Tapestry, Inc. (TPR) Q4 2021 Earnings Call Transcript

Tapestry, Inc. (NYSE: TPR) Q4 2021 earnings call dated Aug. 19, 2021

Corporate Participants:

Christina Colone — Global Head of Investor Relations

Joanne Crevoiserat — Chief Executive Officer

Scott Roe — Chief Financial Officer and Head of Strategy

Todd Kahn — Chief Executive Officer & Brand President, Coach

Analysts:

Bob Drbul — Guggenheim Securities — Analyst

Ike Boruchow — Wells Fargo — Analyst

Erinn Murphy — Piper Sandler — Analyst

Mark Altschwager — Baird — Analyst

Oliver Chen — Cowen — Analyst

Lorraine Hutchinson — Bank of America Merrill Lynch — Analyst

Michael Binetti — Credit Suisse — Analyst

Brooke Roach — Goldman Sachs — Analyst

Kevin Heenan — J.P. Morgan — Analyst

Presentation:

Operator

Good day, and welcome to the Tapestry Conference Call. [Operator Instructions]

At this time, for opening remarks and introductions, I would like to turn the call over to Global Head of Investor Relations at Tapestry, Christina Colone. Please go ahead.

Christina Colone — Global Head of Investor Relations

Good morning. Thank you for joining us. With me today to discuss our fourth quarter and full year results as well as our strategies and outlook are Joanne Crevoiserat, Tapestry’s Chief Executive Officer; and Scott Roe, Tapestry’s Chief Financial Officer and Head of Strategy.

Before we begin, we must point out that this conference call will involve certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. This includes projections for our business in the current or future quarters or fiscal years. Forward-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements. Please refer to our annual report on Form 10-K, the press release we issued this morning and our other filings with the Securities and Exchange Commission for a complete list of risks and other important factors that could impact our future results and performance.

Non-GAAP financial measures are included in our comments today and in our presentation slides. Separately, given FY ’21 included an additional week in the fourth quarter, figures referenced in today’s comments will be on a comparable 13 and 52-week basis, unless otherwise noted. In addition, as we continue to anniversary the onset of the COVID-19 pandemic last year, we will be providing financial information compared to FY ’19 or pre-pandemic and FY ’20 where applicable. For a full reconciliation of corresponding GAAP financial information, please visit our website, www.tapestry.com/investors and then view the earnings and the presentation posted today.

Now let me outline the speakers and topics for this conference call. Joanne will begin with highlights from the fiscal year for Tapestry and each of our brands. She will also provide an overview of the progress we’ve made on our Acceleration Program, along with goals for FY ’22. Scott will continue with our financial results and priorities going forward. Following that, we will hold a question and answer session where we will be joined by Todd Kahn, CEO and Brand President of Coach. After Q&A, Joanne will conclude with brief closing remarks.

I’d now like to turn it over to Joanne Crevoiserat, Tapestry’s CEO.

Joanne Crevoiserat — Chief Executive Officer

Good morning. Thank you, Christina, and welcome everyone. We delivered standout results in fiscal 2021, a transformational year for Tapestry. We are a fundamentally different company today than we were just one year ago. Through our Acceleration Program, we reached new customers in new ways and effectively adapted to a rapidly changing environment. Our success is a testament to our powerful brands and talented team.

We achieved many strategic milestones this year, which have strengthened our organization. We’ve sharpened our focus on the consumer and clarified the unique positioning of each of our brands. This drove improvements in key customer metrics, including recruitment, retention and reactivation. We enhanced our digital capabilities, highlighted by our global e-commerce channel, a margin accretive business for Tapestry, reaching approximately $1.6 billion in revenue, nearly doubling versus prior year and over $1 billion ahead of pre-pandemic levels. This was fueled by the acquisition of nearly 4 million new customers in North America alone, including a growing number of millennial and Gen Z consumers. And we sustained double-digit e-commerce sales growth in the fourth quarter, even as we lapped more difficult comparisons online.

At the same time, we drove continued sequential sales improvement for our global store fleet with operating margins that were once again above pre-pandemic levels. We further strengthened our positioning in China, which still has tremendous runway, supported by the growth of the rising middle class. In fact, Tapestry’s business in Greater China reached $1.1 billion in sales this fiscal year, led by over 60% growth on the Mainland. At the same time, we grew our business with Chinese consumers globally, increasing at a high-single-digit rate as compared to pre-pandemic levels.

We successfully leveraged data and analytics, embedding capabilities across the company to enhance our understanding of the customer, increased responsiveness and drive faster, more effective decision making. This has underpinned our ability to optimize the assortment planning process, lower SKU counts by 40% to 45% and reduced promotional activity, supporting higher AUR and gross margin as well as improved inventory turns.

We also embraced new ways of working with a leaner operating model and more empowered teams. This resulted in $200 million of gross expense savings in fiscal year ’21, which funded investments in areas such as digital and marketing to fuel our continued growth as well as our purpose-led initiatives to accelerate and amplify our work within our social fabric to effect positive change for our industry and stakeholders.

Importantly, the traction of our strategy is clearly evidenced by our financial performance, including the achievement of record operating margin at Tapestry Inc. as well as operating income and EPS growth versus both FY ’20 and FY ’19 in each quarter of the year. We also exceeded pre-pandemic sales in the fourth quarter, representing an important financial milestone. In addition, we generated $1.2 billion of free cash flow and ended the year in a strong cash position, while reducing our leverage through organic profit growth and the pay down of the company’s revolver.

Given our strong financial position and underlying business trends, our board of directors approved the reinstatement of our capital return programs with a plan to return over $750 million to shareholders through both dividend and share repurchases in fiscal year ’22. These actions underscore our conviction and Tapestry’s ability to drive long-term growth along with our commitment to enhancing value for our stakeholders. Scott will discuss our capital allocation priorities in more detail shortly.

Now let me touch on our results and strategies for Coach, Kate Spade and Stuart Weitzman. Coach, our largest brand, led Tapestry, outperforming in each quarter of the year. The brand fueled momentum through innovation across consumer touch points, driving engagement with new and existing customers. During the fourth quarter, Coach revenue rose 117% versus prior year, outpacing pre-pandemic levels of sales by 2%, a meaningful achievement given the volatile backdrop.

In addition, we delivered significant profitability enhancements during the fiscal year, resulting in operating income increases of 67% on a one year basis and 14% on a two year basis. This outstanding performance was the result of both gross margin expansion and SG&A leverage, reflecting strategic actions and structural changes we’ve made to sustain long-term growth.

Throughout the fiscal year, we made significant progress at Coach against the pillars of our multi-year growth agenda. First, we’ve deepened our engagement with consumers by leaning into our brand values of inclusivity and authenticity to drive increased recruitment and reactivation. In addition, through the launch of our loyalty program in North America and more targeted marketing, we drove significant gains in the number of repeat transactions.

Second, we created innovative, unique and compelling product to meet the needs of our target consumer segment. We are building enduring icons that create a foundation for our product pipeline and future seasons. This was evidenced by the recent success of newness within the Tabby family, including our Pillow and Mini versions. In addition, we saw continued strength in our signature platforms across an expanded assortment of refresh styles, highlighting desirability for the brand.

Third, we drove triple-digit sales growth in our digital channels on both the one and two year basis led by new customer recruitment. During the fiscal year, we acquired nearly 2.5 million new Coach customers through our digital channels in North America alone, a meaningful increase versus prior year. Importantly, we sustained strong momentum in the fourth quarter even as we comped our digital initiatives and the initial uplift in e-com sales that occurred during the pandemic in the prior year, highlighting continued opportunity in the channel.

Fourth, we accelerated growth in China by leveraging our foundation in the country, which resulted in over 60% revenue growth on the Mainland in fiscal year ’21 with strength across channels. This performance reflected our integrated and comprehensive brand building strategy, including investments in marketing, innovative product and a continued focus on digital channels. Most recently, we hosted our live stream fashion show in Shanghai, which was extremely well received and highlights our commitment to the Chinese consumer.

Finally, we enhanced profitability to realize an operating margin of over 31%. This performance was driven by higher gross margin, which reached nearly 74% through a focus on streamlining our offering, sharpening our merchandising efforts and reducing SKU counts by approximately 45%. These initiatives resulted in global handbag AUR growth in each quarter of the fiscal year. In fact, in the fourth quarter, our handbag AUR rose high-single-digits globally led by particular strength in North America. In addition, we made structural changes to SG&A, including our fleet optimization efforts.

Looking ahead to fiscal year ’22, our goals are to increase market share in our core handbag and small leather goods categories through a combination of AUR and unit growth by continuing to develop the brand’s iconic families, approachable and inclusive messaging and consistent global positioning, invest and grow in digital while delivering differentiated and compelling omnichannel experiences, continue to drive growth in China with key initiatives to capitalize on market trends of the emerging middle class and increased digitalization and grow men’s by expanding lifestyle, building brand awareness and increasing our presence in Asia in keeping with our ambition to deliver over $1 billion in revenue in this category over our planning horizon.

In summary, Coach has both a remarkable 80-year history and a bright future. We are confident that the deliberate actions we’ve taken to improve the foundation of the brand, including the realization of higher AUR and stronger margins are sustainable over the long-term as revenue continues to inflect. We’re continuing to improve on the momentum we’ve built to drive market share gains at sustainably high margins in fiscal ’22 and beyond.

Now moving to Kate Spade. Throughout the year, the brand delivered consistent improvement on the top-line, resulting in fiscal year ’21 sales growth of 3% compared to prior year or 13% decline compared to pre-pandemic revenue levels. In the most recent quarter, sales increased 95% versus prior year and were 4% below fiscal year ’19. Direct sales in the fourth quarter, excluding wholesale, increased on a two year basis. In addition, for both the quarter and fiscal year, operating income rose meaningfully with margin expansion compared to prior year on both a stronger gross margin and SG&A leverage.

We are pleased with Kate Spade’s progress across its growth strategies, which highlight the traction we’re making to build stronger connections with consumers. In fiscal ’21, we crystallized the brand’s purpose, returning to its roots of unique and best-in-class storytelling and fulfilling its promise as a lifestyle brand, representing joy, optimism and color. During the most recent quarter, we continued to re-reengage lapsed customers and an increasing rate as we reactivated 550,000 customers through our North America digital channels, an increase of nearly 35% compared to prior year, demonstrating our focus on building lasting relationships with our customers.

Second, we embedded a laser focus on the customer by harnessing the power of the broad and loyal Kate Spade community to engage consumers in new and exciting ways. This was evidenced by our viral Happy Dance Campaign on TikTok, which has over 11 billion views and counting.

Third, we re-energized our core handbag offering by introducing innovative and universal brand elements. We’re seeing traction in leather with the introduction of the Knot, which has already grown to approximately 20% of our retail assortment, proving its position as a key family in the assortment going forward. In addition, our new signature branding, the Spade Flower continues to perform, while the re-imagine Sam and Nylon has outpaced expectations. These platforms represent strong foundations for future growth.

Fourth, we leaned into our digital strength, delivering approximately 35% growth compared to prior year across our e-commerce channels, reaching 35% of sales for the fiscal year. This growth was driven by both the acquisition of nearly 1.4 million new customers through our North America digital channels as well as the engagement of existing customers.

Fifth, we improved profitability by focusing on acquiring, re-engaging and retaining customers to drive top and bottom line growth. Through the use of data, we adjusted our assortment and pricing strategies, which resulted in approximately 40% lower SKU count and disciplined promotional activity. This ultimately drove overall handbag AUR growth, which increased mid-single-digits in both the fourth quarter and for the fiscal year.

Finally, we’ve continued to focus on talent and culture. This year, we reorganized our creative structure with the formation of the cross-functional ideation studio spanning across our brand creative, design, merchandising and marketing teams. This has increased collaboration and cohesion to drive more impactful and consistent storytelling.

As we head into fiscal ’22, we are building on the strong foundation we’ve established with the goal to deliver profitable and sustainable global growth. To achieve this, we will maintain a consumer-centric approach across all aspects of the business, amplify recent product introductions, while continuing to build out our core handbag platforms, continue to engage newly acquired reactivated and existing customers to drive higher lifetime value, drive brand heat through marketing focused on our Kate Spade community, particularly in social channels, maximize lifestyle positioning by strengthening the foundation of ready-to-wear, jewelry and footwear and improve the global omnichannel experience and drive continued growth in digital.

Overall, we are pleased with Kate Spade’s execution and the traction we gained with consumers in fiscal ’21, including AUR improvement and strong customer engagement. This progress is reflected in Kate Spade’s outperformance versus internal expectations, reinforcing our confidence in the brand’s potential. Kate Spade is a unique yet universal brand, and our teams are galvanized around driving our clear strategy. We continue to believe in the significant runway ahead and our ability to achieve $2 billion in revenue and enhanced profitability in the future.

Turning now to Stuart Weitzman. Throughout the fiscal year, the brand progressed on its growth strategies. Specifically, we continued to renew the brand’s reputation for fit, comfort and quality by listening and responding to customer needs. During the fourth quarter, we were pleased to see a significant increase in demand for dress styles as much of the world began to reopen and events and in person socialization returned.

Second, we grew our key categories by building strength in boots, booties and sandals through fashion innovation, highlighted by the continued success of our iconic 5050 Land and Nudist families, which brought a new and younger customers. We also expanded the casual assortment, including a broader sneaker offering in the recently introduced on-trend Jelly styles. At the same time, we dramatically simplified the product assortment with SKU counts declining approximately 45%.

Third, we focused our distribution on markets and channels of greatest opportunity to create a foundation to return to profitability as revenues inflect. This included the exit of unprofitable markets across the globe and rightsizing of the fleet in North America. At the same time, momentum continued for our China business in fiscal ’21 with revenue on the Mainland increasing over 35% compared to prior year or nearly 50% on a two year basis. We kept the Chinese consumer at the forefront of our strategy, highlighted by our tailored product offering featuring capsule collections, relevant marketing with key opinion leaders and continued outperformance across digital channels. China remains an important area of long-term opportunity for Stuart Weitzman at structurally higher margins.

Fourth, we strengthened our relationship with wholesale partners by providing relevant products and faster more consistent execution. As previously shared, we re-entered 90 Nordstrom doors in the year, fueling North America wholesale revenue ahead of pre-pandemic levels in the fourth quarter. Finally, we made progress in establishing a robust digital presence and drove approximately 30% e-commerce growth during the fiscal year, including continued strength in the fourth quarter, even as store trends improve.

In fiscal ’22, our overarching goal is to return to profitability. We will recruit and engage customers through products that sparks desire with a focus on must-have launches featuring icons, key items and capsule collection as well as [Technical Issue] drive brand heat with a digital-first drumbeat of relevant romantic storytelling; fuel continued growth in China, including an expanded footprint and further investment in digital; elevate the omnichannel customer journey, including delivering a best-in-class digital experience and accelerate wholesale partnerships with an expanded footprint in key accounts globally. Overall, I’m pleased with the progress we’ve made at Stuart Weitzman and we remain focused on restoring the brand’s profitability.

In closing, we are focused on driving our next phase of growth supported by our clear strategy, compelling brands and differentiated platform. Although the environment remains volatile, we see a strong consumer who is ready to shop and continuing to engage with our brands. We entered fiscal year ’22 with a solid foundation, improved capabilities and increasing momentum. From this position of strength, we are confident in our ability to win with consumers and capture market share, accelerating growth and profitability across our portfolio long-term, enhancing value for all stakeholders.

With that, I’m pleased to welcome Scott Roe, who many of you know, to discuss our financial results, capital allocation priorities and fiscal ’22 outlook. Scott?

Scott Roe — Chief Financial Officer and Head of Strategy

Thanks, Joanne, and good morning, everyone. I’m thrilled to be with you today after joining Tapestry just a few months ago. While I’m still relatively new, I can already see that this is a truly unique company with strong and engaged talent, great brands that are well positioned in attractive market spaces and a distribution model that allows us to directly own our consumer relationships coupled with advanced digital and analytics capabilities. As we move forward, my focus is to work alongside our management team to align business and financial strategies to drive sustainable long-term growth, which profits shareholders and all stakeholders alike.

Looking back at fiscal year ’21, it was a transformational year for the organization, as Joanne mentioned. We effectively executed our Acceleration Program against a difficult backdrop, created a foundation for sustainable growth. Specifically, we increased the penetration of our margin accretive digital and China businesses, which led overall growth in the fiscal year. We expanded gross margins, primarily through higher AURs, driven by lower levels of promotional activity. We grew operating margin by 300 basis points versus FY ’19, reaching peak levels of Tapestry. This despite significant investments in talent, digital capabilities and marketing, which were more than funded by gross profit gains and $200 million in gross SG&A savings delivered through the Acceleration Program. And we further strengthened our financial position through tight inventory management and a reduction in debt levels, while achieving $1.2 billion in free cash flow, resulting in an ending cash position of approximately $2 billion.

Turning to the details of the fourth quarter. Total sales rose 126% versus prior year on a 14-week basis or 113% on a 13-week basis, outpacing pre-pandemic levels, an important milestone. These results were led by strength at Coach, while Kate Spade and Stuart Weitzman delivered material sequential improvements in trends. By region, North America led the overall growth, rising approximately 150% versus FY ’20 and a high-single-digit percentage versus FY ’19, fueled by digital and a continued improvement in our brick and mortar businesses.

In Mainland China, our strong momentum continued as revenue increased approximately 60% on a one year basis and over 40% compared to pre-pandemic levels. Across the balance of Asia, sales rose materially compared to the prior year, but remained below pre-pandemic levels with notable pressure in Japan given the continued state of emergency and lack of tourists sales. In Europe, while a small portion of our total sales experienced a sequential improvement in trends on both a one and two year basis as lockdown measures were lifted and while revenue remained well below the fiscal ’19. Given the lack of tourist travel, our local demand did rise in the quarter.

By channel, we maintained strength in digital, which grew more than 35% compared to prior year, reaching 30% penetration, that’s three times 2019 level. While our stores remain pressured, slightly better traffic drove a sequential improvement for the channel. And in wholesale, while revenue remained below FY ’19, trends improved with particular strength in duty-free growth in China.

Moving down the P&L, we realized another quarter of overall gross margin expansion compared to prior year and FY ’19 with all brands exceeding expectations. We continued to successfully execute our strategy to maintain price discipline, reduced SKU counts and leverage data analytics to more effectively tailor our product assortment and marketing messaging to the consumer. As anticipated, SG&A rose significantly given the prior year’s atypical comparison due to the impact of COVID-19.

On a two year basis, the increase in SG&A was attributable to higher marketing spend of almost $100 million compared to Q4 ’19, and an increase in our annual incentive plan given our outperformance this year. In addition, our expenses for the quarter included the $25 million contribution towards the endowment of the newly established Tapestry Foundation. Taken together, we achieved our fourth consecutive quarter of operating income growth and margin expansion compared to pre-pandemic levels. Earnings per diluted share for the quarter was $0.74 on a 14-week basis or $0.65 on a 13-week basis, a significant increase compared to a loss in the prior year and 7% ahead of pre-pandemic EPS levels.

Now moving to distribution. We continued to optimize our global fleet to prioritize profitability. For Tapestry, we closed a net of 59 locations globally in FY ’21, including 10 net closures in the fourth quarter. As compared to fiscal ’19 year end, we have closed a net of 90 locations across our brands.

Turning to a discussion of our balance sheet and cash flows. We ended the quarter in a strong position with $2 billion in cash and equivalents and total borrowings of $1.6 billion. Total inventory at quarter end was approximately in line with last year and 6% below FY ’19, reflecting in part deliberate actions to reduce SKU counts and prioritize inventory turn. And we generated $1.2 billion in free cash flow in FY ’21 versus $202 million in the prior year and $118 million in fiscal ’19. This included capex of $116 million, a decline of 44% versus prior year as we prioritize investments in high return projects, notably in digital, while tightly controlling overall spend and reducing our outlay for new stores.

Now touching on our capital allocation priorities. First, we continue to prioritize investments in the business to support strong returns and long-term profitable growth. Second, we’re committed to returning capital to shareholders through both dividend and share repurchases. In keeping with the strategy, we’re pleased to announce today our plan to return over $750 million to shareholders. Specifically, the board declared a quarterly cash dividend of $0.25 with an anticipated annual dividend rate of $1 per share.

Over time, our intent is to increase the dividend at a faster rate than earnings growth. We also expect to repurchase approximately $500 million worth of stock in fiscal ’22 under our current authorization. Importantly, once we have more visibility into a normalization in the external environment, we expect over time, to more aggressively returning cash to shareholders.

And finally, in keeping with our objective to reduce leverage, we expect to repay our July 2022 bonds totaling $400 million at the end of this fiscal year. So when considered together, the dividend, share repurchase and debt repayment are intended to approximately equal our projected free cash flow in the fiscal year. And as Joanne mentioned, these actions demonstrate our confidence in the underlying strength of our business as well as our commitment to driving total shareholder returns.

Now moving to our fiscal ’22 outlook. Before touching on the specific details, it’s important to note the paradigm shift compared to just a year ago. Entering COVID, there was a macro demand concern, and we took bold actions to adjust supply in order to preserve liquidity. As you can see in our just reported results, we were very successful in achieving our goals, while continuing to accelerate investments to drive increasing momentum in our brands.

Today, we find ourselves in a dynamic where the consumer demand backdrop is strong, while supply chain remains challenging. So I want to emphasize the underlying strength and trend of our business and separate that from the uncertainty in the macro environment, primarily due to COVID-related impacts, which are largely out of our control. Therefore, the outlook we’re giving you is a reflection of what we know as of today. It’s a point in time.

While we have visibility into the risks that we see on the horizon, we’re not trying to predict that which is unknowable. We have taken the position that we will be aggressive on protecting the momentum of the business by securing significant expedited deliveries at an additional cost in order to mitigate the impact of supply chain disruptions, at least through the holiday period. Further, we will continue to increase AURs as price is a lever to counter some of the additional cost pressures. Of course, we’ll continue to monitor the impact of the new developments on our outlook over time.

Now turning to the details of our FY ’22 outlet. Please note that all growth rates as compared to prior year are on a comparable 52-week basis. We expect revenue to increase at a mid-teens rate versus FY ’21, resulting in approximately $6.4 billion in sales, which would mark a record for the company. This includes the expectation for a continuation of strong growth in digital and Greater China as well as improving global trends in stores. While we expect stores to show improvement, revenue is currently planned to remain below pre-pandemic levels.

Turning to gross margin. We expect to sustain the company’s strong margins through continued AUR improvements and lower promotional activity. Our outlook also incorporates the expectation for GSP’s renewal for the retroactive benefit in the second fiscal quarter, which is currently planned to partially mitigate the negative impact associated with higher freight costs currently embedded in our plan.

Touching on SG&A, we expect expenses to grow relatively in line with sales for the year. We continue to estimate that we will realize approximately $300 million in structural gross run rate expense savings, including $100 million of incremental savings from the prior year. We are utilizing these savings to fund investments in the business, including $50 million of planned higher marketing spend, which is expected to represent approximately 7% of sales in fiscal ’22, up roughly 75% or 3, 4 percentage points compared to FY ’19. We’re also investing in our teams, adding talent to growing areas of the business such as digital. And we’re focused on continuing to retain and develop these strong teams as evidenced by our recently announced commitment that all U.S. Tapestry employees will earn at least $15 per hour.

Operating income is expected to increase in a mid-teens rate, resulting in operating margin modestly ahead of prior year and an increase of over 300 basis points versus 2019. Net interest expense for the year is expected to be $65 million, and the tax rate is estimated at 18.5%, assuming a continuation of current tax laws. Weighted average diluted share count is forecasted to be in the area of 283 million shares, approximately even with last year with share repurchase activity expected to offset dilution. We anticipate EPS to be in the range of $3.30 to $3.35, reflecting leverage to the bottom line. Capex for the year is projected to be about $220 million.

We anticipate approximately 40% of the spend to be related to store development, primarily in China, with the balance dedicated to our digital and IT initiatives, including the initial investments related to build out our new distribution center. Specifically, as our digital business continues to grow, we’ve recognized the opportunity to sharpen our focus on the consumer by expanding our distribution capabilities. We recently signed a lease for a new distribution facility based in Las Vegas, which we believe will allow us to better serve our customers in the western part of the United States.

Finally, we expect inventory levels to be up meaningfully throughout the year as we pulled forward receipts to match strong demand and faced elongated lead times from supply chain pressures due to COVID disruptions. Given the dynamic environment and last year’s atypical comparisons, we again expect significant variability by quarter. Revenue growth versus prior year is expected to be front-half weighted given relatively easier compares due to lapping COVID impacts with the first quarter forecasted to increase more than 20%. Earnings growth in the first half is expected to be somewhat pressured due to incremental SG&A investments along with last year’s unusual compare, including lower expenses due to compensation reductions, lease abatements and the timing of government assistance. That said, we still expect EPS growth in the first half versus prior year, particularly in Q1.

So in closing, we drove strong results in FY ’21. Our significant progress is a testament to the successful execution by our passionate teams, the power of our brands and our competitive advantages, including our differentiated platform. The bold and deliberate actions we’ve made under Tapestry’s Acceleration Program has transformed our organization. These changes are foundational and will continue to be a meaningful point of difference for our brands.

As we look ahead, with regard to those things we can control, we’re continuing to build momentum and we are confident in our ability to leverage the solid foundation to drive sustainable top and bottom line growth across our portfolio of brands. And with respect to those things we can’t control, we’ve taken aggressive actions to protect our strong momentum and mitigate those macro challenges we see today. Our conviction is underscored by our capital allocation actions, highlighting our optimism for the future and commitment to enhancing value for all stakeholders.

I’d now like to open it up for Q&A.

Questions and Answers:

Operator

[Operator Instructions] And we will take our first question from Bob Drbul with Guggenheim. Please go ahead. Your line is open.

Bob Drbul — Guggenheim Securities — Analyst

Hi. Good morning. And Scott, welcome and congratulations. [Technical Issue] My question I have, generally, Joanne, you mentioned improving consumer demand and continued momentum into FY ’22. What signs give you confidence in the strong trajectory that you guys do have planned? Thanks.

Scott Roe — Chief Financial Officer and Head of Strategy

Joanne, start again. I think your mic was off.

Joanne Crevoiserat — Chief Executive Officer

I’m sorry. Can you hear me?

Scott Roe — Chief Financial Officer and Head of Strategy

Yes, I can.

Joanne Crevoiserat — Chief Executive Officer

Okay. Sorry about that, Bob. You would think we got the mute button down by now. Good morning. I would say that our confidence begins with the standout results we delivered this fiscal year. Fiscal ’21 was a year of successful transformation for the company and it was capped by a strong fourth quarter. We saw our sales trends improve every quarter of the year and exceeded pre-pandemic levels in the fourth quarter.

For the year, we delivered record operating income and record operating margin as a multi-brand company despite the challenging backdrop. And we see momentum building as we enter fiscal ’22, and you can see that in the outlook we shared. We expect to reach a record level of revenue for fiscal ’22 at $6.4 billion on mid-teens growth. And we see further untapped potential longer term, particularly in digital in China. And those represent sustainable top and bottom line growth vehicles going forward.

I think importantly, we’re investing in long-term growth drivers, we’re investing in marketing and we’re investing in digital and our people. And while we’ve made significant progress this past year, we’re just getting started. As Scott said, we’re operating from a position of strength as a fundamentally different company today. We’re reaching — through our Acceleration Program, we took bold actions and we’re now reaching new customers in new ways as a more agile organization. And the actions we took not only delivered a strong year, but positioned us to thrive on the other side of the pandemic. And we are better equipped as a company, I would say, to pull these levers, growth levers going forward.

We have new capabilities to engage consumers and drive higher lifetime value. And we have 4 million new consumers that we acquired in the last year alone, who are increasingly younger. We have — we’re delivering really strong gross margins at increasing AURs, showing pricing power in our brands. And we have a direct-to-consumer model building strength in digital and China with significant runway ahead. And Scott also mentioned, we have a strong team and we continue to invest in our team to secure that competitive advantage. So I would say, overall, we’re operating from a position of strength, we’re building momentum and we see significant runway ahead for all of our brands.

Bob Drbul — Guggenheim Securities — Analyst

Great. Thank you very much. Good luck.

Joanne Crevoiserat — Chief Executive Officer

Thanks, Bob.

Operator

And we will take our next question from Ike Boruchow with Wells Fargo. Please go ahead. Your line is open.

Ike Boruchow — Wells Fargo — Analyst

Hey, thank you. Good morning. Congrats everyone. I guess, Scott, welcome. Two questions for you. One quick one and then one more higher level. Just on the second quarter, you talked about the retroactive GSP benefit. Can you quantify that for us so we know what to expect on the gross margin line? And then, again bigger picture, having you join TPR, clearly we all know your background from VF, portfolio optimization, I’m kind of curious, when you look at TPR, do you see some of the same opportunities you had in your prior company? Do you see opportunities for creating a more efficient portfolio, potential divestitures? And then, again, when you think about the M&A platform here versus your prior company, do you see similarities over the next couple of years that you can capitalize on? Thank you.

Scott Roe — Chief Financial Officer and Head of Strategy

Yeah. Hey, Ike. Good to hear from you. Well, that was quite a question, man. So first of all, tactically business GSP. Yeah, it’s about 50 basis points from a margin standpoint. So — and you’re right, we — I said in my prepared remarks, second quarter. So that means, a little bit of a drag in the first quarter as you’re not seeing that take effect. And our thought is that and hope is that it will be reestablished. I think 10 out of the last 14 times this has come up. It’s been approved. So we have solid basis for making that assumption, but it’s not done until it’s done. So we wanted to give you all visibility into that.

Observations about Tapestry, I’m going to take it a little higher level, Ike. I think first of all, what a great team, and I’ve been so impressed by the people and the capabilities. This is a team that has taken bold action over the last — we haven’t wasted the pandemic. And the focus around building those foundational platform capabilities is impressive. You see it in the numbers, you see evidence of that. And we’ve got three great brands that are focused on attractive market spaces, and we got a lot of work to do.

So over time, I see — I laid out capital allocation priorities, which are investing in our great brands. That’s our highest return today. Number two, the dividend. You saw we reinstated that and returning cash to shareholders. That’s where our focus is right now. Longer term, who knows what the future brings. But we’ve got really exciting opportunities with higher returns right in front of us, and that’s where we’re going to be focused.

Ike Boruchow — Wells Fargo — Analyst

Great. Good luck.

Scott Roe — Chief Financial Officer and Head of Strategy

Thanks, Ike.

Operator

And we’ll take our next question from Erinn Murphy with Piper Sandler. Your line is open.

Erinn Murphy — Piper Sandler — Analyst

Great. Awesome. Nice to be back in the Q&A. So welcome, Scott. And I can’t wait to hear or see the manifesto you’ll be reporting next time we all travel together. I guess — it’s going to be an upgrade. So I guess, my question is on the Kate Spade margins. Really good to see some of the green shoots that you have there now and the expansion relative to 2019, but they still trail the Coach brand by 20 percentage points. So just curious, I guess, maybe Joanne and Scott for you, how you see that evolving over time? Really, what’s the potential with the Kate Spade margin profile over time? And then if I can just have a clarification from Todd. The AUR for Coach, I believe you said was up high-single-digit. How did that compare outlet versus full price in the quarter? Thank you.

Joanne Crevoiserat — Chief Executive Officer

Thanks, Erinn. This is Joanne. I’ll jump right into the Kate Spade question. We are really pleased with our execution in fiscal ’21, and we made important progress. You noted the progress on margin. But we made important progress across the foundations of the brand. I’ll just call out a few highlights. Kate is highly digitally penetrated. We showed continued strength in the digital channel. It now represents nearly 35% of sales for the brand. We’re acquiring new customers, 1.4 million new customers during the year, and we’re reactivating customers at a more frequent rate. So 550,000 customers reactivated, a 35% increase from last year, and some of those customers are deeply lapsed customers.

So when we think about the Kate Spade brand and engaging consumers and really building — rebuilding the brand, we made really important progress. And I would say that partly is due to the fact that we’ve re-energized our core handbag offering. Liz and team have worked really quickly to build a stronger more solid platform. We’re seeing traction across our leather platform with the Knot, our signature platform. We’ve talked about with the Spade Flower and our Nylon platform with the Reimagine Sam bag. And what we’re seeing is, the customer reacting to those changes in our assortment with increased global handbag AUR. So with handbag AURs moving higher, that’s another sign of brand health. So longer term, we continue to have and see a path for Kate Spade to build to a $2 billion brand. And to your point, at significantly higher margins, we see a path to high-teens margin opportunity.

And as you compared versus Coach, Kate Spade is a true full lifestyle brand, and there are some differences to the Coach business today. Kate Spade has, as I said, more lifestyle categories. And right now, as the brand is centered more North America and Japan, doesn’t have as developed an international business, but we see those as opportunities moving forward.

Todd Kahn — Chief Executive Officer & Brand President, Coach

And just picking up on Coach, we were really pleased with the continued AUR growth we saw in handbag this quarter. In fact, it was the ninth quarter in a row that we increased our AUR. And it really was led by North America. And we don’t disaggregate AUR by channel, but I will — can tell you both channels had increases in AUR. And we feel really pleased with what we’re accomplishing and what we can accomplish in front of us.

Erinn Murphy — Piper Sandler — Analyst

Thank you, both.

Operator

And we will go next to Mark Altschwager with Baird. Your line is open.

Mark Altschwager — Baird — Analyst

Great. Good morning. Thanks for taking my questions, and congrats on the solid results here. So to start off just with the top-line guide for the year, the mid-teens sales growth. Can you give us a bit more color on how outlook looks like by brand there? Any big differences in terms of the contribution of units versus AUR as you look across the portfolio?

Scott Roe — Chief Financial Officer and Head of Strategy

Yeah. We don’t break down the guide specifically by brand, but obviously with — by the way, record earnings — record top-line estimate is $6.4 billion and with Coach being roughly three quarters of the total, you can assume that very strong top-line growth in Coach, and really sequential across all the brands, right? We’re seeing the strong improvements that we saw last year continuing into this year. So growth in all. And I’d just note, you talked about top-line, but we are also returning to profitability on Stuart next year is our expectation. So really strong continued momentum across all, but of course, Coach just — lot mathematics is driving the lion’s share of that.

Mark Altschwager — Baird — Analyst

That makes sense. Thanks. And then, Scott, just following up on SG&A, sounds like you plan to keep pace with SG&A spend to revenue this year as you reinvest. Can you just speak to the level of flexibility in those plans? I guess, asked another way, should we expect EBIT growth, at least in line with sales regardless of how the operating environment evolves through the year? Thank you.

Scott Roe — Chief Financial Officer and Head of Strategy

Yeah. Sure, Mark. We’ve talked about next year that we’re consolidating these record margins and even expect slight improvement next year. And as it relates to SG&A — so that’s the overall picture. As it relates to SG&A, remember what Joanne said, we’re saying it’s about flat or in the neighborhood of last year as a percentage of sales, but underneath that, there is a lot going on. We continue to invest in those platforms and growth drivers for the long-term. Joanne mentioned marketing, I had it in my prepared remarks, our digital capabilities, analytics, etc. But underneath that, the Acceleration Program and the savings according — attendant to that have given us the ability to see leverage elsewhere.

So some of these things are certainly variable, right? I mean, we can reflex, and we do. Based on the data and analytics and the insights that we see where you lean into marketing, where we see that we have returns is certainly those are choices that we can make, and we do have some optionality and variability in the model. But I got to tell you, we are seeing results from continuing to invest, creating that flywheel effect. And based on our confidence of reinvesting back in our business, it’s our intent to continue to do so. And as evidenced by the strong trend leaving the fourth quarter and leading into the guidance we just talked about for next year.

Mark Altschwager — Baird — Analyst

That’s great. Best of luck.

Scott Roe — Chief Financial Officer and Head of Strategy

Thanks, Mark.

Operator

And we’ll take our next question from Oliver Chen with Cowen. Please go ahead.

Oliver Chen — Cowen — Analyst

Hi. Thank you. The average unit retail momentum have been impressive. What do you see ahead as you anniversary increases and as you seek to continue to offer value to the customer? Would also love your thoughts on the evolution of the Coach brand as a lifestyle brand as you think about footwear and men’s and other categories? What will be some priorities? And how are you thinking about the handbag families such as Tabby and others relative to how you thought about handbag family groups in the past? Thank you.

Joanne Crevoiserat — Chief Executive Officer

Good morning, Oliver. Let me jump on that and then I’ll toss it to Todd to get into the details of Coach. But as it relates to AUR, we’ve been really pleased with the AUR growth that we’ve seen across our brands in the past year, and we’ve been focused on implementing and embedding the structural changes in our organization to help us do that. We’re getting closer to our consumer certainly, which is helping us deliver great product that our consumers value and embedding data and insights into our processes more, but we’re also leveraging data to better manage our assortments. And you’ve seen that in the SKU count reductions we’ve made and in the way we’ve managed inventory across the world in an environment that has a lot of choppiness to it. So those are structural changes that we’ve made. And they have proven benefits on AUR and gross margin expansion over the peer and we expect that to continue.

On your specific questions on Coach, I’ll let Todd talk about the success that he is seeing.

Todd Kahn — Chief Executive Officer & Brand President, Coach

Yes. Thank you. We are really pleased with how we’ve changed the brand very materially over the last year plus, partly because of the Acceleration Program and partly because we really changed the conversation with our customer from leaning in and the call to action being around price and promotion to move to value and values. And this has really fundamentally changed us and it has really increased our AUR.

Our approach to how we merchandise is fundamentally different. We have reduced our SKUs, but we’ve leaned into icon. And Stuart Vevers and the creative team have been getting data from the customer and really leaning in. So you’d mentioned, Tabby. Tabby is a collection we’ve launched in June of ’19. By February of ’21, it would normally have been out of the mix. Instead, we doubled down. We relaunched it with Pillow Tabby. It became the number one bag. You saw this month, we’ve launched Soft Tabby. And then we’re going to see Pillow Tabby reemerge.

So having these iconic styles that are not so pressured by short selling windows really materially changes our outlook. And then regarding lifestyle, one of the opportunities I think we have is while we call it men’s, men’s product is all gender product often. And one of the things we recognized is we can do better, not necessarily merchandising at exactly the same way we merchandised historically women’s product. So you’ll see mix in more outerwear, more cut and sew opportunities and it is really resonating with our customer.

And then finally, I’m a big believer and have been for many years in the opportunities that we have with footwear. And you’re seeing us win in the category, both in our own stores, retail and outlet, but even in wholesale, which is obviously a very competitive environment, but is the most democratic environment. And what we’re winning there, we know we actually are winning in the category.

Oliver Chen — Cowen — Analyst

Thank you. On new customer acquisition, Joanne, you called it out and it’s great to see that. What’s your hypothesis for what might be really important to retain the new customers? How that relates likely to innovation? And what you need to do to engage those new customers as well as maintain existing? Thank you. Best regards.

Joanne Crevoiserat — Chief Executive Officer

Thanks, Oliver. Driving engagement requires consistent and innovation; innovation in product. We’re learning a lot about those new customers and we’re also engaging them in different ways. We’re meeting our customers where they are. And we’re better capable to meet those customers and engage them with our data and analytics capabilities, with our increasing presence on social media and the innovations we’re bringing to life there. And at the end of the day, it’s about delivering great products.

So taking those insights and really understanding our consumer in a deeper level. And that’s a lot of the foundation that we’ve built this past year is how do we really truly understand our customer, our consumer and embed that consumer and those insights in the product development process where our creative teams bring their terrific product and creativity to bear against things that consumers value. And our focus moving ahead is, with all this new customer acquisitions driving higher lifetime value with our consumers going forward.

Oliver Chen — Cowen — Analyst

Thank you.

Operator

And we will take our next question from Lorraine Hutchinson with Bank of America. Please go ahead.

Lorraine Hutchinson — Bank of America Merrill Lynch — Analyst

Thanks. Good morning. You talked about the expectation that store sales will remain below pre-pandemic levels. Have you been able to rightsize the store-based cost structure? And how should we think about profitability of the fleet if this trend persists?

Joanne Crevoiserat — Chief Executive Officer

Yeah. I’ll start and maybe steal all of Scott’s thunder here. But that has been — we think stores matter. And as we focus on the consumer, it’s about providing a seamless experience for our consumer regardless of where they choose to shop. And we’ve been incredibly successful at building a digital business and meeting our consumer on digital platforms, but the store platform and that physical touch point is still important.

And if you go back a year, what we said is — or more than a year now, we said while stores are still important, we have higher profitability expectations for our fleet and productivity thresholds. And we’ve taken bold actions to structure our fleet in that way, but we’re also investing to make sure that that represents the right experience and the right physical touch point. We’re adding omnichannel capabilities for our consumers, and that’s paying off. It’s paying off on the top-line, but it’s also — because we’ve seen incremental growth in our brick and mortar fleet as the world sort of recovers from the pandemic. But what we’ve also seen importantly and this — here’s where I’m stealing a little bit of Scott’s thunder is, we’ve seen operating margins of our store fleet actually above pre-pandemic levels even right now on depressed volume and a depressed traffic.

So Scott, I don’t know if there’s anything you want to add, but I’ll throw it to you.

Scott Roe — Chief Financial Officer and Head of Strategy

It’s pretty comprehensive. The only — it’s really impressive. I just have to compliment the team on at the same time rationalizing and having top-line being down a little bit. The quality of the underlying remaining fleet in the profitability through the pandemic is pretty impressive.

The other thing I would just say is as we think about the omnichannel journey that we’re on, remember Joanne’s comment, $1 billion more in digital. At the same time, we’re rationalizing, getting more profitable in brick and mortar. We’re reinforcing the omni experience and added — we’re at $1.6 billion of sale and it’s up $1 billion in two years. So it’s not just one channel, and increasingly, it’s how we meet that consumer where she is. And it’s pretty impressive from my perspective, seeing that we’ve managed both of these channels increasing profitability and at the same time finding a foundation for future growth.

Todd Kahn — Chief Executive Officer & Brand President, Coach

One thing. The risk of piling on. What we’ve seen in North America, which really bodes well for our store fleet is, with all of this digital growth, as we see a return to traffic in stores in those areas, we have not seen our digital penetration, our digital sales in those areas shrink. So the wonderful thing — and it really brings home the point, it is an omni world. It’s an not an or. We see our ability to continue to grow digital, while seeing very profitable interaction in our stores as traffic returns.

Operator

We will take our next question from Michael Binetti with Credit Suisse. Please go ahead.

Michael Binetti — Credit Suisse — Analyst

Yes. Let me add my congrats, Scott. Nice to hear you had another — with another great team here.

Scott Roe — Chief Financial Officer and Head of Strategy

Thanks, Michael.

Michael Binetti — Credit Suisse — Analyst

I want to — I guess, Scott, I will ask you on Slide 17 here in the deck, you mentioned improving visibility could let you more aggressively returning cash to shareholders. I’m just curious, maybe a thought there early on here is how you think about leveraging the business given what we know about the very, very strong cash flows in this business pre-pandemic and that it’s improving now. I wonder how you think what the appropriate level is early on?

And then I’d also be curious on the SG&A guidance, just to follow-up with Mark’s question earlier. This would be the first year in a more normal environment, more normal after you did a big reset to the structure of SG&A last year. So I know there’s a lot more variability in there, perhaps you took some corporate costs out and you’re generating really good ROAS on the marketing investments you’ve made, it sounds like you still have good growth from high margin drivers like AUR, Kate margin targets high-teens over time versus the 10% exit rate this year. So I’m just wondering, it seems like a lot of good margin drivers in there. To the extent that we do see revenues coming in above plan, how should we think about what flows through to earnings this year in an upside scenario for revenues?

Scott Roe — Chief Financial Officer and Head of Strategy

Yeah. Well, first of all, Michael, good to talk to you again. As usual, very thorough and comprehensive on your insights here. So let’s start with capital allocation and how we’re thinking about it. I think a little context first is important. First of all, don’t lose the message here. The reinstatement of the dividend, the reinstatement of the repurchase program, $750 million intended to return of cash is really a testament to our underlying confidence in the business. So that — I think that’s the important message here.

And if you think about the journey over the last year, early on in COVID given the massive uncertainty and demand issues, we took a lot of actions to protect liquidity, to protect the enterprise with our rating agencies, bankers, bondholders, etc. There was a commitment on deleveraging and a glide path that we laid out. So the great news here is we’re able to not only advance on that glide path and even be a little ahead of it, you heard us mentioned paying off the $400 million of debt at the end of this fiscal year, which is our intent and reinstate the dividend. And we still have a strong balance sheet and we still have ample cash. We’re in between these two periods, right? We see much more confidence and that’s why we’ve stated the aggressive return to shareholder cash or returning cash to shareholders. But at the same time, we think it’s prudent to take — to keep a little elevated cash position given the uncertainty of the environment.

So my comment was really intended to signal that while we’re definitely in a more confident position, we’re engaging in repurchases and dividends. We’re still maintaining an elevated buffer until we get better line of sight on what COVID Delta variant etc., the uncertainty, how that evolves. Once we have that confidence, there is no reason to — that we wouldn’t be — go back to kind of normal levels, and we have opportunities to be even a little more aggressive from a return of cash to shareholders. So that was the intent, right, to say we’re not going ditch-to-ditch here, right? We’ve made progress, but we want to watch the uncertainty.

As it relates to margin flows, again, I’d point you back — SG&A, the picture there is the tale of two things. We have the benefits around acceleration which are providing leverage throughout the P&L to allow us to reinvest obviously in a very — we have variability and we’re making choices. Those choices are based on the insights and data that we have, and we’ve seen it pay off, right? So that’s why we’ve given guidance that says we do expect to expand margins next year.

Should we get more upside? Would some of that flow through? It depends. Yes, likely. But we’re also going to look at where we can lean in and advance our platforms and capabilities for the future. But we expect expanding margins, and you should expect that some of that would flow through as we see upside.

Michael Binetti — Credit Suisse — Analyst

Thanks a lot. Take care, guys.

Operator

And we’ll take our next question from Brooke Roach with Goldman Sachs. Please go ahead. Your line is open.

Brooke Roach — Goldman Sachs — Analyst

Good morning. Thanks so much, and thanks for taking the question, and Scott welcome.

Scott Roe — Chief Financial Officer and Head of Strategy

Thanks, Brooke.

Brooke Roach — Goldman Sachs — Analyst

I wanted to ask two quick questions. First with — Joanne, can you talk to the planned step-up in marketing investments this year? Where those investments will be most focused in your excitement on brand building into FY ’22? And then for Scott, I wanted to get your thoughts on industry-wide supply chain and freight costs. How is Tapestry managing through some of these challenges? And can you provide any additional color on the impact of these industry-wide challenges that are embedded into your margin outlook for the fiscal year? Thank you.

Joanne Crevoiserat — Chief Executive Officer

Thanks, Brooke. I’ll start with our marketing spend. And I would say that we, as part of our transformation, we have fundamentally restructured our P&L with a focus on. And we did that really with a focus on how we were going to engage consumers and needed to engage consumers in sort of the new world of retailing in a post-pandemic era. And we’ve made significant changes within the P&L. Scott called it out in his prepared remarks, but 3% higher investments in marketing, and we’ve done that with confidence because with our new data and analytics capabilities, we’re better able to measure the return on our marketing investments. And our intention is to structure our business so that we can continue to engage consumers across all of our brands and create that — and continue to create and tap into growth. And we have seen tremendous traction over the past year based on these capabilities.

The investments that we’re making in marketing are across the funnel. And I think that’s important to know too, because as we get better at measuring our returns, we’re getting better at measuring returns across the full funnel. So it’s not only performance marketing, but it is about brand building and measuring our returns on those brand building investments we’re making. Of course, digital is a priority, we’re better able to engage consumers on many digital platforms, and we’re driving innovation there. We’ve called out the work we’ve done on live streaming and TikTok with even organic and viral videos on TikTok. So we’re continuing to innovate. We’re investing across the funnel. And we think that is an important enabler as we look to unlock future growth.

Scott Roe — Chief Financial Officer and Head of Strategy

And Brooke, as it relates to elevated costs that we’re seeing, we are seeing some elevated costs, primarily due to expedited freight, airfreight essentially, as we absorb and deal with the supply chain disruptions that we see. And our outlook reflects additional airfreight really through the holiday period, which is as far as we can see in terms of getting the deliveries and trying to maintain the strong momentum we have. You heard Joanne say it, right?

The great news here is demand for our brands is strong. And while we see some disruption, we’re taking bold actions. And we got out ahead of this a little bit in terms of securing as much supply as we can to keep that strong momentum going. We talked about gross margins being roughly equal to this year. And then that means we’re consolidating on record high gross margins, up 300 basis points versus a couple of years ago. And underneath that, we have some elevated costs related expedited freight. We also see the continuing build in AUR pricing leverage less discount and the general trend of the business which is helping us offset that.

So those are the puts and the takes. I would say though, by quarter, it’s not necessarily going to be a straight line. We’re going to see — as some of this freight cost turns into the P&L, it may not come exactly matched with some of the price increases. But over time for the year, that’s the picture that we see.

Brooke Roach — Goldman Sachs — Analyst

Thank you.

Operator

And we’ll take our final question from Matthew Boss with J.P. Morgan. Please go ahead.

Kevin Heenan — J.P. Morgan — Analyst

Hi. Good morning. This is Kevin Heenan on for Matt Boss. Congrats on the strong quarter. I wanted to ask about your inventory positioning, not flat relative to the prior year. I think that’s a significant improvement versus the third quarter. I guess, how do you feel about your ability to chase demand into what is expected to be a pretty robust back-to-school and holiday season for retail given some of the disruption that we’re seeing in the supply chain today? Thanks.

Scott Roe — Chief Financial Officer and Head of Strategy

Yeah. Kevin, maybe I’ll take that one or at least start. So first of all, yeah, we had a great performance from an inventory standpoint for all the reasons that have already been said and done versus last couple of years. This is part of a very focused effort and simplify and reducing SKUs and seeing real progress there, and it’s one of the factors for cash flow.

But as we look to next year, we are going to see elevated inventory positions starting in the first quarter. And the reason for that is two-fold. Number one, just supporting the growth of the business. Number two, we’re expediting, as I said, what we can to bring in inventory, whether it be even by air or by sea, we’re getting inventory in as fast as we can reasonably do in order to keep the momentum of the business. And those factors together are going to be a slightly elevated increase in inventory, but I have no concerns about this at all. This is inventory that is supporting the trend of the business. And frankly, if we could get more, we probably would. So you’re going to see that dynamic play out. It’s not significant, but understand what’s really driving it.

And you asked about our ability to chase, listen, we’re doing what we can. I just told you, expedited air freight. We’re looking to — I think we were quick to get in front of our suppliers and we’ve secured what we can. So to the best of our ability, we will chase it. It’s going to be a difficult environment to chase, frankly given the dynamic in the short-term. But we feel good about all the levers that are in our control to set us up as well as we can.

Todd Kahn — Chief Executive Officer & Brand President, Coach

Yeah. Scott took the words out of my mouth. I would be happy to get whatever we can. We feel really, really good about our holiday offering. And again, going back to what we said before, our iconic styles really diminishes that sort of markdown risks that you think about in our space. And we feel exceptionally good about what we have coming and our ability to respond, because again, the demand is there. We’re seeing the demand. And that is the most important thing in our industry. And now, satisfying that demand in the ways that our customer wants to see us, whether that’s brick and mortar or digital is how we’re going to go about capturing it.

Kevin Heenan — J.P. Morgan — Analyst

Okay. Thanks very much.

Operator

Thank you. And that concludes our Q&A. I will now turn the call over to Joanne Crevoiserat for some concluding remarks.

Joanne Crevoiserat — Chief Executive Officer

Yeah. Thank you, everyone for joining us this morning and hanging in there through our technical difficulties. Fiscal ’21 was a transformational year for Tapestry. And I want to extend a huge thanks to our teams around the world for their unwavering passion and dedication to our business. As we just talked about, the dynamic environment continues, but we’re in a position of strength with a proven track record of success. And we have increasing conviction in our ability to accelerate top and bottom line growth with a focus on delivering for all our stakeholders, our customers, our teams, our community and our shareholders. So I appreciate your interest in Tapestry. Have a great day.

Operator

[Operator Closing Remarks]