 million in fiscal 2019 compared to a source of cash of $157.7 million in fiscal 2018 , primarily driven by an increase in the Company's long-term income tax payable in fiscal 2018 as a result of the Transition Tax and a decrease to the Company's long-term income tax payable in fiscal 2019 as a result of payments made as well as the application of net operating losses to reduce the Transition Tax liability.

They were a use of cash of $37.8 million in fiscal 2020 compared to a use of cash of $55.8 million in fiscal 2019 , primarily driven by the application of net operating losses to reduce the Transition Tax liability partially in fiscal 2019, partially offset by a reclass of liability from long-term to short-term.

Other assets changed by $107.5 million .

They were a use of cash of $69.2 million in fiscal 2019 as compared to a source of cash of $80.9 million in fiscal 2018 , primarily driven by timing of income tax payments.

They were a source of cash of $38.3 million in fiscal 2020 as compared to a use of cash of $69.2 million in fiscal 2019 , primarily driven by timing of tax related payments.

Inventories changed by $46.1 million .

They were a use of cash of $ 104.7 million in fiscal 2019 as compared to a source of cash of $ 30.4 million in fiscal 2018 , primarily driven by increased inventory in transit, lower inventory at Kate Spade at the end of fiscal 2018 as a result of strong sales in the fourth quarter of fiscal 2018 and lower than expected sales in fiscal 2019.

They were a use of cash of $ 58.6 million in fiscal 2020 as compared to a use of cash of $ 104.7 million in fiscal 2019 , primarily driven by increased inventory in transit at the end of fiscal 2019, and lower than expected sales in fiscal 2020.

Accrued liabilities changed by $36.4 million .

They were a use of cash of $ 29.5 million in fiscal 2019 as compared to a use of cash of $ 16.9 million in fiscal 2018 , primarily driven by the timing of employee-related costs and accrued interest.

They were a source of cash of $ 7.6 million in fiscal 2020 as compared to a use of cash of $ 28.8 million in fiscal 2019 , primarily driven by the timing of income tax payments, higher reserves due to Covid-19, partially offset by the cancellation of AIP.

Accounts payable changed by $51.9 million .

They were a use of cash of $39.8 million in fiscal 2019 as compared to a use of cash of $77.3 million in fiscal 2018 , primarily driven by the timing of Kate Spade and Coach inventory payments.

They were a use of cash of $91.7 million in fiscal 2020 as compared to a use of cash of $39.8 million in fiscal 2019 , primarily driven by the timing of lower inventory receipts across all brands.

Trade accounts receivable changed by $36.2 million .

They were a source of cash of $25.7 million in fiscal 2019 as compared to a use of cash of $5.6 million in fiscal 2018 , primarily driven by the timing of certain international sales.

Net cash used in investing activities

Net cash used in investing activities was $574.2 million in fiscal 2019 compared to a use of cash of $2.16 billion in fiscal 2018 , resulting in a $1.59 billion decrease in net cash used in investing activities.

The $574.2 million use of cash in fiscal 2019 is primarily due to purchases of investments of $415.5 million and capital expenditures of $274.2 million .

This use of cash was partially offset by net cash proceeds from maturities and sales of investments of $159.0 million .

The $2.16 billion use of cash in fiscal 2018 is primarily due to the $2.38 billion purchase of Kate Spade and other acquisitions, net of cash acquired, and capital expenditures of $267.4 million .

They were a source of cash of $61.9 million in fiscal 2020 as compared to a source of cash of $25.7 million in fiscal 2019 , primarily driven by a decrease in wholesale shipments across all brands and a decrease in retail sales due to store closures related to Covid-19.

Net cash provided by (used in) investing activities

Net cash provided by investing activities was $44.3 million in fiscal 2020 compared to a use of cash of $574.2 million in fiscal 2019 , resulting in a $618.5 million increase in net cash provided by investing activities.

The $44.3 million source of cash in fiscal 2020 is primarily due to net cash proceeds from maturities and sales of investments of $462.1 million .

This source of cash was partially offset by purchases of investments of $212.4 million and capital expenditures of $205.4 million .

