FY '25 EPS Target
Q: Can you talk about your confidence in hitting the FY '25 EPS target of $5 given the current environment?
A: Management expressed strong confidence in achieving the $5 EPS target for fiscal '25, despite a dynamic environment. They have delivered double-digit EPS growth over the past three years, even in a challenged market. They are achieving this through gross margin outperformance and disciplined expense control, with expectations to continue focusing on factors within their control, such as maintaining operational gross margin drivers and tightly managing SG&A.

China Sales Outlook
Q: How did China revenue perform this quarter and what's the outlook?
A: They expect low single-digit growth for the year in China, despite macro headwinds and quarterly fluctuations. In Q4, they anticipate China sales to be down double digits year-on-year due to lapping last year's post-COVID revenge spending. However, they remain confident in the long-term potential of the market and continue to invest in brand-building activities.

Gross Margin Outlook
Q: What are the drivers of gross margin expansion in Q4 and the runway for operational gross margin?
A: Management expects to grow gross margin by almost 200 basis points in Q4, leading to a 230 basis point increase for the full year, including about 130 basis points of freight benefits. They believe gross margin drivers remain intact, with continued investment in businesses, increased marketing spending—now triple where it was several years ago—and opportunities on the cost side, including achieving AUC benefits.

North America Demand
Q: How is North America demand for the Coach brand progressing, and what are recent trends?
A: The North American consumer is being more cautious and choiceful due to low consumer confidence and sticky inflation. Despite this, innovation is winning, and Coach is delivering higher gross margins and acquiring more new consumers who transact at higher AUR and gross margin. They are planning prudently to build brands for the long term.

Strategy Amid Challenging Macro
Q: Are conditions deteriorating enough to cause you to change your strategy and give up some gross margin strength to drive sales growth?
A: Absolutely not; they remain focused on brand building and creating emotional connections with consumers. They offer incredible value and will continue investing in marketing and digital to reach consumers. The "virtuous flywheel" they've developed is working, and they are committed to it.

Innovation Pipeline
Q: Can you talk about the innovation pipeline and how you're engaging customers across channels?
A: Innovation is winning by staying close to consumers through data analytics and consumer insights. They are delivering innovation across all price points, including introducing popular products like the Tabby at full price in outlet stores to meet consumer demand. This approach aims to deliver what customers want wherever they shop.

AUR and Pricing Strategy
Q: How confident are you in sustaining AUR growth, and have you seen any concerns about luxury brands needing to moderate pricing?
A: Management is confident in sustaining AUR growth due to understanding customers and delivering value through innovation. The top of the market has moved prices higher, making their offerings more valuable to consumers. They have not seen issues requiring them to defend pricing and believe their capabilities will allow them to continue driving AUR and margin growth.

Kate Spade Performance
Q: What is holding back Kate Spade, and is there an impact from Coach's success with younger customers?
A: At Kate Spade, they are focused on building a stronger and bigger brand with tremendous potential. In the quarter, they expanded gross margin, operating margin, and profit, exceeding expectations. They are improving execution by strengthening the core handbag foundation, increasing newness and innovation, enhancing the omnichannel experience, and driving more emotional marketing.

Fiscal '25 Sales Growth and Earnings Goals
Q: Is sales growth needed to hit the fiscal '25 earnings goals?
A: Management expects to grow, with building blocks in place such as acquiring consumers with strong lifetime value, investments in marketing, and an innovation pipeline. They have demonstrated that even on flat sales, they have levers to deliver profitability. The combination of growth and efficiency gives them confidence in delivering future earnings goals.

SG&A Control and OpEx Outlook
Q: Which levers did you pull to control SG&A, and how should we think about OpEx going forward?
A: They continue to invest in people, capabilities, and marketing. They are finding leverage throughout the P&L, with about two-thirds of rents now having a variable component. They are spending about 9% on marketing, and this consistent approach is expected to continue going forward.