What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-08-18 compared with 2021-08-19 · 221 added, 235 removed, 374 unchanged (55% of the section changed)

4 unchanged sentences

EXECUTIVE OVERVIEW

The fiscal year ended July 3, 2021 was a 53-week period, June 27, 2020 and June 29, 2019 were each 52-week periods.

The fiscal year ended July 2, 2022 was a 52-week period, July 3, 2021 was a 53-week period, and June 27, 2020 was a 52-week period.

Tapestry, Inc.

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

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

Our global house of brands unites the magic of Coach, kate spade new york and Stuart Weitzman.

5 unchanged sentences

• Coach - Includes global sales of Coach products to customers through Coach operated stores, including e-commerce sites and concession shop-in-shops, and sales to wholesale customers and through independent third party distributors.

• Kate Spade - Includes global sales primarily of kate spade new york brand products to customers through Kate Spade operated stores, including e-commerce sites, sales to wholesale customers, through concession shop-in-shops and through independent third party distributors.

• Kate Spade - Includes global sales primarily of kate spade new york brand products to customers through Kate Spade operated stores, including e-commerce sites and concession shop-in-shops, sales to wholesale customers and through independent third party distributors.

• Stuart Weitzman - Includes global sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores, including e-commerce sites, sales to wholesale customers and through numerous independent third party distributors.

2 unchanged sentences

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:

Starting in fiscal 2020, the Company embarked on a strategic growth plan after undergoing a review of its business under the Acceleration Program, resulting in certain costs to date 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.

The guiding principle under the Acceleration Program is to better meet the needs of each of its brands' unique customers by:

• Sharpening our Focus on the Consumer:

6 unchanged sentences

Moving with greater agility, simplifying internal processes and empowering teams to act quickly to meet the rapidly changing needs of the consumer.

The Company achieved approximately $200 million of gross run rate expense savings in fiscal 2021 and remains on track to realize gross run-rate savings of $300 million.

In fiscal 2021, the Company continued to make meaningful progress against its Acceleration Program to sharpen its focus on the consumer, leverage data to lead with a digital-first mindset and transform into a leaner and more responsive organization:

• Recruited approximately 4 million new customers, including through our e-commerce channels in North America, representing gains versus prior year;

• Continued to deliver an increase in number of repeat transactions versus prior year and reactivated lapsed customers across brands ;

• Drove high-single digit revenue gains with Chinese consumers globally compared to pre-pandemic levels;

• Effectively reduced SKU counts by 40% to 45% and improved assortment productivity , supported by data and analytics, resulting in stronger overall AUR and gross margin through higher IMUs and lower promotional activity and increased inventory turn for the fiscal year;

• Optimized global fleet with 59 net closures in FY21 compared to FY20, representing a net decrease of 90 doors over the past two years.

Throughout fiscal 2022, the Company made meaningful progress under its Acceleration Program by sharpening the Company's focus on the consumer, leveraging data to lead with a digital-first mindset and transforming into a leaner and more responsive organization:

• Recruited approximately 7.7 million new customers across channels in North America, representing a 10% increase versus prior year, with growth in both stores and online.

• Maintained a consumer-centric lens and fostered emotional connections with customers, resulting in higher average spend per customer, increased retention rates and the continued reactivation of lapsed customers across brands.

• Delivered global average unit retail ("AUR") gains at Coach, Kate Spade, and Stuart Weitzman , reflecting brand heat and pricing power, the increasing traction of their product offerings, and select price increases, as well as continued benefits from structural changes to lessen promotional activity.

• Advanced Digital capabilities through significant investments in the channel, including in talent, to improve the customer experience and drive conversion;

achieved $2 billion in Digital revenue in the fiscal year, representing 30% of total sales.

• Realized gross run-rate savings of approximately $300 million in fiscal 2022 , which continues to fund investments in brand-building activities.

The Company does not expect to incur further expenses related to the Acceleration Program in fiscal 2023.

Refer to Note 5, "Restructuring Activities," and the "GAAP to Non-GAAP Reconciliation," herein, for further information.

Recent Developments

Covid-19 Pandemic

The Covid-19 virus has impacted regions all around the world, resulting in restrictions and shutdowns implemented by national, state, and local authorities.

Consequently, the spread of Covid-19 has caused significant global business disruptions.

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

The vast majority of the Company's stores re-opened for either in-store or pick-up service and they have continued to operate since then, however, some store locations have experienced temporary re-closures or are operating under tighter restrictions in compliance with local government regulation.

Many of the Company's wholesale and licensing partners also closed their bricks and mortar stores as required by government orders during the third and fourth quarters of fiscal 2020, and while the majority of stores have reopened, they have also been subject to temporary re-closures and tighter capacity restrictions operating in compliance with the rules of certain local governments.

In addition, certain of the Company’s supply chain partners, particularly those in Southeast Asia, have experienced closures due to an increase in Covid-19 cases in the region, which has and may continue to negatively impact the Company’s supply chain operations.

However, there is still 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.

The disruptions related to Covid-19 have materially adversely impacted our operations, cash flow, and liquidity.

The virus has impacted all regions around the world, resulting in restrictions and shutdowns implemented by national, state, and local authorities.

These requirements resulted in closures of our directly operated stores globally, as well as our wholesale and licensing partners, causing a significant reduction in sales starting in the third quarter of fiscal 2020.

While the vast majority of the Company's stores and locations of our wholesale and licensing partners have reopened, certain have experienced temporary re-closures or are operating under tighter restrictions in compliance with local government regulations.

The Company's performance in fiscal 2022 was adversely impacted as a result of infections due to variants of Covid-19 in certain regions, most notably in Greater China, which resulted in disruptions in business performance including a decline in demand in the region.

While the trends in Greater China started to improve at the end of fiscal 2022, the situation continues to be very volatile and infection rates and government restrictions may continue to persist.

Furthermore, Covid-19 has and may continue to cause disruptions in the Company’s supply chain within our third-party manufacturers and logistics providers.

During the first quarter of fiscal 2022, certain of the Company’s third-party manufacturers, primarily located in Vietnam, experienced ongoing and longer-than-expected government mandated restrictions, which resulted in a significant decrease in production capacity for these third-party manufacturers.

In response, the Company took deliberate actions such as shifting production to other countries, adjusting its merchandising strategies, where possible, and increasing the use of air freight to expedite delivery.

Based on these actions, and the improved production levels since the first quarter, the Company has been able to meet anticipated levels of demand.

The Company has been experiencing other global logistics challenges, such as delays as a result of port congestion, vessel availability, container shortages for imported products and rising freight costs.

To mitigate delays, the Company strategically used air freight with greater frequency than in the past, primarily in the second and third fiscal quarter of 2022.

Due to these logistical challenges, during fiscal 2022, the Company recognized within Cost of sales $178.5 million of incremental freight costs compared to fiscal 2021, in order to maintain product flow to meet consumer demand.

There is still uncertainty associated with the Covid-19 pandemic, and challenges are expected to persist into fiscal 2023, including 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 and adjust our operating plan as needed.

Refer to Part I, Item 1A.

"Risk Factors" herein for further information.

In response to the challenges that Covid-19 has imposed on our business, the Company implemented the following actions to mitigate these headwinds:

• Re-opened stores as quickly as possible, while following governmental and public health guidelines.

• Driving with a digital-first mindset for all brands.

Implemented practices designed to support the continued operations of our e-commerce platforms and fulfillment centers remain operational across all major regions.

• Reduced capital expenditures through fleet optimization through fiscal 2021.

• Drove SG&A savings, including actions taken under the Acceleration Program, through the reduction of corporate and retail workforce, right-sizing of marketing expenses, reduction of fixed costs such as rent as well as procurement savings, including reducing external third party services.

• Did not pay out bonuses under the Annual Incentive Plan for fiscal year 2020, eliminated merit salary increases for all employees and temporarily reduced compensation for the Board of Directors and corporate employees above a certain salary threshold.

During the second quarter of fiscal 2021, compensation resumed normal levels.

• Tightly managed inventories by reflowing product introductions and cancelling inventory receipts as well as planned reduction of SKUs.

• Drew down $700 million from its $900 million Revolving Credit Facility to add to cash balances, all of which was repaid during fiscal 2021.

• Suspended its quarterly cash dividend and share repurchase program beginning in the fourth quarter of fiscal 2020.

Subsequent to the fiscal 2021 year end, the Company’s Board of Directors approved the reinstatement of the Company's shareholder return program and declared a quarterly dividend of $0.25 per common share payable on September 27, 2021.

The Company also intends to repurchase approximately $500.0 million worth of stock in fiscal 2022, of which $600.0 million is remaining under its current authorization.

"Risk Factors" herein.

The Company continues to take strategic actions in response to the current environment.

The Company remains committed to driving SG&A savings, including actions taken under the Acceleration Program.

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.

CARES Act Tax Impact

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in response to the Covid-19 pandemic.

The CARES Act contains numerous tax provisions, such as refundable payroll tax credits, deferral of the employer portion of certain payroll taxes, net operating loss carrybacks, modifications to net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

Additionally, on December 27, 2020, the Covid-19 stimulus package was signed into law, which contained enhancements to certain tax credits enacted under the CARES Act.

Certain provisions impacted the results of the Company.

Refer to Note 16, "Income Taxes" for additional information on these provisions.

Since March 2020, the governments of numerous countries in which we operate have issued relief packages in response to Covid-19.

These packages include, amongst other things, extended filing deadlines, wage subsidies, social security relief, rent relief and deferred tax payments.

The Company is seeking select relief under these provisions where eligible.

The Company has to make certain judgements in interpretation of the law and/or await guidance from the local authorities.

The Company recorded $95.0 million of tax benefits in fiscal 2021, most notably as a result of the Net Operating Loss ("NOL") carryback claim.

Covid-19 Related Impairments

There were no Covid-19 related impairments recorded in fiscal 2022.

During fiscal 2021, the Company recorded $45.8 million of impairment charges related to lease right-of-use assets, which were primarily driven by the continued impacts of Covid-19.

Refer to Note 11, "Fair Value Measurements" for further information.

In addition, the Company recognized a reversal of raw material reserves of $8.1 million, which was established in fiscal 2020 as a result of the projected impact of Covid-19.

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.

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, driven by the impact of Covid-19.

Acceleration Program

The Company has implemented a strategic growth plan after undergoing a review of its business under the Acceleration Program and expects to incur certain costs reflecting:

(i) actions to streamline the Company's organization;

(ii) select store closures as the Company optimizes its fleet (including store closure costs incurred as the Company exits certain regions in which it currently operates);

and (iii) professional fees and share-based 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 and 2021, Company expects to incur total pre-tax charges of approximately $205 - $220 million related to the Acceleration Program.

The Acceleration Program is expected to be substantially complete by the end of fiscal 2022.

The Company achieved approximately $200 million of gross run rate expense savings in fiscal 2021 and remains on track to realize gross run-rate savings of $300 million.

Refer to Note 7, "Restructuring Activities," and the "GAAP to Non-GAAP Reconciliation," herein, for further information.

In addition, in fiscal 2021, the Company recognized a reversal of raw material reserves of $8.1 million, which was established in fiscal 2020 as a result of the projected impact of Covid-19.

Crisis in Ukraine

In the second half of fiscal 2022, a humanitarian crisis unfolded in Ukraine, which has created significant economic uncertainty in the region.

The Company does not have directly operated stores in Russia or Ukraine and has a minimal distributor and wholesale business which was less than 0.1% of the Company’s total Net sales for fiscal 2022 and fiscal 2021.

Starting in the third quarter of fiscal 2022 the Company paused all wholesale shipments to Russia and Ukraine.

The Company's total business in Europe represented less than 5% of fiscal 2022 and fiscal 2021 total Net sales.

Current Trends and Outlook

1 unchanged sentence

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.

The disruptions related to Covid-19 have materially adversely impacted our operations, cash flow, and liquidity.

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 closures of our directly operated stores and locations of our wholesale partners globally, causing a significant reduction in sales starting in the third quarter of fiscal 2020.

While the vast majority of the Company's stores reopened for either in-store or curb-side service and have continued to operate since then, some store locations have experienced temporary re-closures or are operating under tighter restrictions in compliance with local government regulation, and other stores may be required to close again for an extended period of time due to the possibility of a resurgence of increased infections.

The Company has noted that certain geographies have experienced increased infection rates due to new variants of Covid-19, resulting in a decline in store traffic in these regions.

The Company currently expects that this trend will not have a material adverse impact on its financial results for Fiscal 2022.

However, if such infections rates continue to rise resulting in further declines in store traffic, the Company's financial results may be negatively impacted from that which is currently expected.

Furthermore, Covid-19 has and may continue to cause disruptions in the Company’s supply chain within our fulfillment centers and logistics providers, and has resulted in temporary closures in our third-party manufacturers.

The Company exports a significant amount of its products from Southeast Asia, which has and continues to experience increased rates of Covid-19.

The Company has been experiencing other global logistics challenges, such as delays as a result of port congestion, vessel availability and container shortages for imported products that are expected to persist in fiscal 2022, which will result in the Company using air freight with greater frequency than in the past.

In addition, the Company has recently incurred higher freight costs, as rates for ocean and air shipments have significantly increased from those experienced in the beginning of fiscal 2021.

Several organizations that monitor the world’s economy, including the International Monetary Fund, observed that the outbreak of the Covid-19 pandemic has negatively shocked the global economy.

Recent economic data forecasts a return to global growth for the remainder of calendar 2021 and 2022.

Projected growth is contingent on anticipated legislation of additional fiscal support and improved health metrics.

Moreover, there are factors that may hinder a global economic rebound, including expected inflationary pressures in calendar 2022.

Additionally, there are still lingering uncertainties due to Covid-19 that may limit growth rates and progress, such as expected vaccine rollouts and mutations of the virus.

Thus, the revisions to estimated growth are heavily dependent on continued strong multilateral cooperation to bring the pandemic under control, including funding and support from local policymakers to make strategic investments that aid economic activity.

The outbreak of a novel strain of Covid-19 continues to impact a significant majority of the regions in which we operate, resulting in significant global business disruptions.

The widespread impact of Covid-19 resulted in temporary closures of directly operated stores globally, as well as at our wholesale and licensing partners starting in fiscal 2020.

Since then, certain directly operated stores and the stores of our wholesale and licensing partners have experienced temporary re-closures or are operating under tighter restrictions in compliance with local government regulation.

Furthermore, as discussed in "Recent Developments", Covid-19 has also resulted in ongoing supply chain challenges, such as logistic constraints, the closure of certain third-party manufacturers and increased freight costs.

We continue to monitor the latest developments regarding the pandemic and have made certain assumptions about the pandemic for purposes of our business and operating results, including assumptions regarding the duration, severity and global macroeconomic impacts of the pandemic.

However, the full extent of the impact of Covid-19 on our business and operating results will depend largely on future events outside of our control including the ultimate duration, severity and geographic resurgence of the virus and the success of actions to contain the virus, including variants of the novel strain, or treat its impact, among others.

Several organizations that monitor the world’s economy, including the International Monetary Fund, continue to forecast growth in the global economy.

However, some of these organizations have recently revised the forecast downward since the third quarter of fiscal 2022 primarily to reflect a higher-than-anticipated slowdown in Greater China, reflective of Covid-19 outbreaks and lockdown, and further negative economic impacts due to the crisis in Ukraine.

Inflation is expected to remain elevated for longer than in previous forecasts and concerns regarding an oncoming recession have increased in recent months.

Certain markets around the world have been faced with labor shortages, which have not impacted the Company's operations to date.

3 unchanged sentences

and China have both imposed tariffs on the importation of certain product categories into the respective country, with limited progress in negotiations to reduce or remove the tariffs.

However, while the U.S.

has participated in multi-national negotiations on trade agreements and duty rates, there continues to be a possibility of increases in tariffs on goods imported into the U.S.

from other countries.

Furthermore, certain tax legislation contemplated by the Biden Administration, including increasing the U.S.

corporate tax rate, and by the Organization for Economic Co-operation and Development, would have an adverse impact on our tax rate and financial results if passed as currently communicated.

Additional macroeconomic impacts include but are not limited to the United Kingdom ("U.K.") voting to leave the European Union ("E.U."), commonly known as "Brexit." The U.K.

officially terminated its membership of the E.U.

on January 31, 2020 under the terms of a withdrawal agreement concluded between the U.K.

and concluded the transition phase on December 31, 2020.

The Company does not expect Brexit to materially impact our business.

As part of our efforts to improve our working capital efficiency, we have worked with certain suppliers to revisit terms and conditions, including the extension of payment terms.

As an alternative to our payment terms, available to certain suppliers is a voluntary supply chain finance (“SCF”) program that enables our suppliers to sell their receivables from the Company to a global financial institution on a non-recourse basis at a rate that leverages our credit rating.

We do not have the ability to refinance or modify payment terms to the global financial institution through the SCF program.

No guarantees are provided by the Company or any of our subsidiaries under the SCF program.

Additionally, the Company has historically benefited from duty-free imports on certain products from certain countries pursuant to the U.S.

Generalized System of Preferences (“GSP”) program.

The GSP program expired in the third quarter of fiscal 2021, resulting in additional duties that have negatively impacting gross profit.

Over the past year there has been significant discussion with regards to tax legislation by both the Biden Administration and the Organization for Economic Cooperation and Development (“OECD”).

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law, with tax provisions primarily focused on implementing a 15% minimum tax on global adjusted financial statement income and a 1% excise tax on share repurchases.

The Inflation Reduction Act of 2022 will become effective beginning in fiscal 2024.

Given its recent pronouncement, it is unclear at this time what, if any, impact the Inflation Reduction Act of 2022 will have on the Company's tax rate and financial results.

We will continue to evaluate its impact as further information becomes available.

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.

5 unchanged sentences

Fiscal Year Ended

July 3, 2021 June 27, 2020 Variance

July 2, 2022 July 3, 2021 Variance

(millions, except per share data)

5 unchanged sentences

3,474.6 52.0 3,113.9 54.2 360.7 11.6

Operating income (loss) 968.0 16.8 (550.8) (11.1) 1,518.8 NM

Operating income (loss) 1,175.8 17.6 968.0 16.8 207.8 21.5

Loss on extinguishment of debt 53.7 0.8 — — 53.7 NM

Interest expense, net 58.7 0.9 71.4 1.2 (12.7) (17.7)

Other expense (income) 16.4 0.2 (0.7) — 17.1 NM

Income (Loss) before provision for income taxes 897.3 15.6 (624.2) (12.6) 1,521.5 NM

Income (Loss) before provision for income taxes 1,047.0 15.7 897.3 15.6 149.7 16.7

Provision for income taxes 190.7 2.9 63.1 1.1 127.6 NM

Net income (loss) 834.2 14.5 (652.1) (13.1) 1,486.3 NM

Net income (loss) 856.3 12.8 834.2 14.5 22.1 2.7

Net income (loss) per share:

Basic $ 3.00 $ (2.34) $ 5.34 NM

Diluted $ 2.95 $ (2.34) $ 5.29 NM

Basic $ 3.24 $ 3.00 $ 0.24 8.0

Diluted $ 3.17 $ 2.95 $ 0.22 7.5

NM - Not meaningful

6 unchanged sentences

Items affecting comparability

(As Reported) CARES Act Tax Impact Impairment Acceleration Program Non-GAAP Basis

(As Reported) Acceleration Program Debt Extinguishment Non-GAAP Basis

(Excluding Items)

15 unchanged sentences

Operating income (loss) $ 1,175.8 $ (42.8) $ — $ 1,218.6

Loss on extinguishment of debt 53.7 — 53.7 —

Provision for income taxes 190.7 (3.4) (12.9) 207.0

3 unchanged sentences

In fiscal 2022 the Company incurred charges as follows:

• CARES Act Tax Impact - Total amount primarily relates to tax benefits, most notably as a result of the NOL carryback claim.

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

• Acceleration Program - Total charges incurred under the Acceleration Program are primarily professional fees incurred as a result of the development and execution of the Company's comprehensive strategic initiatives, share-based compensation, as well as actions to streamline the Company's organization, which include severance.

• Debt Extinguishment - Debt extinguishment charges relate to the premiums, amortization and fees associated with the $500 million cash tender of the Company's 2027 Senior Notes and 2025 Senior Notes in the second quarter of fiscal 2022.

Refer to Note 12, "Debt," for further information.

• Acceleration Program - Total charges incurred under the Acceleration Program are primarily share-based compensation and professional fees incurred as a result of the development and execution of the Company's comprehensive strategic initiative.

Refer to the "Executive Overview" herein and Note 5, "Restructuring Activities," for further information.

• Impairment - Total adjustments are primarily due to impairment charges on lease ROU assets, as well as a reversal of raw material reserves which was established in fiscal 2020 as a result of the projected impact of Covid-19.

Refer to the "Executive Overview" herein and Note 12, "Fair Value Measurements," for further information.

These actions taken together increased the Company's SG&A expenses by $135.4 million, decreased Cost of sales by $8.1 million and Provision for income taxes by $120.4 million, negatively impacting net income by $6.9 million, o r $0.02 pe r diluted share.

These actions taken together increased the Company's SG&A expenses by $42.8 million, increased Loss on extinguishment of debt by $53.7 million and decreased Provision for income taxes by $16.3 million, negatively impacting net income by $80.2 million, or $0.30 per diluted share.

Fiscal 2021 Items

Fiscal Year Ended June 27, 2020

Fiscal Year Ended July 3, 2021

Items affecting comparability

(As Reported) ERP Implementation Organization-related & Integration costs Impairment Acceleration Program Non-GAAP Basis

(As Reported) CARES Act Tax Impact Impairment Acceleration Program Non-GAAP Basis

(Excluding Items)

20 unchanged sentences

In fiscal 2021 the Company incurred adjustments as follows:

• ERP Implementation - Total charges represent technology implementation costs.

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

Refer to 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.

• CARES Act Tax Impact - Total amount primarily relates to tax benefits, most notably as a result of the NOL carryback claim.

Refer to the "Executive Overview" herein and Note 5, "Restructuring Activities," for further information.

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

• Impairment - Total adjustments are primarily due to impairment charges on lease right-of use ("ROU") assets, as well as a reversal of raw material reserves which was established in fiscal 2020 as a result of the projected impact of Covid-19.

Refer to the "Executive Overview" herein and Note 11, "Fair Value Measurements," for further information.

Tapestry, Inc.

2 unchanged sentences

The change in net sales and gross margin in fiscal 2022 compared to fiscal 2021 has been presented both including and excluding currency fluctuation effects.

The Company has provided comparisons to certain fiscal year 2019 results, which the Company believes is useful to investors and others in evaluating the Company’s results, due to the significant impact of the Covid-19 pandemic on the Company’s operations and financial results, notably in the second half of fiscal year 2020.

Fiscal Year Ended Variance

July 3, 2021 June 27, 2020 Amount % Constant Currency Change % Change versus FY19

July 2, 2022 July 3, 2021 Amount % Constant Currency Change % Change versus FY19

Coach $ 4,921.3 $ 4,253.1 $ 668.2 15.7 % 16.2 % 15.2 %

7 unchanged sentences

Excluding the impact of foreign currency, net sales increased 16.2% or $691.0 million.

The following discussion is presented excluding the favorable impact of the 53rd week to net sales of $67.7 million and the impact of foreign currency.

This increase is primarily attributed to a net increase of $517.5 million in net global retail sales driven by higher global e-commerce sales and store sales in mainland China, partially offset by lower store sales in North America, Europe and Other Asia, including Japan.

Wholesale sales also increased $64.8 million primarily due to growth of the wholesale business in mainland China.

The following discussion is presented excluding the favorable impact of the 53rd week to fiscal 2021 net sales of $67.7 million and the impact of foreign currency.

The increase is primarily attributed to a net increase of $656.1 million in net retail sales driven by higher e-commerce in North America and global store sales with the exception of a decrease in store sales in Greater China due to Covid-19 related disruptions.

This increase in net sales was also partially attributed to a $101.5 million increase in wholesale sales.

• Kate Spade Net Sales increased 19.5% or $235.5 million to $1.45 billion in fiscal 2022.

Excluding the impact of foreign currency, net sales increased 20.1% or $242.9 million.

The following discussion is presented excluding the favorable impact of the 53rd week to net sales of $21.7 million and the impact of foreign currency.

This increase is primarily due to a net increase of $79.5 million in net global retail sales driven by higher global e-commerce sales, partially offset by lower stores sales in Other Asia, notably Japan, North America and Europe, due to the Covid-19 outbreak.

This was partially offset by a decrease in wholesale sales of $50.8 million due to the strategic pullback in disposition and lower demand as a result of the Covid-19 outbreak.

• Stuart Weitzman Net Sales decreased by 1.0% or $3.0 million to $283.2 million in fiscal 2021.

Excluding the impact of foreign currency, net sales decreased 3.4% or $9.9 million.

The following discussion is presented excluding the favorable impact of the 53rd week to net sales of $3.3 million and the impact of foreign currency.

This decrease is primarily due to a decline in the retail business of $16.1 million primarily driven by store closures related to fleet optimization under the Acceleration Program and market exits, partially offset by increase in store sales in mainland China and an increase in global e-commerce sales.

The following discussion is presented excluding the favorable impact of the 53rd week to fiscal 2021 net sales of $21.7 million and the impact of foreign currency.

The increase is primarily due to a net increase of $221.3 million in net retail sales driven by higher store and e-commerce sales in North America and store sales in Europe partially offset by a decrease in store sales in Greater China due to Covid-19 related disruptions.

This increase in net sales was also partially attributed to a $47.9 million increase in wholesale sales.

• Stuart Weitzman Net Sales increased by 12.2% or $34.5 million to $317.7 million in fiscal 2022.

Excluding the impact of foreign currency, net sales increased 10.8% or $30.7 million.

The following discussion is presented excluding the favorable impact of the 53rd week to fiscal 2021 net sales of $3.3 million and the impact of foreign currency.

The increase in net sales was primarily attributed to a $27.6 million increase in wholesale sales.

This increase in net sales was also attributed to a $6.4 million increase in retail sales, primarily driven by higher e-commerce and store sales in North America, partially offset by a decrease in store sales in Greater China due to Covid-19 related disruptions.

Fiscal Year Ended

July 3, 2021 June 27, 2020 Variance

July 2, 2022 July 3, 2021 Variance

Amount % of Net Sales Amount % of Net Sales Amount %

5 unchanged sentences

Gross margin for fiscal 2022 was 69.6% as compared to 71.0% in fiscal 2021.

Excluding items affecting comparability of a reduction of expense of $8.1 million in fiscal 2021 and $118.0 million in fiscal 2020, as discussed in the "GAAP to Non-GAAP Reconciliation" herein, gross profit increased 21.3% or $716.5 million to $4.07 billion in fiscal 2021, and gross margin increased 320 basis points to 70.9% in fiscal 2021 and 67.7% in fiscal 2020 and was not materially impacted by foreign currency.

Excluding items affecting comparability of a reduction of expense of $8.1 million in fiscal 2021 as discussed in the "GAAP to Non-GAAP Reconciliation" herein, gross profit increased 14.2% or $576.6 million to $4.65 billion from $4.07 billion in fiscal 2021.

Excluding items affecting comparability, gross margin decreased 130 basis points to 69.6% compared to 70.9% in fiscal 2021 and was not materially impacted by foreign currency.

The Company includes inbound product-related transportation costs from our service providers within Cost of sales.

1 unchanged sentence

for this reason, our gross margins may not be comparable to that of entities that include all costs related to their distribution network in Cost of sales.

The Company incurred incremental freight costs in fiscal 2022 compared to fiscal 2021 in order to maintain product flow to meet consumer demand.

Refer to "Recent Developments," herein, for further information.

• Coach Gross Profit increased 12.9% or $404.8 million to $3.55 billion in fiscal 2022 from $3.15 billion in fiscal 2021.

Gross margin increased to 74.0% in fiscal 2021 as compared to 68.4% in fiscal 2020.

Excluding items affecting comparability of a reduction of expense of $8.1 million and $62.0 million in fiscal 2021 and fiscal 2020, respectively, Coach gross profit increased 27.0% or $667.3 million to $3.14 billion from $2.47 billion in fiscal 2020, and gross margin increased 370 basis points to 73.9% from 70.2% in fiscal 2020 and was not materially impacted by foreign currency.

This increase in gross margin is primarily attributed to reduced promotional activity.

Gross margin decreased 180 basis points to 72.2% in fiscal 2022 as compared to 74.0% in fiscal 2021.

Excluding items affecting comparability of a reduction of expense of $8.1 million in fiscal 2021, Coach gross profit increased 13.1% or $412.9 million to $3.55 billion from $3.14 billion in fiscal 2021.

Excluding items affecting comparability, gross margin decreased 170 basis points to 72.2% from 73.9% in fiscal 2021 and was not materially impacted by foreign currency.

This decrease in gross margin was primarily attributed to higher inbound freight costs.

Unfavorable geography and product mix were more than offset by reduced promotional activity and stronger-than-anticipated sell-throughs.

• Kate Spade Gross Profit increased 18.7% or $143.6 million to $912.0 million in fiscal 2022 from $768.4 million in fiscal 2021.

Gross margin increased to 63.5% in fiscal 2021 from 59.4% in fiscal 2020.

Excluding items affecting comparability of $33.5 million in fiscal 2020, Kate Spade gross profit increased 7.3% or $52.0 million to $768.4 million from $716.4 million in fiscal 2020, and gross margin increased 120 basis points to 63.5% from 62.3% in fiscal 2020 and was not materially impacted by foreign currency.

This gross margin increase of 120 basis points is primarily due to reduced promotional activity and a strategic pullback in disposition, partially offset by higher inbound freight and duty expenses.

Gross margin decreased 40 basis points to 63.1% in fiscal 2022 from 63.5% in fiscal 2021.

Kate Spade gross margin was not materially impacted by foreign currency.

This decrease in gross margin was primarily attributed to higher inbound freight costs.

Unfavorable channel and geography mix and higher duties were more than offset by reduced promotional activity, favorable product mix and pricing actions, as well as stronger-than-anticipated sell-throughs.

• Stuart Weitzman Gross Profit increased 12.2% or $20.1 million to $184.6 million in fiscal 2022 from $164.5 million in fiscal 2021.

Gross margin increased 750 basis points to 58.1% in fiscal 2021 from 50.6% in fiscal 2020.

Excluding items affecting comparability of $22.5 million in fiscal 2020, Stuart Weitzman gross profit decreased 1.7% or $2.8 million to $164.5 million from $167.3 million in fiscal 2020, and gross margin decreased 40 basis points to 58.1% in fiscal 2021 from 58.5% in fiscal 2020.

On a constant currency basis, gross margin decreased 260 basis points.

This decrease in gross margin is primarily due to channel mix and increased promotional activity.

Gross margin remained flat at 58.1% in fiscal 2022 and fiscal 2021.

On a constant currency basis, gross margin increased 120 basis points.

This increase in gross margin is primarily due to reduced promotional activity and favorable product mix and pricing actions offset by unfavorable geography and channel mix.

Selling, General and Administrative Expenses

Fiscal Year Ended

July 3, 2021 June 27, 2020 Variance

July 2, 2022 July 3, 2021 Variance

Amount % of Net Sales Amount % of Net Sales Amount %

1 unchanged sentence

Kate Spade 754.6 52.2 659.9 54.5 94.7 14.3

Stuart Weitzman 173.1 61.1 766.2 NM (593.1) (77.4)

Stuart Weitzman 182.8 57.5 173.1 61.1 9.7 5.6

Corporate 457.3 NA 444.0 NA 13.3 3.0

Tapestry $ 3,474.6 52.0 $ 3,113.9 54.2 $ 360.7 11.6

SG&A expenses decreased 17.8% or $676.2 million to $3.11 billion in fiscal 2021 as compared to $3.79 billion in fiscal 2020.

SG&A expenses increased 11.6% or $360.7 million to $3.47 billion in fiscal 2022 as compared to $3.11 billion in fiscal 2021.

As a percentage of net sales, SG&A expenses decreased to 52.0% during fiscal 2022 as compared to 54.2% during fiscal 2021.

1 unchanged sentence

and SG&A expenses as a percentage of net sales decreased to 51.3% in fiscal 2022 from 51.8% in fiscal 2021.

This increase in SG&A expenses includes an increase in accrued Annual Incentive Plan expenses due to the cancellation of the Plan in fiscal 2020, higher marketing spend due to focus on digital and funding the endowment of the newly established Tapestry Foundation, partially offset by decreases as a result of actions taken as part of the Acceleration Program as well as benefits from wage subsidies and rent concessions.

• Coach SG&A Expenses increased 13.2% or $243.0 million to $2.08 billion in fiscal 2022 as compared to $1.84 billion in fiscal 2021.

2 unchanged sentences

SG&A expenses as a percentage of sales decreased to 42.1% in fiscal 2022 from 42.2% in fiscal 2021.

This increase in SG&A expenses is primarily due to an increase in digital marketing spend and e-commerce related operational and selling costs in support of higher e-commerce sales, partially offset by a decline in occupancy costs and compensation costs primarily as a result of actions taken as part of the Acceleration Program.

• Kate Spade SG&A Expenses decreased 15.6% or $122.3 million to $659.9 million in fiscal 2021 from $782.2 million in fiscal 2020.

This increase in SG&A expenses is primarily due to higher marketing spend, most notably in digital, increased compensations costs, increased variable distribution and selling costs and a decrease in Covid-19 related wage subsidies and rent concessions.

• Kate Spade SG&A Expenses increased 14.3% or $94.7 million to $754.6 million in fiscal 2022 as compared to $659.9 million in fiscal 2021.

As a percentage of net sales, SG&A expenses decreased to 52.2% during fiscal 2022 as compared to 54.5% in fiscal 2021.

Excluding items affecting comparability of $23.7 million and $106.6 million in fiscal 2021 and fiscal 2020, respectively, SG&A expenses decreased 5.8% or $39.4 million to $636.2 million in fiscal 2021 compared to $675.6 million in fiscal 2020;

Excluding items affecting comparability of $5.9 million and $23.7 million in fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased 17.7% or $112.5 million to $748.7 million in fiscal 2022 compared to $636.2 million in fiscal 2021;

and SG&A expenses as a percentage of sales decreased to 51.8% in fiscal 2022 from 52.6% in fiscal 2021.

This decrease is due to a decline in occupancy costs, compensation costs and depreciation expense, primarily as a result of actions taken as part of the Acceleration Program, partially offset by an increase in digital marketing spend and e-commerce related operational and selling costs in support of higher e-commerce sales.

• Stuart Weitzman SG&A Expenses decreased 77.4% or $593.1 million to $173.1 million in fiscal 2021 as compared to $766.2 million in fiscal 2020.

Excluding items affecting comparability of $3.6 million in fiscal 2021 and $542.3 million in fiscal 2020, SG&A expenses decreased 24.3% or $54.4 million to $169.5 million in fiscal 2021 from $223.9 million in fiscal 2020;

This increase is due to higher marketing spend, most notably in digital, increased compensation costs and an increase in variable distribution and selling costs.

• Stuart Weitzman SG&A Expenses increased 5.6% or $9.7 million to $182.8 million in fiscal 2022 as compared to $173.1 million in fiscal 2021.

As a percentage of net sales, SG&A expenses decreased to 57.5% during fiscal 2022 as compared to 61.1% in fiscal 2021.

Excluding items affecting comparability of $3.6 million in fiscal 2022 and $3.6 million in fiscal 2021, SG&A expenses increased 5.7% or $9.7 million to $179.2 million in fiscal 2022 from $169.5 million in fiscal 2021;

and SG&A expenses as a percentage of net sales decreased to 56.4% in fiscal 2022 from 59.9% in fiscal 2021.

This decrease is primarily due to a decline in occupancy and compensation costs mainly as a result of fleet optimization under the Acceleration Program and market exits, as well as higher bad debt reserves in the prior year due to Covid-19.

This increase is primarily due to a decrease in Covid-19 related rent concessions and higher selling costs.

• Corporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment, increased 3.0% or $13.3 million to $457.3 million in fiscal 2022 as compared to $444.0 million in fiscal 2021.

Excluding items affecting comparability of $26.6 million and $65.8 million in fiscal 2022 and fiscal 2021, respectively, SG&A expenses increased 13.9% or $52.5 million to $430.7 million in fiscal 2022 as compared to $378.2 million in fiscal 2021.

This increase in SG&A expenses is primarily due to an increase in accrued Annual Incentive Plan expenses and the costs associated with the endowment of the newly established Tapestry Foundation, partially offset by the gain realized on the sale of our corporate office in Hong Kong SAR, China and on the deferred purchase price of the Kate Spade joint venture.

This increase in SG&A expenses is primarily due to higher compensation costs.

Additionally in fiscal 2021, the Company recognized one-time gains as a result of the sale of our corporate office in Hong Kong SAR, China and on the deferred purchase price of the Kate Spade joint venture.

The Company also made an endowment of the Tapestry foundation in fiscal 2021.

Operating Income (Loss)

Fiscal Year Ended

July 3, 2021 June 27, 2020 Variance

July 2, 2022 July 3, 2021 Variance

Amount % of Net Sales Amount % of Net Sales Amount %

Coach $ 1,312.1 30.9 % $ 589.4 16.7 % $ 722.7 NM

Kate Spade 108.5 9.0 (99.3) (8.6) 207.8 NM

Coach $ 1,473.9 29.9 % $ 1,312.1 30.9 % $ 161.8 12.3 %

Kate Spade 157.4 10.9 108.5 9.0 48.9 45.1

Stuart Weitzman 1.8 0.6 (8.6) (3.1) 10.4 NM

Corporate (457.3) NA (444.0) NA (13.3) (3.0)

Tapestry 968.0 16.8 $ (550.8) (11.1) $ 1,518.8 NM

Operating income increased $1.52 billion to $968.0 million during fiscal 2021 as compared to operating loss of $550.8 million in fiscal 2020.

Tapestry 1,175.8 17.6 $ 968.0 16.8 $ 207.8 21.5

Operating income increased $207.8 million to $1.18 billion during fiscal 2022 as compared to $968.0 million in fiscal 2021.

Operating margin was 17.6% in fiscal 2022 as compared to 16.8% in fiscal 2021.

Excluding items affecting comparability of $127.3 million in fiscal 2021 and $989.2 million in fiscal 2020, operating income increased $656.9 million to $1.10 billion from $438.4 million in fiscal 2020;

Excluding items affecting comparability of $42.8 million in fiscal 2022 and $127.3 million in fiscal 2021, operating income increased $123.3 million to $1.22 billion from $1.10 billion in fiscal 2021;

and operating margin was 18.2% in fiscal 2022 as compared to 19.1% in fiscal 2021.

Included in operating income excluding items affecting comparability of $1.10 billion is $30.0 million from the favorable impact of the 53rd week in fiscal 2021.

• Coach Operating Income increased $722.7 million to $1.31 billion in fiscal 2021, resulting in an operating margin of 30.9%, as compared to $589.4 million and 16.7%, respectively in fiscal 2020.

Excluding items affecting comparability, Coach operating income increased $559.2 million to $1.35 billion from $787.1 million in fiscal 2020;

Within operating income in fiscal 2021 of $1.10 billion, which excludes items affecting comparability, is $30.0 million from the favorable impact of the 53rd week.

• Coach Operating Income increased $161.8 million to $1.47 billion in fiscal 2022, resulting in an operating margin of 29.9%, as compared to $1.31 billion and 30.9%, respectively in fiscal 2021.

Excluding items affecting comparability, Coach operating income increased $134.3 million to $1.48 billion from $1.35 billion in fiscal 2021;

and operating margin was 30.1% in fiscal 2022 as compared to 31.7% in fiscal 2021.

This increase in operating income includes the favorable impact of the 53rd week in fiscal 2021 of $28.6 million and is due to an increase in gross profit, partially offset by higher SG&A expenses.

• Kate Spade Operating Income increased $207.8 million to an operating income of $108.5 million in fiscal 2021, resulting in an operating margin of 9.0% as compared to an operating loss of $99.3 million and operating margin of (8.6)% in fiscal 2020.

Excluding items affecting comparability, Kate Spade operating income increased $91.4 million to $132.2 million from $40.8 million in fiscal 2020, resulting in an operating margin of 10.9% as compared to 3.6% in fiscal 2020.

This increase in operating income includes the favorable impact of the 53rd week in fiscal 2021 of $4.7 million and is due to an increase in gross profit and lower SG&A expenses.

• Stuart Weitzman Operating Loss decreased $612.8 million to an operating loss of $8.6 million in fiscal 2021, as compared to an operating loss of $621.4 million in fiscal 2020.

Excluding items affecting comparability, Stuart Weitzman operating loss decreased $51.6 million to an operating loss of $5.0 million from an operating loss of $56.6 million in fiscal 2020;

This increase in operating income is due to an increase in gross profit, partially offset by higher SG&A expenses and the favorable impact of the 53rd week in fiscal 2021 of $28.6 million.

• Kate Spade Operating Income increased $48.9 million to $157.4 million in fiscal 2022, resulting in an operating margin of 10.9%, as compared to 108.5 million and 9.0%, respectively in fiscal 2021.

Excluding items affecting comparability, Kate Spade operating income increased $31.1 million to $163.3 million from $132.2 million in fiscal 2021;

and operating margin was 11.3% in fiscal 2022 as compared to 10.9% in fiscal 2021.

This decrease in operating loss includes the favorable impact of the 53rd week in fiscal 2021 of $0.2 million and is due to a lower SG&A expenses, partially offset by a decrease in gross profit.

This increase in operating income is due to an increase in gross profit, partially offset by higher SG&A expenses and the favorable impact of the 53rd week in fiscal 2021 of $4.7 million.

• Stuart Weitzman Operating Income increased $10.4 million to $1.8 million in fiscal 2022, resulting in an operating margin of 0.6%, as compared to an operating loss of $8.6 million in fiscal 2021 and operating margin of (3.1)%.

Excluding items affecting comparability, Stuart Weitzman operating loss decreased $10.4 million to an operating income of $5.4 million from an operating loss of $5.0 million in fiscal 2021;

and operating margin was 1.7% in fiscal 2022 as compared to (1.8)% in fiscal 2021.

This decrease in operating loss is due to an increase in gross profit, partially offset by higher SG&A expenses and the favorable impact of the 53rd week in fiscal 2021 of $0.2 million.

Loss on Extinguishment of Debt

In the second quarter of fiscal 2022, the Company early tendered $500 million in aggregate of the Company’s 2027 Senior Notes and 2025 Senior Notes.

As a result, the Company incurred a loss on extinguishment of debt of $53.7 million in fiscal 2022, primarily related to the premiums, amortization and fees associated with the partial tender.

Interest Expense, net

Net interest expense increased 18.8% or $11.3 million to $71.4 million in fiscal 2021 as compared to $60.1 million in fiscal 2020.

This increase in interest expense, net is due to lower interest income and the additional interest expense related to the draw down on the Revolving Credit Facility in the fourth quarter of fiscal 2020 that was fully repaid in the third quarter of fiscal 2021.

Net interest expense decreased 17.7% or $12.7 million to $58.7 million in fiscal 2022 as compared to $71.4 million in fiscal 2021.

This decrease in Interest expense, net is due to higher interest income and lower bond interest expense on senior notes.

Other Expense (Income)

Other income increased $14.0 million to income of $0.7 million in fiscal 2021 as compared to expense of $13.3 million in fiscal 2020.

This increase in other income is related to an increase in foreign exchange gains.

Other expense increased $17.1 million to $16.4 million in fiscal 2022 as compared to an income of $0.7 million in fiscal 2021.

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

Provision for Income Taxes

1 unchanged sentence

Excluding items affecting comparability, the effective tax rate was 18.1% in fiscal 2022 as compared to 17.9% in fiscal 2021.

The decrease in our effective tax rate was primarily attributable to geographic mix of earnings and the impact of nondeductible expenses on lower pretax operating income in fiscal 2020.

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

Net Income (Loss)

Net income increased $1.49 billion to a net income of $834.2 million in fiscal 2021 as compared to a net loss of $652.1 million in fiscal 2020.

Net income increased $22.1 million to a net income of $856.3 million in fiscal 2022 as compared to a net income of $834.2 million in fiscal 2021.

Excluding items affecting comparability, net income increased $95.4 million to $936.5 million in fiscal 2022 from $841.1 million in fiscal 2021.

1 unchanged sentence

Net Income (Loss) per Share

Net income per diluted share was $2.95 in fiscal 2021 as compared to net loss per diluted share of $2.34 in fiscal 2020.

Excluding items affecting comparability, net income per diluted share increased $2.00 to $2.97 in fiscal 2021 from $0.97 in fiscal 2020, primarily due to higher net income.

The impact of the 53rd week contributed approximately $0.09 to net income per diluted share.

Net income per diluted share was $3.17 in fiscal 2022 as compared to net income per diluted share of $2.95 in fiscal 2021.

Excluding items affecting comparability, net income per diluted share increased $0.50 to $3.47 in fiscal 2022 from $2.97 in fiscal 2021, primarily due to higher net income and a decrease in shares outstanding.

The impact of the 53rd week in fiscal 2021 contributed approximately $0.09 to net income per diluted share.

FISCAL 2021 COMPARED TO FISCAL 2020

The comparison of fiscal 2020 to 2019 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended June 27, 2020, filed on August 13, 2020.

The comparison of fiscal 2021 to 2020 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended July 3, 2021, filed on August 19, 2021.

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 reflect certain items, including the impact of the CARES Act Tax Impact in fiscal 2021, Impairment costs and Acceleration Program costs in fiscal 2021 and 2020, and ERP Implementation and Organization-related and Integration charges in fiscal 2020.

The reported Gross profit, SG&A expenses, Operating income, Provision for income taxes, Net income and Earnings per diluted share in fiscal 2022 and fiscal 2021 and the reported Loss on extinguishment of debt in fiscal 2022 reflect certain items, including the impact of Debt Extinguishment costs in fiscal 2022, Acceleration Program costs in fiscal 2022 and 2021, and the CARES Act Tax Impact and Impairment costs in fiscal 2021.

As a supplement to the Company's reported results, these metrics are also reported on a non-GAAP basis to exclude the impact of these items, along with a reconciliation to the most directly comparable GAAP measures.

29 unchanged sentences

Fiscal Year Ended

2021 June 27,

Net cash provided by operating activities $ 1,323.7 $ 407.0 $ 916.7

Net cash provided by (used in) operating activities $ 853.2 $ 1,323.7 $ (470.5)

Net cash provided by (used in) investing activities (253.6) (91.0) (162.6)

2 unchanged sentences

Net increase (decrease) in cash and cash equivalents $ (1,217.9) $ 581.4 $ (1,799.3)

The Company’s cash and cash equivalents increased by $581.4 million in fiscal 2021 compared to an increase of $457.1 million in fiscal 2020, as discussed below.

The Company’s cash and cash equivalents decreased by $1.22 billion in fiscal 2022 compared to an increase of $581.4 million in fiscal 2021, as discussed below.

Net cash provided by (used in) operating activities

Net cash provided by operating activities increased $916.7 million primarily due to changes in net income of $1.49 billion and changes in operating assets and liabilities of $310.6 million, partially offset by the impact of non-cash charges of $880.2 million.

Net cash provided by operating activities decreased $470.5 million primarily due to changes in operating assets and liabilities of $597.1 million, partially offset by the loss on extinguishment of debt of $53.7 million, the impact of non-cash charges of $50.8 million and higher net income of $22.1 million.

The $597.1 million change in our operating asset and liability balances was primarily driven by:

• Accounts payable were a source of cash of $307.3 million in fiscal 2021 as compared to a use of cash of $91.7 million in fiscal 2020, primarily due to the extension of payment terms to certain vendors in addition to higher inventory in transit compared to the prior period.

• Accrued liabilities were a source of cash of $140.3 million in fiscal 2021 as compared to a source of cash of $7.6 million in fiscal 2020, primarily attributed to increased accruals for Annual Incentive Plan payments compared to the prior period, partially offset by the timing of tax related payments.

• Inventories were a source of cash of $32.2 million in fiscal 2021 as compared to a use of cash of $58.6 million in fiscal 2020, primarily driven by more disciplined inventory management, higher than expected sales, and actions taken to exit certain markets, partially offset by higher inventory in transit compared to the prior period.

• Other assets were a use of cash of $223.1 million in fiscal 2021 as compared to a source of cash of $38.3 million in fiscal 2020, primarily related to an increase in income tax receivable due to the NOL carryback claim under the CARES Act.

• Trade accounts receivable were a use of cash of $9.6 million in fiscal 2021 as compared to a source of cash of $61.9 million in fiscal 2020, primarily driven by a lower balance in the fourth quarter of fiscal 2020 due to impacts from Covid-19.

• Inventories were a use of cash of $311.7 million in fiscal 2022 as compared to a source of cash of $32.2 million in fiscal 2021, primarily driven by higher receipts, increased in-transit levels due to longer lead times and increased inbound freight costs compared to prior year.

• Accounts payable were a source of cash of $86.4 million in fiscal 2022 as compared to a source of cash of $307.3 million in fiscal 2021, primarily due to the extension of payment terms with certain vendors in fiscal 2021 and higher inventory in-transit in fiscal 2022.

• Other assets were a use of cash of $20.2 million in fiscal 2022 as compared to a use of cash of $223.1 million in fiscal 2021, primarily attributed to income tax receivables including the NOL carryback claim under the CARES Act filed in fiscal 2021 and the timing of payments and other refunds in the U.S.

• Accrued liabilities were a use of cash of $16.1 million in fiscal 2022 as compared to a source of cash of $140.3 million in fiscal 2021, primarily attributed to the Annual Incentive Plan payment as the Company did not pay out during fiscal 2021 (for performance during fiscal year 2020) offset by increased distribution costs driven by higher sales and inbound freight.

Net cash provided by (used in) investing activities

Net cash used in investing activities was $91.0 million in fiscal 2021 compared to a source of cash of $44.3 million in fiscal 2020, resulting in a $135.3 million decrease in net cash provided by investing activities.

Net cash used in investing activities was $253.6 million in fiscal 2022 compared to a use of cash of $91.0 million in fiscal 2021, resulting in a $162.6 million increase in net cash used in investing activities.

The $253.6 million use of cash in fiscal 2022 is primarily due to purchases of investments of $540.4 million and capital expenditures of $93.9 million, partially offset by proceeds from maturities and sales of investments of $380.7 million.

The $91.0 million use of cash in fiscal 2021 is primarily due to capital expenditures of $116.0 million.

This use of cash was partially offset by net cash proceeds from the sale of building of $23.9 million.

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 offset by purchases of investments of $212.4 million and capital expenditures of $205.4 million.

This use of cash was partially offset by net cash proceeds from the sales of building of $23.9 million.

Net cash provided by (used in) financing activities

Net cash used in financing activities was $666.0 million in fiscal 2021 as compared to a source of cash of $5.9 million in fiscal 2020, resulting in a $671.9 million decrease in net cash provided by financing activities.

Net cash used in financing activities was $1.78 billion in fiscal 2022 as compared to a use of cash of $666.0 million in fiscal 2021, resulting in a $1.11 billion increase in net cash used in financing activities.

The $1.78 billion use of cash in fiscal 2022 was primarily due to repurchase of common stock of $1.60 billion, repayment of debt of $900.0 million, payment of dividends of $264.4 million and the payment of debt extinguishment costs of $50.7 million, partially offset by proceeds from debt, net of discount of $998.5 million.

The $666.0 million use of cash in fiscal 2021 was primarily due to repayments on the Revolving Credit Facility of $700.0 million, partially offset by proceeds from share based awards of $61.2 million.

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, which was offset by dividend payments of $380.3 million and repurchases of common stock of $300.0 million.

Cash Flows - Fiscal 2021 Compared to Fiscal 2020

The comparison of fiscal 2020 to 2019 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended June 27, 2020, filed on August 13, 2020.

The comparison of fiscal 2021 to 2020 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended July 3, 2021, filed on August 19, 2021.

Working Capital and Capital Expenditures

4 unchanged sentences

Short-term investments (1)

163.4 — 163.4

Term Loans (2)

500.0 500.0 —

Revolving Credit Facility (2)

11 unchanged sentences

See Note 15, "Income Taxes" for more information.

(2) In October 2019, the Company entered into a definitive credit agreement whereby Bank of America, N.A., as administrative agent, the other agents party thereto, and a syndicate of banks and financial institutions have made available to the Company a $900.0 million revolving credit facility, including sub-facilities for letters of credit, with a maturity date of October 24, 2024 (the "Revolving Credit Facility").

Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to, at the Borrowers’ option, either (a) an alternate base rate (which is a rate equal to the greatest of (i) the Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate in effect on such day plus ½ of 1% or (iii) the Adjusted LIBO Rate for a one month Interest Period on such day plus 1%) or (b) a rate based on the rates applicable for deposits in the interbank market for U.S.

Dollars or the applicable currency in which the loans are made plus, in each case, an applicable margin.

The applicable margin will be determined by reference to a grid, defined in the Credit Agreement, based on the ratio of (a) consolidated debt plus operating lease liability to (b) consolidated EBITDAR.

Additionally, the Company pays a commitment fee at a rate determined by the reference to the aforementioned pricing grid.

On May 19, 2020, the Company entered into Amendment No.

1 (the “Amendment”) to the Revolving Credit Facility.

Under the terms of the Amendment, during the period from the Effective Date until October 2, 2021, the Company must maintain available liquidity of $700 million (with available liquidity defined as the sum of unrestricted cash and cash equivalents and available commitments under credit facilities, including the Revolving Credit Facility).

Following the period from the Effective Date until the compliance certificate is delivered for the fiscal quarter ending July 3, 2021 (the “Covenant Relief Period”), the Company must comply on a quarterly basis with a maximum net leverage ratio of 4.0 to 1.0.

In addition, the Amendment provides that during the Covenant Relief Period, if any two of the Company’s three credit ratings are non-investment grade, the Revolving Credit Facility will be guaranteed by the Company’s material domestic subsidiaries and will be subject to liens on accounts receivable, inventory and intellectual property, in each case subject to customary exceptions.

The Amendment also contains negative covenants that limit the ability of the Company and its subsidiaries to, among other things, incur certain debt, incur certain liens, dispose of assets, make investments, loans or advances, and engage in share buybacks during the Covenant Relief Period.

An increased interest rate will be applicable during the Covenant Relief Period when the Company’s gross leverage ratio exceeds 4.0 to 1.0.

The $900 million aggregate commitment amount under the revolving credit facility remains unchanged.

As of July 3, 2021, $0.0 million of borrowings were outstanding under the Revolving Credit Facility.

(2) On May 11, 2022, the Company financed and replaced the $900.0 Million Revolving Credit Facility by entering into a new credit facility that (i) includes an increased revolving credit facility (the “$1.25 Billion Revolving Credit Facility”) from $900.0 million to $1.25 billion, (ii) includes an unsecured $500.0 Million Term Loan (the “Term Loan”) and (iii) redefines certain terms within the replaced Revolving Credit Facility.

Both the $1.25 Billion Revolving Credit Facility and Term Loan (collectively, the “Credit Facilities”) will mature on May 11, 2027.

The Company and its subsidiaries must comply on a quarterly basis with a maximum 4.0 to 1.0 ratio of (a) consolidated debt minus unrestricted cash and cash equivalents in excess of $300 million to (b) consolidated EBITDAR.

Borrowings under the $1.25 Billion Revolving Credit Facility bear interest at a rate per annum equal to, at the Company’s option, (i) for borrowings in U.S.

Dollars, either (a) an alternate base rate or (b) a term secured overnight financing rate, (ii) for borrowings in Euros, the Euro Interbank Offered Rate, (iii) for borrowings in Pounds Sterling, the Sterling Overnight Index Average Reference Rate and (iv) for borrowings in Japanese Yen, the Tokyo Interbank Offer Rate, plus, in each case, an applicable margin.

The applicable margin will be adjusted by reference to a grid (the “Pricing Grid”) based on the ratio of (a) consolidated debt to (b) consolidated EBITDAR (the “Gross Leverage Ratio”).

Additionally, the Company will pay facility fees, calculated at a rate per annum determined in accordance with the Pricing Grid, on the full amount of the $1.25 Billion Revolving Credit Facility, payable quarterly in arrears, and certain fees with respect to letters of credit that are issued.

The $1.25 Billion Revolving Credit Facility may be used to finance the working capital needs, capital expenditures, permitted investments, share purchases, dividends and other general corporate purposes of the Company and its subsidiaries (which may include commercial paper backup).

There were no outstanding borrowings on the $1.25 Billion Revolving Credit Facility as of July 2, 2022.

The Term Loan includes a two-month delayed draw period from the closing date.

On June 14, 2022 the Company drew down on the Term Loan to satisfy the Company’s remaining obligations under the 3.000% senior unsecured notes due 2022 and for general corporate purposes.

The Term Loan amortizes in an amount equal to 5.00% per annum, with payments made quarterly.

As of July 2, 2022, $31.2 million of the Term Loan is included in Current debt on the Consolidated Balance Sheet.

Borrowings under the Term Loan bear interest at a rate per annum equal to, at the Company’s option, either (i) an alternate base rate or (ii) a term secured overnight financing rate plus, in each case, an applicable margin.

The applicable margin will be adjusted by reference to a pricing grid based on the Gross Leverage Ratio.

Additionally, the Company will pay a ticking fee on the undrawn amount of the Term Loan.

Refer to Note 12, "Debt," for further information on our existing debt instruments.

(3) In March 2015, the Company issued $600.0 million aggregate principal amount of 4.250% senior unsecured notes due April 1, 2025 at 99.445% of par (the "2025 Senior Notes").

On June 20, 2017, the Company issued $400.0 million aggregate principal amount of 3.000% senior unsecured notes due July 15, 2022 at 99.505% of par (the "2022 Senior Notes"), and $600.0 million aggregate principal amount of 4.125% senior unsecured notes due July 15, 2027 at 99.858% of par (the "2027 Senior Notes").

The indentures for the 2025 Senior Notes, 2022 Senior Notes and 2027 Senior Notes contain certain covenants limiting the Company's ability to:

(3) In December 2021, the Company issued $500.0 million aggregate principal amount of 3.050% senior unsecured notes due March 15, 2032 at 99.705% of par (the "2032 Senior Notes") and completed cash tender offers for $203.4 million and

$296.6 million of the outstanding aggregate principal amount under its 2027 Senior Notes and 2025 Senior Notes, respectively.

In June 2017, the Company issued $600.0 million aggregate principal amount of 2027 Senior Notes, and $400.0 million aggregate principal amount of 3.000% senior unsecured notes due July 15, 2022 at 99.505% of par (the "2022 Senior Notes").

The 2022 Senior Notes were fully redeemed as of July 2, 2022.

In March 2015, the Company issued $600.0 million aggregate principal amount of 2025 Senior Notes.

Furthermore, the indentures for the 2032 Senior Notes, 2027 Senior Notes, and 2025 Senior Notes contain certain covenants limiting the Company’s ability to:

(i) create certain liens, (ii) enter into certain sale and leaseback transactions and (iii) merge, or consolidate or transfer, sell or lease all or substantially all of the Company’s assets.

July 3, 2021, no known events of default have occurred.

As of July 2, 2022, no known events of default have occurred.

Refer to Note 12, "Debt," for further information on our existing debt instruments.

We believe that our Revolving Credit Facility is adequately diversified with no undue concentrations in any one financial institution.

As of July 3, 2021, there were 12 financial institutions participating in the Revolving Credit Facility, with no one participant maintaining a combined maximum commitment percentage in excess of 14%.

As of July 2, 2022, there were 14 financial institutions participating in the Revolving Credit Facility and Term Loans, with no one participant maintaining a combined maximum commitment percentage in excess of 14%.

We have no reason to believe at this time that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the facility in the event we elect to draw funds in the foreseeable future.

4 unchanged sentences

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 $220 million in fiscal 2022 as the Company continues to prioritize investing in digital capabilities.

To improve our working capital efficiency, starting in fiscal 2021 we made available to certain suppliers a voluntary supply chain finance (“SCF”) program that enables our suppliers to sell their receivables from the Company to a global financial institution on a non-recourse basis at a rate that leverages our credit rating.

We do not have the ability to refinance or modify payment terms to the global financial institution through the SCF program.

No guarantees are provided by the Company or any of our subsidiaries under the SCF program.

Total capital expenditures and cloud computing implementation costs were $161.6 million in fiscal 2022 as the Company continues to prioritize investing in digital capabilities.

Certain cloud computing implementation costs are recognized within Prepaid expenses and Other assets on the Consolidated Balance Sheets.

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

During the first fiscal quarter, we build inventory for the holiday selling season.

In the second fiscal quarter, working capital requirements are reduced substantially as we generate higher net sales and operating income, especially during the holiday months of November and December.

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, including pandemics such as Covid-19.

During the first fiscal quarter, we typically build inventory for the winter and holiday season.

In the second fiscal quarter, working capital requirements are reduced substantially as we generate higher net sales and operating income, especially during the holiday season.

In fiscal 2022, due to the increased in-transit times, the Company started to build inventory in the fourth fiscal quarter for the fiscal 2023 winter and holiday season.

Fluctuations in net sales, operating income and operating cash flows of the Company in any fiscal quarter may be affected by the timing of wholesale shipments and other events affecting retail sales, including macroeconomic events, such as Covid-19, or adverse weather conditions.

Stock Repurchase Plan

On May 9, 2019, the Company announced that its Board of Directors had authorized the repurchase up to $1.00 billion of shares of its outstanding common stock.

On November 11, 2021, the Company announced the Board of Directors authorized a common stock repurchase program to repurchase up to $1.00 billion of its outstanding common stock (the "2021 Share Repurchase Program").

On May 12, 2022, the Company announced the Board of Directors authorized the additional repurchase of up to $1.50 billion of its common stock (the "2022 Share Repurchase Program").

Pursuant to this program, purchases of the Company's common stock will be made subject to market conditions and at prevailing market prices, through open market purchases.

2 unchanged sentences

In addition, the Company may terminate or limit the stock repurchase program at any time.

As of July 3, 2021, the Company has $600.0 million of additional shares available to be repurchased as authorized 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.

As of July 2, 2022, the Company had $1.50 billion of additional shares available to be repurchased as authorized under the 2021 Share Repurchase Program and 2022 Share Repurchase Program.

Refer to Part II, Item 5.

"Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities," for further information.

The Company also intends to repurchase approximately $500.0 million worth of stock in fiscal 2022, of which $600.0 million is remaining under its current authorization.

The Company intends to repurchase approximately $700.0 million worth of stock in fiscal 2023, all of which is remaining under its current authorization.

Contractual and Other Obligations

3 unchanged sentences

2026 – 2027 Fiscal 2028

Capital expenditure commitments $ 28.5 $ 17.7 $ 10.8 $ — $ —

Capital expenditure & cloud computing implementation commitments $ 49.7 $ 41.0 $ 8.7 $ — $ —

Inventory purchase obligations

10 unchanged sentences

Refer to Note 15, "Income Taxes," for further information.

Interest on outstanding debt includes fixed interest expenses for unsecured notes and variable interest expenses for the term loan.

The estimated interest expenses associated with our term loan is based on the current interest rate as of July 2, 2022.

Refer to Note 12, "Debt," for further information.

We expect to fund these firm commitments with operating cash flows generated in the normal course of business and, if necessary, through availability under our credit facilities or other accessible sources of financing.

Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $101.1 million as of July 2, 2022, 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 July 3, 2021 as these items will be paid within one year and certain long-term liabilities not requiring cash payments.

Besides the firm commitments noted above, the above table excludes other amounts included in current liabilities in the Consolidated Balance Sheet at July 2, 2022 as these items will be paid within one year and certain long-term liabilities not requiring cash payments.

Off-Balance Sheet Arrangements

In addition to the commitments included in the table above, we have outstanding letters of credit, surety bonds and bank guarantees of $37.8 million as of July 2, 2022, primarily serving to collateralize our obligation to third parties for duty, leases, insurance claims and materials used in product manufacturing.

These letters of credit expire at various dates through 2028.

These letters of credit expire at various dates through calendar 2028.

We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect on our consolidated financial statements.

31 unchanged sentences

At July 2, 2022, a 10% change in the inventory reserve, would not have resulted in material change in inventory and cost of sales.

Business Combinations

In connection with an acquisition, the Company records all assets acquired and liabilities assumed of the acquired business at their acquisition date fair value, including the recognition of contingent consideration at fair value on the acquisition date.

These fair value determinations require judgment and may involve the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items.

Furthermore, the Company may utilize independent third-party valuation firms to assist in making these fair value determinations.

If goodwill is identified based upon the valuation of an acquired business, the goodwill is assigned to the

reporting units which will benefit from the synergies that result from the business combination and reported within the segment that such reporting units comprise.

Refer to Note 4, "Acquisitions," for detailed disclosures related to our acquisitions.

Goodwill and Other Intangible Assets

20 unchanged sentences

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.

In considering 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.

Further, the Company determined there was no impairment during the fiscal 2020 annual impairment assessment.

1 unchanged sentence

The fair values of the Kate Spade brand reporting unit and indefinite-lived brand as of the fiscal 2022 testing date exceeded their carrying values by approximately 50% and 90%, respectively.

Several factors could impact the Kate Spade brand's ability to achieve expected future cash flows, including continued economic volatility and potential operational challenges related to the Covid-19 pandemic, the reception of new collections in all channels, the success of international expansion strategies, the optimization of the store fleet productivity, the impact of promotional activity in department stores, and other initiatives aimed at increasing profitability of the business.

Several factors could impact the Kate Spade brand's ability to achieve expected future cash flows, including the optimization of the store fleet productivity, the success of international expansion strategies, the impact of promotional activity, continued economic volatility and potential operational challenges related to the macroeconomic factors, the reception of new collections in all channels, and other initiatives aimed at increasing profitability of the business.

Given the relatively small excess of fair value over carrying value as noted above, if profitability trends decline during fiscal 2023 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.

3 unchanged sentences

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.

29 unchanged sentences

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