The $574.2 million use of cash in fiscal 2019 is primarily due to purchase of investments of $415.5 million and capital expenditures of $274.2 million .

This use of cash was partially offset by net cash proceeds from maturities and sales of investments of $159.0 million .

Net cash used in financing activities

Net cash used in financing activities was $484.9 million in fiscal 2019 as compared to a use of cash of $249.9 million in fiscal 2018 , resulting in a $235.0 million increase in net cash used in financing activities.

Net cash provided by (used in) financing activities

Net cash provided by financing activities was $5.9 million in fiscal 2020 as compared to a use of cash of $485.6 million in fiscal 2019 , resulting in a $491.5 million increase in net cash provided by financing activities.

The $5.9 million source of cash in fiscal 2020 was primarily due to proceeds from the draw down on the Revolving Credit Facility of $700.0 million , partially offset by dividend payments of $380.3 million and repurchases of common stock of $300.0 million .

The $485.6 million of cash used in fiscal 2019 was primarily due to dividend payments of $390.7 million and repurchases of common stock of $100.0 million .

The $249.9 million of cash used in fiscal 2018 was primarily due to dividend payments of $384.1 million which were partially offset by proceeds from share-based awards of $165.7 million .

The Company also borrowed and repaid debt of $1.10 billion within the fiscal year.

Cash Flows - Fiscal 2019 Compared to Fiscal 2018

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As of June 27, 2020 , approximately 29.4% of our cash and short-term investments were held outside the United States.

Before the Tax Legislation, the Company considered the earnings of its non-U.S.

subsidiaries to be indefinitely reinvested, and accordingly, recorded no deferred income taxes on these earnings.

In fiscal 2019, we have analyzed our global working capital and cash requirements, and the potential tax liabilities associated with repatriation, and have determined that we will likely repatriate some portion of available foreign cash in the foreseeable future.

The Company has recorded deferred taxes on certain earnings of non-US subsidiaries that are deemed likely to be repatriated.

See Note 16, "Income Taxes" for more information.

In May 2017, 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 May 30, 2022 (the "Revolving Credit Facility").

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 600% of consolidated lease expense to (b) consolidated EBITDAR.

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.

The Company had no outstanding borrowings under the Revolving Credit Facility at fiscal year-end.

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 June 27, 2020, $700.0 million of borrowings were outstanding under the Revolving Credit Facility.

Refer to Note 13, "Debt," for further information on our existing debt instruments.

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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 2020, including our plans for further investment in our brands, while returning capital to shareholders through our dividend and share repurchase programs.

We expect total capital expenditures to be approximately $300 million.

Our ability to fund working capital needs, planned capital expenditures, dividend payments, share repurchases 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, which in turn are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond the Company's control.

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.

The Company expects total capital expenditures to be approximately $150 million in fiscal 2021.

The Company's results are typically affected by seasonal trends.

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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.

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.

Share Repurchase Plan

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During fiscal 2020, the Company repurchased $300.0 million of common stock.

As of June 27, 2020 , the Company has the authorization to repurchase up to $600.0 million of additional shares under the plan.

Amendment No.

1 to the Revolving Credit Facility contains negative covenants that limit the ability of the Company to, among other things, engage in share buybacks during the Covenant Relief Period.

Refer to Part II, Item 5.

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Operating lease obligations

Capital lease obligations

Finance lease obligations

Debt repayment

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Mandatory transition tax payments represent our tax obligation incurred in connection with the deemed repatriation of previously deferred foreign earnings pursuant to the Tax Legislation.

These amounts represent the Company's best estimate as of June 29, 2019, but are subject to adjustment as further regulations or additional guidance becomes available.

Refer to Note 16, "Income Taxes," for further information.

Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $77.3 million as of June 27, 2020 , as we cannot make a reliable estimate of the period in which the liability will be settled, if ever.

The above table also excludes amounts included in current liabilities in the Consolidated Balance Sheet at June 29, 2019 as these items will

be paid within one year, certain long-term liabilities not requiring cash payments and cash contributions for the Company’s pension plan.

The above table also excludes amounts included in current liabilities in the Consolidated Balance Sheet at June 27, 2020 as these items will be paid within one year and certain long-term liabilities not requiring cash payments.

Off-Balance Sheet Arrangements

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Substantially all of the Company's inventories are comprised of finished goods, and are reported at the lower of cost or net realizable value.

Inventory costs include material, conversion costs, freight and duties and are primarily determined by the first-in, first-out method.

Inventory costs include material, conversion costs, freight and duties and are primarily determined on a weighted-average cost basis.

The Company reserves for inventory, including slow-moving and aged inventory, based on current product demand, expected future demand and historical experience.

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Goodwill and Other Intangible Assets

Upon acquisition, the Company estimates and records the fair value of purchased intangible assets, which primarily consists of brands, customer relationships, lease rights and order backlog.

Upon acquisition, the Company estimates and records the fair value of purchased intangible assets, which primarily consists of brands, customer relationships, right-of-use assets and order backlog.

Goodwill and certain other intangible assets deemed to have indefinite useful lives, including brand intangible assets, are not amortized, but are assessed for impairment at least annually.

Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets as noted above, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable.

Estimates of fair value for finite-lived and indefinite-lived intangible assets are primarily determined using discounted cash flows and the multi-period excess earnings method, respectively, with consideration of market comparisons.

This approach uses significant estimates and assumptions, including projected future cash flows, discount rates and growth rates.

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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.

The Company determined that there was no impairment in fiscal 2019 , fiscal 2018 or fiscal 2017 .

In all fiscal years, the fair values of our Coach brand reporting units significantly exceeded their respective carrying values.

The Company determined that there was no impairment in fiscal 2019 or fiscal 2018 .

During the third quarter of fiscal 2020, profitability trends continued to decline from those that were expected for the Stuart Weitzman brand.

The reduction in both cash from operations and future expected cash flows were exacerbated by the Covid-19 pandemic, which resulted in a decline in sales driven by full and partial closures of a significant portion of our stores globally.

As a result of these macroeconomic conditions, the Company concluded that a triggering event had occurred during the third quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Stuart Weitzman reporting unit and indefinite-lived brand intangible assets.

The assessment concluded that the fair values of the Stuart Weitzman reporting unit and indefinite-lived brand intangible asset as of the third quarter did not exceed their respective carrying values.

Accordingly, in the third quarter of fiscal 2020, the Company recorded a goodwill impairment charge of $210.7 million related to the Stuart Weitzman reporting unit, resulting in a full impairment.

During the third quarter of fiscal 2020, the Company also recorded an impairment charge of $267.0 million related to the Stuart Weitzman indefinite-lived brand, resulting in a full impairment.

The Company considered the excess of the fair value over its carrying value for all Coach and Kate Spade reporting unit and indefinite-lived brand intangibles, management did not perform an interim assessment for these reporting units.

Based on the annual assessment, 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.

Furthermore, the fair values of the Stuart Weitzman brand reporting unit and indefinite-lived brand exceeded their respective carrying values by approximately 11% and 62%, respectively.

Since the annual assessment date, the Company has updated its projections to reflect more modest top line growth at Kate Spade and has concluded that all the intangible assets are not impaired as of June 29, 2019 .

Several factors could impact the Kate Spade and Stuart Weitzman brands' ability to achieve expected future cash flows, including the management of the supply chain operational challenges at Stuart Weitzman, reception of new collections, the success of international expansion strategies including the consolidation or integration of certain distributor relationships, the optimization of the store fleet productivity, the impact of promotional activity in department stores, the simplification of certain corporate overhead structures and other initiatives aimed at expanding higher performing categories of the business.

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.

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To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value, considering external market participant assumptions.

In determining future cash flows, the Company takes various factors into account, including the effects of macroeconomic trends such as consumer spending, in-store capital investments, promotional cadence, the level of advertising and changes in merchandising strategy.

merchandising strategy.

Since the determination of future cash flows is an estimate of future performance, there may be future impairments in the event that future cash flows do not meet expectations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis