UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~March 28,~~December 26, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-16153

Tapestry, Inc.

(Exact name of registrant as specified in its charter)



Maryland						52-2242751
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

10 Hudson Yards,, New York,, NY10001

(Address of principal executive offices); (Zip Code)

(~~212~~) (212) 946-8400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on which Registered

Common Stock, par value $.01 per share

TPR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

On ~~April 24, 2020,~~January 22, 2021, the Registrant had ~~276,098,489~~277,838,123 outstanding shares of common stock, which is the Registrant’s only class of common stock.

TAPESTRY, INC.

INDEX



		Page Number
PART I – FINANCIAL INFORMATION (unaudited)

ITEM 1.	Financial Statements:
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	5049
ITEM 4.	Controls and Procedures	5150
PART II – OTHER INFORMATION
ITEM 1.	Legal Proceedings	5251
ITEM 1A.	Risk Factors	52
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5364
ITEM 4.	Mine Safety Disclosures	5364

ITEM 6.	Exhibits	5364
SIGNATURE		5465

In this Form 10-Q, references to “we,” “our,” “us,” "Tapestry" and the “Company” refer to Tapestry, Inc., including consolidated subsidiaries. References to "Coach," "Kate Spade," "kate spade new york" or "Stuart Weitzman" refer only to the referenced brand.

SPECIAL NOTE ON FORWARD-LOOKING INFORMATION

This document, and the documents incorporated by reference in this document, in our press releases and in oral statements made from time to time by us or on our behalf, contain certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and are based on management’s current expectations, that involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "may," "will," "should," "expect," "confidence," "trends," "intend," "estimate," "on track," "are positioned to," "on course," "opportunity," "continue," "project," "guidance," "target," "forecast," "anticipated," "plan," "potential," the negative of these terms or comparable terms. The Company's actual results could differ materially from the results contemplated by these forward-looking statements and are subject to a number of risks, uncertainties, estimates and assumptions that may cause actual results to differ materially from current expectations due to a number of important factors, including but not limited to: (i) the impact of the novel coronavirus ("Covid-19") global pandemic on our business and financial results; (ii) our ability to successfully execute our multi-year growth agenda under our Acceleration Program; (iii) the impact of economic conditions; (iv) our ability to control costs; ~~(iii)~~(v) our exposure to international risks, including currency fluctuations, ~~and~~ changes in economic or political conditions in the markets where we sell or source our ~~products; (iv) the impact of the CARES Act~~products and ~~other legislation; (v)~~increased regulation impacting our global sourcing activities; (vi) the risk of cyber security threats and privacy or data security breaches; ~~(vi)~~(vii) the effect of existing and new competition in the marketplace; ~~(vii)~~(viii) our ability to retain the value of our brands and to respond to changing fashion and retail trends in a timely manner; ~~(viii)~~(ix) the effect of seasonal and quarterly fluctuations on our sales or operating results; ~~(ix)~~(x) our ability to protect against infringement of our trademarks and other proprietary rights; ~~(x)~~(xi) the impact of tax and other legislation; ~~(xi)~~(xii) our ability to achieve intended benefits, cost savings and synergies from acquisitions; ~~(xii)~~(xiii) the risks associated with potential changes to international trade agreements and the imposition of additional duties on importing our products; ~~(xiii)~~(xiv) the impact of pending and potential future legal proceedings, (xv) the risks associated with climate change and other corporate responsibility issues; and (xvi) such other risk factors as set forth in Part II, Item 1A. "Risk Factors" ~~and elsewhere in this report and in the Company’s Annual Report on Form 10-K for the fiscal year ended June 29, 2019 and Quarterly Report on Form 10-Q for the period ended December 28, 2019.~~. The Company assumes no obligation to revise or update any such forward-looking statements for any reason, except as required by law.

WHERE YOU CAN FIND MORE INFORMATION

Tapestry's quarterly financial results and other important information are available by calling the Investor Relations Department at (212) 629-2618.

Tapestry maintains its website at www.tapestry.com where investors and other interested parties may obtain, free of charge, press releases and other information as well as gain access to our periodic filings with the SEC.

TAPESTRY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

March 28,
2020 June 29,
2019
(millions)
(unaudited)
ASSETS

Current Assets:

Cash and cash equivalents $ 742.6
$ 969.2
Short-term investments 155.6
264.6
Trade accounts receivable, less allowances of $16.0 and $4.4, respectively 190.4
298.1
Inventories 852.9
778.3
Prepaid expenses 60.2
99.8
Income tax receivable 35.1
55.8
Other current assets 95.1
91.0
Total current assets 2,131.9
2,556.8
Property and equipment, net 818.7
938.8
Operating lease right-of-use assets 1,970.9
—
Goodwill 1,298.5
1,516.2
Intangible assets 1,381.1
1,711.9
Deferred income taxes 35.9
19.4
Other assets 106.0
134.2
Total assets $ 7,743.0
$ 6,877.3
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable $ 200.1
$ 243.6
Accrued liabilities 573.9
673.6
Current portion of operating lease liabilities 353.4
—
Current debt 11.5
0.8
Total current liabilities 1,138.9
918.0
Long-term debt 1,587.2
1,601.9
Long-term operating lease liabilities 1,897.3
—
Deferred income taxes 204.6
234.1
Long-term income taxes payable 147.0
155.9
Other liabilities 214.9
454.0
Total liabilities 5,189.9
3,363.9

See Note 16 on commitments and contingencies

Stockholders' Equity:

Preferred stock: (authorized 25.0 million shares; $0.01 par value per share) none issued —
—
Common stock: (authorized 1.0 billion shares; $0.01 par value per share) issued and outstanding - 276.1 million and 286.8 million shares, respectively 2.8
2.9
Additional paid-in-capital 3,346.0
3,302.1
Retained earnings (accumulated deficit) (699.0 ) 291.6
Accumulated other comprehensive income (loss) (96.7 ) (83.2 )
Total stockholders' equity 2,553.1
3,513.4
Total liabilities and stockholders' equity $ 7,743.0
$ 6,877.3


	December 26, 2020		June 27, 2020
	(millions)
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,642.6	$	1,426.3
Short-term investments	9.2		8.1
Trade accounts receivable, less allowances for credit losses of $4.1 and $15.9, respectively	331.7		193.3
Inventories	631.9		736.9

Prepaid expenses	67.8		57.5
Income tax receivable	104.6		46.0
Other current assets	89.4		85.0
Total current assets	2,877.2		2,553.1
Property and equipment, net	730.2		775.2
Operating lease right-of-use assets	1,674.9		1,757.0

Goodwill	1,317.1		1,301.1
Intangible assets	1,376.3		1,379.4
Deferred income taxes	61.1		55.9
Other assets	113.6		102.5
Total assets	$	8,150.4	$	7,924.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	386.3	$	130.8
Accrued liabilities	559.1		410.5
Current portion of operating lease liabilities	360.4		388.8
Accrued income taxes	27.3		100.5

Current debt	200.0		711.5
Total current liabilities	1,533.1		1,742.1
Long-term debt	1,589.3		1,587.9
Long-term operating lease liabilities	1,658.9		1,799.8
Deferred income taxes	113.0		155.1
Long-term income taxes payable	135.5		144.0
Other liabilities	229.9		218.9
Total liabilities	5,259.7		5,647.8

See Note 16 on commitments and contingencies	0		0

Stockholders' Equity:
Preferred stock: (authorized 25.0 million shares; $0.01 par value per share) NaN issued	0		0
Common stock: (authorized 1.0 billion shares; $0.01 par value per share) issued and outstanding - 277.8 million and 276.2 million shares, respectively	2.8		2.8
Additional paid-in-capital	3,388.3		3,358.5
Retained earnings (accumulated deficit)	(450.0)		(992.7)
Accumulated other comprehensive income (loss)	(50.4)		(92.2)
Total stockholders' equity	2,890.7		2,276.4
Total liabilities and stockholders' equity	$	8,150.4	$	7,924.2

See accompanying Notes.

TAPESTRY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended						Nine Months Ended						Three Months Ended				Six Months Ended
	March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019			December 26, 2020		December 28, 2019		December 26, 2020		December 28, 2019
	(millions, except per share data)						(millions, except per share data)						(millions, except per share data)				(millions, except per share data)
	(unaudited)						(unaudited)						(unaudited)				(unaudited)
Net sales	$	1,072.7		$	1,331.4		$	4,246.6		$	4,513.4	Net sales	$	1,685.4	$	1,816.0	$	2,857.6	$	3,173.9
Cost of sales	456.5			415.5			1,506.2			1,458.9		Cost of sales	511.7		606.3		853.7		1,049.7
Gross profit	616.2			915.9			2,740.4			3,054.5		Gross profit	1,173.7		1,209.7		2,003.9		2,124.2
Other selling, general and administrative expenses	824.0			806.1			2,533.5			2,405.9
Impairment of goodwill and intangible assets	477.7			—			477.7			—
Total selling, general and administrative expenses	1,301.7			806.1			3,011.2			2,405.9
Selling, general and administrative expenses												Selling, general and administrative expenses	784.3		846.6		1,412.3		1,709.5

Operating income (loss)	(685.5		)	109.8			(270.8		)	648.6		Operating income (loss)	389.4		363.1		591.6		414.7
Interest expense, net	13.5			10.6			39.8			36.9		Interest expense, net	18.7		14.0		38.1		26.3
Other expense (income)	6.0			4.0			12.8			4.4		Other expense (income)	(3.6)		(5.9)		(6.2)		6.8
Income before provision for income taxes	(705.0		)	95.2			(323.4		)	607.3
Income (loss) before provision for income taxes												Income (loss) before provision for income taxes	374.3		355.0		559.7		381.6
Provision for income taxes	(27.9		)	(22.2		)	34.9			112.8		Provision for income taxes	63.3		56.2		17.0		62.8
Net income (loss)	$	(677.1	)	$	117.4		$	(358.3	)	$	494.5	Net income (loss)	$	311.0	$	298.8	$	542.7	$	318.8
Net income (loss) per share:												Net income (loss) per share:
Basic	$	(2.45	)	$	0.40		$	(1.28	)	$	1.71	Basic	$	1.12	$	1.08	$	1.96	$	1.14
Diluted	$	(2.45	)	$	0.40		$	(1.28	)	$	1.70	Diluted	$	1.11	$	1.08	$	1.94	$	1.13
Shares used in computing net income (loss) per share:												Shares used in computing net income (loss) per share:
Basic	276.1			290.0			279.4			289.5		Basic	277.5		276.0		277.1		280.8
Diluted	276.6			290.9			280.2			291.2		Diluted	281.0		276.7		279.4		281.8
Cash dividends declared per common share	$	0.3375		$	0.3375		$	1.0125		$	1.0125	Cash dividends declared per common share	$	0	$	0.3375	$	0	$	0.6750

See accompanying Notes.

TAPESTRY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)


	Three Months Ended						Nine Months Ended							Three Months Ended				Six Months Ended
	March 28, 2020			March 30, 2019			March 28, 2020			March 30, 2019				December 26, 2020		December 28, 2019		December 26, 2020		December 28, 2019
	(millions)						(millions)							(millions)				(millions)
	(unaudited)						(unaudited)							(unaudited)				(unaudited)
Net income (loss)	$	(677.1	)	$	117.4		$	(358.3	)	$	494.5		Net income (loss)	$	311.0	$	298.8	$	542.7	$	318.8
Other comprehensive income (loss), net of tax:													Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on cash flow hedging derivatives, net	1.2			(4.0		)	6.5			(2.7		)	Unrealized gains (losses) on cash flow hedging derivatives, net	(1.8)		2.6		(5.3)		5.3
Unrealized gains (losses) on available-for-sale investments, net	—			0.1			—			0.2

Foreign currency translation adjustments													Foreign currency translation adjustments	27.9		8.4		47.1		(5.4)
Other	—			—			(1.7		)	—			Other	0		0		0		(1.7)
Foreign currency translation adjustments	(12.9		)	4.9			(18.3		)	(5.2		)
Other comprehensive income (loss), net of tax	(11.7		)	1.0			(13.5		)	(7.7		)	Other comprehensive income (loss), net of tax	26.1		11.0		41.8		(1.8)
Comprehensive income	$	(688.8	)	$	118.4		$	(371.8	)	$	486.8		Comprehensive income	$	337.1	$	309.8	$	584.5	$	317.0

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended
March 28,
2020 March 30,
2019
(millions)
(unaudited)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES

Net income (loss) $ (358.3 ) $ 494.5
Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 194.9
189.8
Provision for bad debt 16.8
6.4
Share-based compensation 47.0
65.4
Organization-related and integration activities 15.2
13.0
Impairment charges 697.6
—
Changes to lease related balances, net 26.1
—
Deferred income taxes (33.3 ) 41.5
Other non-cash charges, net 4.7
(5.5 )
Changes in operating assets and liabilities:

Trade accounts receivable 75.2
50.9
Inventories (171.6 ) (123.1 )
Accounts payable (18.5 ) (43.5 )
Accrued liabilities (31.2 ) 29.1
Other liabilities (37.6 ) (61.2 )
Other assets 19.1
(54.5 )
Net cash provided by (used in) operating activities 446.1
602.8
CASH FLOWS USED IN INVESTING ACTIVITIES

Acquisitions, net of cash acquired —
(39.4 )
Purchases of investments (212.4 ) (336.4 )
Proceeds from maturities and sales of investments 316.1
82.3
Purchases of property and equipment (172.9 ) (184.2 )
Net cash used in investing activities (69.2 ) (477.7 )
CASH FLOWS USED IN FINANCING ACTIVITIES

Dividend payments (287.1 ) (292.8 )
Repurchase of common stock (300.0 ) —
Proceeds from share-based awards 1.7
31.6
Taxes paid to net settle share-based awards (14.7 ) (26.1 )
Payments of finance lease liabilities (0.6 ) (0.6 )
Payment of deferred purchase price (2.4 ) —
Net cash used in financing activities (603.1 ) (287.9 )
Effect of exchange rate changes on cash and cash equivalents (0.4 ) (5.3 )
Net decrease in cash and cash equivalents (226.6 ) (168.1 )
Cash and cash equivalents at beginning of period 969.2
1,243.4
Cash and cash equivalents at end of period $ 742.6
$ 1,075.3
Supplemental information:
Cash paid for income taxes, net $ 80.5
$ 135.3
Cash paid for interest $ 50.4
$ 45.4
Noncash investing activity - property and equipment obligations $ 22.4
$ 53.2


	Six Months Ended
	December 26, 2020		December 28, 2019
	(millions)
	(unaudited)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net income (loss)	$	542.7	$	318.8
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	102.4		125.0
Provision for bad debt	(1.7)		4.2
Share-based compensation	28.9		33.8

Acceleration Program charges	(0.9)		0
Organization-related and integration activities	0		15.3
Impairment charges	0		75.6
Changes to lease related balances, net	(86.1)		9.4
Deferred income taxes	(41.2)		(5.8)
Gain on sale of building	(13.2)		0
Gain on deferred purchase price	(12.5)		0
Other non-cash charges, net	8.3		2.3
Changes in operating assets and liabilities:
Trade accounts receivable	(143.2)		(78.7)
Inventories	144.3		19.5
Accounts payable	253.8		19.3
Accrued liabilities	54.4		63.3
Other liabilities	(12.9)		(12.6)
Other assets	(76.8)		(27.7)
Net cash provided by (used in) operating activities	746.3		561.7
CASH FLOWS USED IN INVESTING ACTIVITIES

Proceeds from sale of building	23.9		0


Purchases of investments	(0.2)		(157.0)
Proceeds from maturities and sales of investments	0.2		151.3
Purchases of property and equipment	(49.7)		(122.2)


Net cash used in investing activities	(25.8)		(127.9)
CASH FLOWS USED IN FINANCING ACTIVITIES
Dividend payments	0		(194.0)
Repurchase of common stock	0		(300.0)



Proceeds from share-based awards	6.2		1.7

Repayment of short-term debt	(11.5)		0
Repayment of revolving credit facility	(500.0)		0
Payment of deferred purchase price	(4.8)		0
Taxes paid to net settle share-based awards	(8.4)		(13.8)


Payments of finance lease liabilities	(0.4)		(0.4)

Net cash used in financing activities	(518.9)		(506.5)
Effect of exchange rate changes on cash and cash equivalents	14.7		0.4
Net decrease in cash and cash equivalents	216.3		(72.3)
Cash and cash equivalents at beginning of period	1,426.3		969.2
Cash and cash equivalents at end of period	$	1,642.6	$	896.9
Supplemental information:
Cash paid for income taxes, net	$	191.8	$	54.8
Cash paid for interest	$	37.2	$	31.7
Noncash investing activity - property and equipment obligations	$	19.7	$	34.2

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. NATURE OF OPERATIONS

Tapestry, Inc. (the "Company") is a leading New York-based house of modern luxury accessories and lifestyle brands. Tapestry owns the Coach, Kate Spade and Stuart Weitzman brands. The Company’s primary product offerings, manufactured by third-party suppliers, include women’s and men’s bags, small leather goods, footwear, ready-to-wear including outerwear, watches, weekend and travel accessories, scarves, eyewear, fragrance, jewelry and other lifestyle products.

The Coach segment includes global sales of Coach products to customers through Coach operated stores, including the Internet and concession shop-in-shops, and sales to wholesale customers and through independent third party distributors.

The Kate Spade segment includes global sales primarily of kate spade new york brand products to customers through Kate Spade operated stores, including the Internet, sales to wholesale customers, through concession shop-in-shops and through independent third party distributors.

The Stuart Weitzman segment includes global sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores, including the Internet, sales to wholesale customers and through numerous independent third party distributors.

2. BASIS OF PRESENTATION AND ORGANIZATION

Interim Financial Statements

These unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and are unaudited. In the opinion of management, such condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the consolidated financial position, results of operations, comprehensive income (loss) and cash flows of the Company for the interim periods presented. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP") have been condensed or omitted from this report as is permitted by the SEC's rules and regulations. However, the Company believes that the disclosures provided herein are adequate to prevent the information presented from being misleading. This report should be read in conjunction with the audited consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended June ~~29, 2019~~27, 2020 ("fiscal ~~2019"~~2020") and other filings filed with the SEC.

The results of operations, cash flows and comprehensive income for the ~~nine~~six months ~~March 28,~~ended December 26, 2020 are not necessarily indicative of results to be expected for the entire fiscal year, which will end on ~~June 27, 2020~~July 3, 2021 ("fiscal ~~2020"~~2021").

During the fiscal year ended June 29, 2019, the Company acquired designated assets of its Stuart Weitzman distributor in Southern China and Australia and of its Kate Spade distributor in Australia, Malaysia and Singapore. The results of operations of each acquired entity have been included in the condensed consolidated financial statements since the respective date of each acquisition.

The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to June 30. Fiscal ~~2020~~2021 will be a ~~52-week~~53-week period. Fiscal ~~2019~~2020, ended on June ~~29, 2019 and~~27, 2020, was ~~also~~ a 52-week period. The ~~third~~second quarter of fiscal 2021 ended on December 26, 2020 and the second quarter of fiscal 2020 ended on ~~March~~December 28, ~~2020 and the third quarter of fiscal 2019 ended on March 30,~~ 2019, both of which were 13-week periods.

The outbreak of a novel strain of coronavirus continues to ~~grow worldwide, impacting~~impact a significant majority of the regions in which we operate. In March 2020, the outbreak was labeled a global pandemic by the World Health Organization. National, state and local governments ~~have~~ responded to the Covid-19 pandemic in a variety of ways, including, but not limited to, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), requiring individuals to stay at home, and in most cases, ordering non-essential businesses to close or limit operations. The Company had temporarily closed the majority of its directly operated stores globally for some period of time to help reduce the spread of Covid-19 during fiscal 2020. The vast majority of the ~~Company’s~~Company's stores re-opened for either in-store or pick-up service and have continued to operate since then, however, some store locations have experienced temporary re-closures or are operating under tighter restrictions in mainland China were closed in the third quarter of fiscal 2020, but have essentially all re-opened by the end of the quarter. Also in March 2020, the Company closed all of its stores in North America and Europe, and many in the Asia Pacific region.compliance with local government regulation. Many of the ~~Company’s~~Company's wholesale and licensing partners ~~have~~ 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 ~~substantially reduced their operations.~~reopened, they have also been subject to temporary re-closures and tighter capacity restrictions operating in compliance with the rules of certain local governments.

The global Covid-19 pandemic is ~~rapidly~~continuously evolving and the extent to which this impacts the Company - including unforeseen increased costs to the Company's business - will depend on future developments, which are highly uncertain and cannot be predicted, including the ultimate duration, severity and geographic ~~spread~~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. As the full magnitude of the effects on the Company's business is difficult to predict at this time, the Covid-19 pandemic has and is expected to continue to have a

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

~~Covid-19 pandemic has and is expected to continue to have a~~ material adverse impact on the Company's business, financial condition, results of operations and cash flows for the foreseeable future. The Company believes that cash flows from operations, access to the credit and capital markets and our credit lines, on-hand cash and cash equivalents and our investments provide adequate funds to support our operating, capital, and debt service requirements for fiscal ~~2020~~2021 and beyond. There can be no assurance, however, that any such capital will be available to the Company on acceptable terms or at all. The Company could experience other potential adverse impacts as a result of the Covid-19 pandemic, including, but not limited to, further charges from adjustments to the carrying amount of goodwill and other intangible assets, long-lived asset impairment charges, reserves for uncollectible accounts receivable and reserves for the realizability of inventory. In addition, the negative impacts of the Covid-19 pandemic could result in the establishment of additional valuation allowances in certain jurisdictions.

In response to the Covid-19 pandemic, the Company ~~has taken~~took actions to reinforce its liquidity and financial flexibility. ~~In the third quarter of fiscal 2020 the Company announced that it has suspended~~Specific actions included: suspending its quarterly dividend and all share repurchases, ~~for the foreseeable future.~~

~~In addition, and subsequent to March 28, 2020, the Company has taken other additional actions. These actions include, but are not limited to,~~ actively reducing non-essential SG&A expense, reducing its corporate and retail workforce, temporarily reducing corporate compensation, ~~terminating 2,100 part-time store associates,~~ tightly managing inventory and reducing capital expenditures. During the second quarter of fiscal 2021, compensation resumed normal levels.

Furthermore, ~~on March 30,~~in fiscal 2020, the Company borrowed $700 million under its $900 million definitive credit agreement, as entered into on October 24, 2019 ("Revolving Credit Facility") as a precautionary measure. Of the $700 million borrowed, $500 million was repaid during the second quarter of fiscal 2021 and the remaining $200 million was repaid on January 25, 2021.

If ~~the Company's~~ stores ~~remain closed~~are required to close again for an extended period of time ~~its~~due to a resurgence of increased infections, the Company's liquidity may continue to be negatively impacted and it may need to draw additional funds from our Revolving Credit Facility or seek additional sources of financing, which may or may not be available. IfOn May 19, 2020, the Company ~~does not repay some or all of the outstanding borrowings under~~entered into Amendment No. 1 (the “Amendment”) to the Revolving Credit Facility, ~~prior~~which sets forth the modifications pertaining to ~~the end of the fourth quarter of fiscal 2020, the Company may be unable to maintain compliance with~~ the leverage ratio financial covenant required by the Revolving Credit Facility. The Company is actively seeking an amendment to the terms of the agreement from its lenders, however no assurances can be given that the amendment will be granted or on terms that are acceptable to the Company. Non-compliance with its covenants would constitute an event of default under the terms of the Revolving Credit Facility, which may result in an acceleration of payment to the lenders. In the event of an acceleration of payment to the lenders, this would result in a cross default of the Company’s notes payable (referrequired. Refer to Note 12, "Debt" and Note 18, "Subsequent Events", for ~~further~~additional information regarding the Company's outstanding notes ~~payable), causing the Company’s outstanding borrowings to also become due~~payable and payable on demand. If the Company is not able to obtain such amendment, it expects, and has the ability to repay some or all of the $700 million borrowed against the Revolving Credit Facility, in order to prevent an event of default under the Revolving Credit Facility.applicable amendments.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and footnotes thereto. Actual results could differ from estimates in amounts that may be material to the financial statements.

Significant estimates inherent in the preparation of the condensed consolidated financial statements include useful lives and impairments of long-lived tangible and intangible assets; reserves for the realizability of inventory; customer returns, end-of-season markdowns and operational chargebacks; accounting for income taxes (including the impacts of tax legislation) and related uncertain tax positions; accounting for business combinations; the valuation of stock-based compensation awards and related expected forfeiture rates; reserves for restructuring; and reserves for litigation and other contingencies, amongst others.

The Company accounts for share repurchases by allocating the repurchase price to common stock and retained earnings. As a result, all repurchased shares are authorized but unissued shares. Under Maryland law, the Company's state of incorporation, there are no treasury shares. The Company accrues for the shares purchased under the share repurchase plan based on the trade date. Purchases of the Company's common stock are executed through open market purchases, including through a purchase agreement under Rule 10b5-1. The Company may terminate or limit the share repurchase program at any time.

Principles of Consolidation

These unaudited interim condensed consolidated financial statements include the accounts of the Company and all 100% owned and controlled subsidiaries. All intercompany transactions and balances are eliminated in consolidation.

Cash Paid for Interest

Cash paid for interest includes payments related to the Company's debt instruments, as described in Note 12, "Debt", and is disclosed as supplemental information on the Condensed Consolidated Statement of Cash Flows. The amount previously reported as cash paid for interest in the second quarter of fiscal 2020 has been corrected in the current year disclosure.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

~~Reclassifications~~

Certain reclassifications have been made to the prior periods' financial information in order to conform to the current period's presentation. Beginning in fiscal 2020, the Company presented the impact of foreign currency gains and losses within Other expense (income) within its Condensed Consolidated Statements of Operations. Accordingly, foreign currency gains and losses that were reported within Selling, general and administrative expenses ("SG&A") in fiscal 2019 are now reflected within Other expense (income).

3. RECENT ACCOUNTING ~~PROUNOUNCEMENTS~~PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

~~During the first quarter of fiscal 2020, the Company adopted Accounting Standards Update ("ASU") No. 2016-02, "Leases~~ (Topic 842)" ("ASU 2016-02") and related ASUs. This ASU requires recognition of lease assets and lease liabilities on the balance sheet for all leases other than short-term leases. The Company elected the package of practical expedients intended to ease transition whereby the Company need not reassess as of the adoption date (1) whether contracts are or contain leases, (2) the lease classification for any existing leases and (3) initial direct costs for any existing leases. The Company also elected the practical expedient to

~~combine non-lease components and lease components for real estate leases. The Company applied the provisions of ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements" ("ASU 2018-11"), allowing it to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating the comparative prior year periods.~~

~~The effects of the adoption on selected line items within the Company's Condensed Consolidated Balance Sheet as of June 30, 2019 were as follows:~~

June 29, 2019 June 30, 2019
As Reported under ASC 840 ASC 842 Adjustments As Reported under ASC 842
(millions)
Current Assets:
Prepaid expenses⁽¹⁾
$ 99.8
$ (37.8 ) $ 62.0
Other current assets⁽¹⁾
91.0
(2.3 ) 88.7
Long-term Assets:
Operating lease right-of-use assets⁽¹⁾
—
2,133.7
2,133.7
Intangible assets⁽¹⁾
1,711.9
(58.5 ) 1,653.4
Deferred income tax assets⁽³⁾
19.4
1.7
21.1
Other assets⁽¹⁾
134.2
(27.4 ) 106.8
Current Liabilities:
Accrued liabilities⁽¹⁾⁽³⁾
673.6
(39.2 ) 634.4
Operating lease liabilities⁽²⁾
—
362.3
362.3
Current debt 0.8
(0.8 ) —
Long-term Liabilities:
Long-term debt 1,601.9
(5.3 ) 1,596.6
Operating lease liabilities⁽²⁾
—
1,961.6
1,961.6
Deferred income tax liabilities⁽³⁾
234.1
(13.1 ) 221.0
Other liabilities⁽¹⁾⁽³⁾
454.0
(207.2 ) 246.8
Stockholder's Equity:
Retained earnings (accumulated deficit)⁽³⁾
291.6
(48.9 ) 242.7

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

In August 2018, the FASB issued ASU No. 2018-13, "~~Fair~~"Fair Value Measurement (Topic 820)" ("ASU 2018-13"), which is intended to improve the effectiveness of fair value disclosures. The ASU removes or modifies certain disclosure requirements related to fair value information, as well as adds new disclosure requirements for Level 3 fair value measurements. The ~~requirements~~Company adopted ASU 2018-13 as of the ~~new standard will be effective for annual reporting periods~~ beginning ~~after December 15, 2019, and interim periods within those annual periods, which for the Company is the first quarter~~ of ~~fiscal~~Fiscal 2021. ~~Early~~The adoption ~~is permitted. The Company is currently in the process~~ of ~~evaluating the impact that adopting~~ ASU 2018-13 ~~will~~did not have a material impact on ~~its~~the Company's condensed consolidated financial

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

statements and notes ~~thereto, however, does not expect a material impact resulting from this guidance.~~thereto.

In August 2018, the FASB issued ASU No. 2018-15, "~~Intangibles~~"Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)" ("ASU 2018-15"), which is intended to clarify the accounting for implementation costs of cloud computing arrangements which are deemed to be a service contract rather than a software license. The ~~requirements~~Company adopted ASU 2018-15 as of the ~~new standard will be effective for annual reporting periods~~ beginning ~~after December 15, 2019, and interim periods within those annual periods, which for the Company is the first quarter~~ of ~~fiscal 2021. Early~~Fiscal 2021 on a prospective basis. The adoption ~~is permitted. The Company is currently in the process~~ of ~~evaluating the impact that adopting~~ ASU 2018-15 ~~will~~did not have a material impact on ~~its~~the Company's condensed consolidated financial statements and notes thereto.

In June 2016, the FASB issued ASU No. 2016-13, “~~Measurement~~“Measurement of Credit Losses on Financial ~~Instruments~~”Instruments” (“ASU 2016-13”), and subsequent clarifying updates, which requires companies to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The ~~FASB has subsequently issued updates~~standard requires upfront recognition of an allowance for credit losses expected to ~~the standard to provide additional clarification~~be incurred over an asset's contractual life based on ~~specific topics.~~relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectability. The ~~requirement~~Company adopted ASU 2016-13 as of the ~~new standard will be effective for annual reporting periods~~ beginning ~~after December 15, 2019, and interim periods within those annual periods, which for~~of Fiscal 2021 using the ~~Company is the first quarter~~modified retrospective basis. The adoption of ~~fiscal 2021. Early adoption is permitted. The Company is currently in the process of evaluating the impact that adopting~~ ASU 2016-13 ~~will~~did not have a material impact on ~~its~~the Company’s condensed consolidated financial statements and notes thereto.

Recently Issued Accounting Pronouncements

The Company has considered all new accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on our results of operations, financial condition or cash flows based on current information.

The Company recognizes revenue primarily from sales of the products of its brands through retail and wholesale channels, including the Internet. The Company also generates revenue from royalties related to licensing its trademarks, as well as sales in ancillary channels. In all cases, revenue is recognized upon the transfer of control of the promised products or services to the customer, which may be at a point in time or over time. Control is transferred when the customer obtains the ability to direct the use of and obtain substantially all of the remaining benefits from the products or services. The amount of revenue recognized is the amount of consideration to which the Company expects to be entitled, including estimation of sale terms that may create variability in the consideration. Revenue subject to variability is constrained to an amount which will not result in a significant reversal in future periods when the contingency that creates variability is resolved.

The Company recognizes revenue in its retail stores, including concession shop-in-shops, at the point-of-sale when the customer obtains physical possession of the products. Internet revenue from sales of products ordered through the Company's e-commerce sites is recognized upon delivery and receipt of the shipment by its customers and includes shipping and handling charges paid by customers. Retail and Internet revenues are recorded net of estimated returns, which are estimated by developing an expected value based on historical experience. Payment is due at the point of sale.

Gift cards issued by the Company are recorded as a liability until redeemed by the customer, at which point revenue is recognized. The Company also uses historical information to estimate the amount of gift card balances that will never be redeemed

and recognizes that amount as revenue over time in proportion to actual customer redemptions if the Company does not have a legal obligation to remit unredeemed gift cards to any jurisdiction as unclaimed property.

The Company recognizes revenue within the wholesale channel at the time title passes and risk of loss is transferred to customers, which is generally at the point of shipment of products but may occur upon receipt of the shipment by the customer in certain cases. Payment is generally due 30 to 90 days after shipment. Wholesale revenue is recorded net of estimates for returns, discounts, end-of-season markdowns, cooperative advertising allowances and other consideration provided to the customer. Discounts are based on contract terms with the customer, while cooperative advertising allowances and other consideration may be based on contract terms or negotiated on a case-by-case basis. Returns and markdowns generally require approval from the Company and are estimated based on historical trends, current season results and inventory positions at the wholesale locations, current market and economic conditions as well as, in select cases, contractual terms. The Company's historical estimates of these variable amounts have not differed materially from actual results.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

The Company recognizes licensing revenue over time during the contract period in which licensees are granted access to the Company's trademarks. These arrangements require licensees to pay a sales-based royalty and may include a contractually guaranteed minimum royalty amount. Revenue for contractually guaranteed minimum royalty amounts is recognized ratably over the license year and any excess sales-based royalties are recognized as earned once the minimum royalty threshold is achieved. Payments from the customer are generally due quarterly in an amount based on the licensee's sales of goods bearing the licensed trademarks during the period, which may differ from the amount of revenue recorded during the period thereby generating a contract asset or liability. Contract assets and liabilities and contract costs related to the licensing arrangements are immaterial as the licensing business represents approximately 1% of total net sales in the ~~nine~~six months ended ~~March 28,~~December 26, 2020.

The Company has elected ~~a practical expedient~~ not to disclose the remaining performance obligations that are unsatisfied as of the end of the period related to contracts with an original duration of one year or less or variable consideration related to sales-based royalty arrangements. There are no other contracts with transaction price allocated to remaining performance obligations other than future minimum royalties as discussed above, which are not material.

Other ~~practical expedients elected~~elections made by the Company include (i) assuming no significant financing component exists for any contract with a duration of one year or less, (ii) accounting for shipping and handling as a fulfillment activity within SG&A expense regardless of the timing of the shipment in relation to the transfer of control and (iii) excluding sales and value added tax from the transaction price.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

Disaggregated Net Sales

The following table disaggregates the Company's net sales into geographies that depict how economic factors may impact the revenues and cash flows for the periods presented. Each geography presented includes net sales related to the Company's directly operated channels, global travel retail business and to wholesale customers, including distributors, in locations within the specified geographic area.

North America
Greater China⁽¹⁾

Other Asia⁽²⁾

Other⁽³⁾
Total
(millions)
Three Months Ended March 28, 2020
Coach $ 427.6
$ 103.7
$ 193.8
$ 47.4
$ 772.5
Kate Spade 181.4
8.9
41.1
18.1
249.5
Stuart Weitzman 28.7
10.6
4.5
6.9
50.7
Total $ 637.7
$ 123.2
$ 239.4
$ 72.4
$ 1,072.7

Three Months Ended March 30, 2019
Coach $ 484.0
$ 213.7
$ 212.8
$ 54.5
$ 965.0
Kate Spade 205.1
13.6
43.8
18.6
281.1
Stuart Weitzman 45.8
18.0
6.3
15.2
85.3
Total $ 734.9
$ 245.3
$ 262.9
$ 88.3
$ 1,331.4

Nine Months Ended March 28, 2020
Coach $ 1,751.3
$ 451.0
$ 622.0
$ 184.0
$ 3,008.3
Kate Spade 761.8
34.8
125.2
63.6
985.4
Stuart Weitzman 137.7
62.7
16.4
36.1
252.9
Total $ 2,650.8
$ 548.5
$ 763.6
$ 283.7
$ 4,246.6

Nine Months Ended March 30, 2019
Coach $ 1,788.1
$ 577.2
$ 627.9
$ 181.1
$ 3,174.3
Kate Spade 812.3
37.4
118.9
66.3
1,034.9
Stuart Weitzman 170.4
57.1
18.5
58.2
304.2
Total $ 2,770.8
$ 671.7
$ 765.3
$ 305.6
$ 4,513.4


	North America		Greater China(1)		Other Asia(2)		Other(3)		Total
	(millions)
Three Months Ended December 26, 2020
Coach	$	742.6	$	242.6	$	188.0	$	52.1	$	1,225.3
Kate Spade	303.7		13.4		35.6		22.9		375.6
Stuart Weitzman	41.9		35.6		0.3		6.7		84.5
Total	$	1,088.2	$	291.6	$	223.9	$	81.7	$	1,685.4

Three Months Ended December 28, 2019
Coach	$	780.0	$	188.1	$	229.4	$	72.4	$	1,269.9
Kate Spade	348.5		13.6		41.9		26.4		430.4
Stuart Weitzman	62.3		32.7		6.5		14.2		115.7
Total	$	1,190.8	$	234.4	$	277.8	$	113.0	$	1,816.0

Six Months Ended December 26, 2020
Coach	$	1,209.3	$	438.8	$	350.3	$	102.3	$	2,100.7
Kate Spade	476.0		27.2		70.0		42.8		616.0
Stuart Weitzman	68.2		53.3		2.8		16.6		140.9
Total	$	1,753.5	$	519.3	$	423.1	$	161.7	$	2,857.6

Six Months Ended December 28, 2019
Coach	$	1,323.7	$	347.3	$	428.2	$	136.6	$	2,235.8
Kate Spade	580.4		25.9		84.1		45.5		735.9
Stuart Weitzman	109.0		52.1		11.9		29.2		202.2
Total	$	2,013.1	$	425.3	$	524.2	$	211.3	$	3,173.9

⁽¹⁾

(1) Greater China includes mainland China, Hong Kong SAR, Macao SAR and Taiwan.

(2) Other Asia includes Japan, Australia, New Zealand, South Korea, Thailand and other countries within Asia.

(3) Other sales primarily represents sales in Europe, the Middle East and royalties related to licensing.

Deferred revenue results from cash payments received or receivable from customers prior to the transfer of the promised goods or services, and is ~~primarily related to~~generally comprised of unredeemed gift cards, net of breakage which has been recognized. Additional deferred revenue may result from sales-based royalty payments received or receivable which exceed the revenue recognized during the contractual period. The balance of such amounts as of ~~March 28,~~December 26, 2020 and June ~~29, 2019~~27, 2020 was ~~$31.6~~$32.0 million and ~~$27.5~~$28.1 million, respectively, which were primarily recorded within Accrued liabilities on the Company's Condensed Consolidated Balance Sheets and are generally expected to be recognized as revenue within a year. For the ~~nine~~six months ended ~~March 28,~~December 26, 2020, net sales of ~~$11.3~~$7.6 million were recognized from amounts recorded as deferred revenue as of June 27, 2020. For the six months ended December 28, 2019, net sales of $8.3 million were recognized from amounts recorded as deferred revenue as of June 29, 2019. ~~For the nine months ended March 30, 2019, net sales of $16.6 million were recognized from amounts recorded as deferred revenue as of June 30, 2018.~~

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

The Company did not incur integration costs during the three and six months ended December 26, 2020.

During the three and ~~nine~~six months ended ~~March~~December 28, ~~2020,~~2019, the Company incurred integration costs of ~~$3.4~~$3.9 million and ~~$11.6 million.~~$8.2 million, respectively. The charges recorded in Cost of sales for the ~~nine~~three and six months ended ~~March~~December 28, ~~2020~~2019 were $1.5 million and $5.6 ~~million. There were 0 charges recorded for the three months ended March 28, 2020.~~million, respectively. Of the amount recorded to Cost of sales, ~~for the nine months ended March 28, 2020,~~$1.5 million and $4.3 million was recorded in the Stuart Weitzman segment, $0.0 million and $1.2 million was recorded in the Kate Spade segment and $0.0 million and $0.1 million was recorded in the Coach segment, respectively. The charges recorded to SG&A expenses for the three and ~~nine~~six months ended ~~March~~December 28, ~~2020~~2019 were ~~$3.4~~$2.4 million and ~~$6.0~~$2.6 million, respectively. Of the amount recorded to SG&A expenses, ~~$2.9~~$1.8 million and ~~$6.9~~$4.0 million was recorded within Corporate, ~~$0.2~~$0.3 million and a reduction of expense of ~~$1.9~~$2.1 million was recorded in the Stuart Weitzman segment, ~~$0.3~~$0.7 million and ~~$1.1~~$0.8 million was recorded in the Kate Spade segment and ~~$0.0 million and~~ a reduction of expense of $0.4 million and $0.1 million was recorded in the Coach segment, respectively. Of the total costs of ~~$3.4~~$3.9 million,~~, a reduction of expense of $0.1~~ $1.1 million were non-cash ~~charges. Of the total costs of$11.6 million~~,~~$3.8 millionwere non-cash~~ charges related to ~~inventory~~inventory-related charges,, organization-related costs and purchase accounting adjustments.

~~The Company estimates that it will incur approximately $5 million in pre-tax charges, of which the majority are expected to be cash charges, for the remainder of fiscal 2020.~~

During the three and nine months ended March 30, 2019, the Company incurred integration costs of $20.6 million and $55.3 million, respectively. The charges recorded in Cost of sales for the three and nine months ended March 30, 2019 were $5.0 million and $9.1 million, respectively. Of the amount recorded to Cost of sales, $4.3 million and $5.4 million was recorded in the Kate Spade segment, $0.0 million and $2.0 million was recorded in the Coach segment and $0.7 million and $1.7 million was recorded in the Stuart Weitzman segment, respectively. The charges recorded in SG&A expenses for the three and nine months ended March 30, 2019 were $15.6 million and $46.2 million, respectively. Of the amount recorded to SG&A expenses, $7.0 million and $18.4 million was recorded within Corporate, $0.1 million and $12.2 million was recorded in the Stuart Weitzman segment and $3.0 million and $10.1 million was recorded in the Kate Spade segment, respectively. The charges recorded to SG&A expenses in the Coach segment were $5.5 million for the three and nine months ended March 30, 2019. Of the total costs of ~~$20.6~~$8.2 million, ~~$6.7~~$3.9 million were non-cash charges related to inventory-related charges, organization-related costs and purchase accounting ~~adjustments and asset write-offs. Of the total costs of $55.3 million, $13.0 million were non-cash charges related to purchase accounting adjustments and organization-related costs.~~

~~Refer to Note 6, "Acquisitions," for more information.~~adjustments.

A summary of the integration charges for the three and six months ended December 28, 2019 is as follows:


	Three Months Ended		Six Months Ended
	December 28, 2019		December 28, 2019
	(millions)
Purchase accounting adjustments(1)	$	0.2	$	0.8

Inventory-related charges(2)	1.3		4.9


Other(3)	2.4		2.5
Total	$	3.9	$	8.2

(1) Purchase accounting adjustments primarily relate to the short-term impact of the amortization of fair value adjustments.

(2) Inventory-related charges primarily relate to inventory reserves.

(3) Other primarily relates to share-based compensation, severance charges, professional fees and asset write-offs.

6. RESTRUCTURING ACTIVITIES

Acceleration Program

TheCompany has implemented a strategic growth plan after undergoing a review of its business under its multi-year growth agenda. This multi-faceted, multi-year strategic growth plan (the "Acceleration Program") reflects: (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. Under the Acceleration Program, the Company expects to incur total pre-tax charges of approximately $185 - $200 million. The Acceleration Program is expected to be substantially complete by the end of fiscal 2022.

Under the Acceleration Program, the Company incurred charges of $21.7 million and $48.3 million during the three and six months ended December 26, 2020, respectively, all of which was recorded within SG&A expenses. Of the $21.7 million and $48.3 million recorded within SG&A expenses, $15.8 million and $33.1 million was recorded within Corporate, $5.8 million and $16.5 million was recorded within the Coach segment, $2.4 million and $3.4 million was recorded within the Kate Spade segment and a reduction of expense of $2.3 million and $4.7 million was recorded within the Stuart Weitzman segment, respectively. A summary of charges and related liabilities under the Acceleration Program is as follows:

Three Months Ended Nine Months Ended
March 28,
2020 March 30,
2019 March 28,
2020 March 30,
2019
(millions)
Purchase accounting adjustments⁽¹⁾
$ —
$ 3.9
$ 0.8
$ 9.3
Acquisition costs⁽²⁾
—
0.3
—
1.0
Inventory-related charges⁽³⁾
—
1.0
4.9
(0.4 )
Contractual payments⁽⁴⁾
—
(0.6 ) —
6.6
Other⁽⁵⁾
3.4
16.0
5.9
38.8
Total $ 3.4
$ 20.6
$ 11.6
$ 55.3


⁽¹⁾	~~Purchase accounting adjustments primarily relate to the short-term impact of the amortization of fair value adjustments.~~


⁽²⁾	~~Acquisition costs were primarily related to deal fees associated with acquisitions.~~


⁽³⁾	~~Inventory-related charges primarily relate to inventory reserves.~~


⁽⁴⁾	~~Contractual payments primarily relate to contract termination charges for the three and nine months ended March 30, 2019.~~


⁽⁵⁾	~~Other primarily relates to share-based compensation, severance charges, professional fees and asset write-offs.~~

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)


	Organization-Related(1)		Store Closure(2)		Other(3)		Total
	(millions)
Fiscal 2020 charges	$	44.7	$	32.3	$	10.0	$	87.0
Cash payments	(15.8)		(11.0)		(7.1)		(33.9)
Non-cash charges	(4.0)		(20.8)		0		(24.8)
Liability balance as of June 27, 2020	$	24.9	$	0.5	$	2.9	$	28.3
Fiscal 2021 charges	$	15.5	$	2.0	$	30.8	$	48.3
Cash payments	(34.8)		(6.2)		(18.3)		(59.3)
Non-cash charges	0		4.1		(3.2)		0.9
Liability balance as of December 26, 2020	$	5.6	$	0.4	$	12.2	$	18.2

(1) Organization-related charges, recorded within SG&A expenses, primarily relates to severance and other related costs.

~~6. ACQUISITIONS~~(2) Store closure charges represent lease termination penalties, removal or modification of lease assets and liabilities, establishing inventory reserves, accelerated depreciation and severance.

~~Fiscal 2019 Acquisitions~~

~~Distributor Acquisitions~~

~~During~~(3) Other charges, recorded within SG&A, primarily relates to professional fees incurred related to the fiscal year ended June 29, 2019, the Company acquired designated assets of its Stuart Weitzman distributor in Southern China and Australia and of its Kate Spade distributor in Australia, Malaysia and Singapore.Acceleration Program.

The ~~aggregate purchase consideration for~~Company expects to incur approximately $50 - $65 million in additional charges under the ~~acquisitions was $47.8 million, $44.0 million~~Acceleration Program, of which ~~was~~the majority is estimated to be cash ~~consideration~~ and ~~the remaining is related~~primarily to ~~non-cash consideration. Of the $44.0 million of cash consideration, $43.5 million was paid during fiscal 2019 and the remaining will~~ be paid in the future. Of the total purchase consideration of $47.8 million, $21.8 million of net assets were recorded at their fair values. The excess of the purchase consideration over the fair value of the net assets acquired was recorded as non-tax deductible goodwill in the amount of $26.0 million, of which $13.3 million was assigned to the Stuart Weitzman segment and $12.7 million was assigned to the Kate Spade segment. Refer to Note 7, "Goodwill and Other Intangible Assets" for further information.

~~The purchase price allocation for these assets acquired and liabilities assumed is completed, however may be subject to change as additional information is obtained~~incurred during the ~~acquisition measurement period for the respective acquisitions. The pro forma results are not presented for these acquisitions as they are immaterial.~~remainder of fiscal 2021.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

7. GOODWILL AND OTHER INTANGIBLE ASSETS

~~Interim Impairment Assessment~~

The Company performs its annual impairment assessment of goodwill as well as brand intangibles at the beginning of the fourth quarter of each fiscal year or if an event occurs that would more likely than not reduce the fair value below its carrying amount.

During the three months ended March 28, 2020, profitability trends continued to decline from those that were expected for the Stuart Weitzman brand. This reduction in both current and future expected cash flows was exacerbated by the Covid-19 pandemic, which resulted in a decline in sales driven by full and partial closures of a significant portion of our stores globally. As a result of these macroeconomic conditions, the Company concluded that a triggering event had occurred during the third quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Stuart Weitzman reporting unit and indefinite-lived brand intangible assets. The assessment concluded that the fair values of the Stuart Weitzman reporting unit and indefinite-lived brand intangible asset as of March 28, 2020 did not exceed their respective carrying values.

Accordingly, the Company recorded a goodwill impairment charge of $210.7 million related to the Stuart Weitzman reporting unit, resulting in a full impairment. The Company also recorded an impairment charge of $267.0 million related to the Stuart Weitzman indefinite-lived brand, resulting in a full impairment. The goodwill and brand intangible impairment charges were ~~recorded within total SG&A expenses on the Company's Condensed Consolidated Statement of Operations for the three and~~ ~~nine months~~ ~~ended March 28, 2020.~~

The estimated fair value of the Stuart Weitzman reporting unit was based on a weighted average of the income and market approaches. The income approach is based on estimated discounted future cash flows, while the market approach is based on earnings multiples of selected guideline companies. The approach, which qualifies as level 3 in the fair value hierarchy, incorporated a number of significant assumptions and judgments, including, but not limited to, estimated future cash flows, discount rates, income tax rates, terminal growth rates and valuation multiples derived from comparable publicly traded companies. In considering the excess of the fair value over its carrying value for the Coach and Kate Spade reporting units and indefinite-lived brand intangibles, management did not perform an interim assessment for these reporting units.

Goodwill

The change in the carrying amount of the Company’s goodwill by segment is as follows:


	Coach		Kate Spade		Stuart Weitzman(1)		Total
	(millions)
Balance at June 27, 2020	$	661.7	$	639.4	$	0	$	1,301.1

Foreign exchange impact	12.5		3.5		0		16.0


Balance at December 26, 2020	$	674.2	$	642.9	$	0	$	1,317.1

Coach Kate Spade Stuart Weitzman Total
(millions)
Balance at June 29, 2019 $ 661.8
$ 640.4
$ 214.0
$ 1,516.2
Impairment charges —
—
(210.7 ) (210.7 )
Foreign exchange impact (1.9 ) (1.8 ) (3.3 ) (7.0 )
Balance at March 28, 2020 $ 659.9
$ 638.6
$ —
$ 1,298.5

(1)Amount is net of accumulated goodwill impairment charges of $210.7 million as of December 26, 2020 and June 27, 2020.

Intangible Assets

Intangible assets consist of the following:


	March 28, 2020							June 29, 2019								December 26, 2020									June 27, 2020
	Gross Carrying Amount		Accum. Amort.			Net		Gross Carrying Amount		Accum. Amort.			Net			Gross Carrying Amount			Accum. Amort.			Net			Gross Carrying Amount			Accum. Amort.			Net
	(millions)															(millions)
Intangible assets subject to amortization:															Intangible assets subject to amortization:
Customer relationships	$	100.5	$	(29.2	)	$	71.3	$	100.6	$	(24.0	)	$	76.6	Customer relationships	$	100.5		$	(34.0)		$	66.5		$	100.6		$	(31.0)		$	69.6
Favorable lease rights⁽¹⁾	—		—			—		93.1		(34.6		)	58.5
Total intangible assets subject to amortization	100.5		(29.2		)	71.3		193.7		(58.6		)	135.1

Intangible assets not subject to amortization:															Intangible assets not subject to amortization:
Trademarks and trade names⁽²⁾	1,309.8		—			1,309.8		1,576.8		—			1,576.8		1,309.8			—			1,309.8			1,309.8			—			1,309.8
Total intangible assets	$	1,410.3	$	(29.2	)	$	1,381.1	$	1,770.5	$	(58.6	)	$	1,711.9	Total intangible assets	$	1,410.3		$	(34.0)		$	1,376.3		$	1,410.4		$	(31.0)		$	1,379.4

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

As of ~~March 28,~~December 26, 2020, the expected amortization expense for intangible assets is as follows:

Amortization Expense
(millions)
Remainder of fiscal 2020 $ 1.1
Fiscal 2021 6.5
Fiscal 2022 6.5
Fiscal 2023 6.5
Fiscal 2024 6.5
Fiscal 2025 6.5
Fiscal 2026 and thereafter 37.7
Total $ 71.3


	Amortization Expense
	(millions)
Remainder of fiscal 2021	$	3.2
Fiscal 2022	6.5
Fiscal 2023	6.5
Fiscal 2024	6.5
Fiscal 2025	6.5
Fiscal 2026	6.5
Fiscal 2027 and thereafter	30.8
Total	$	66.5

The expected amortization expense above reflects remaining useful lives ranging from approximately ~~10.1~~9.3 to ~~12.3~~11.5 years for customer relationships.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

8. STOCKHOLDERS' EQUITY

A reconciliation of stockholders' equity is presented below:


	Shares of Common Stock	Common Stock		Additional Paid-in- Capital		Retained Earnings / (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	(millions, except per share data)
Balance at June 29, 2019	286.8	$	2.9	$	3,302.1	$	291.6	$	(83.2)	$	3,513.4
Net income (loss)	—	—		—		20.0		—		20.0
Other comprehensive income (loss)	—	—		—		—		(12.8)		(12.8)
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	1.0	—		(14.5)		—		—		(14.5)
Share-based compensation	—	—		26.8		—		—		26.8
Repurchase of common stock	(11.9)	(0.1)		—		(299.9)		—		(300.0)

Dividends declared ($0.3375 per share)	—	—		—		(97.1)		—		(97.1)
Cumulative adjustment from adoption of new accounting standard	—	—		—		(48.9)		—		(48.9)
Balance at September 28, 2019	275.9	$	2.8	$	3,314.4	$	(134.3)	$	(96.0)	$	3,086.9
Net income (loss)	—	—		—		298.8		—		298.8
Other comprehensive income (loss)	—	—		—		—		11.0		11.0
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	0.1	—		2.1		—		—		2.1
Share-based compensation	—	—		16.8		—		—		16.8

Dividends declared ($0.3375 per share)	—	—		—		(93.2)		—		(93.2)
Balance at December 28, 2019	276.0	$	2.8	$	3,333.3	$	71.3	$	(85.0)	$	3,322.4









	Shares of Common Stock	Common Stock		Additional Paid-in- Capital		Retained Earnings / (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	(millions, except per share data)
Balance at June 27, 2020	276.2	$	2.8	$	3,358.5	$	(992.7)	$	(92.2)	$	2,276.4
Net income (loss)	—	—		—		231.7		—		231.7
Other comprehensive income (loss)	—	—		—		—		15.7		15.7
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	1.2	—		(8.3)		—		—		(8.3)
Share-based compensation	—	—		14.6		—		—		14.6




Balance at September 26, 2020	277.4	$	2.8	$	3,364.8	$	(761.0)	$	(76.5)	$	2,530.1
Net income (loss)	—	—		—		311.0		—		311.0
Other comprehensive income (loss)	—	—		—		—		26.1		26.1
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	0.4	—		6.1		—		—		6.1
Share-based compensation	—	—		17.4		—		—		17.4




Balance at December 26, 2020	277.8	$	2.8	$	3,388.3	$	(450.0)	$	(50.4)	$	2,890.7

Shares of
Common
Stock
Common Stock
Additional
Paid-in-
Capital
Retained Earnings / (Accumulated Deficit)
Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders'
Equity
(millions, except per share data)
Balance at June 30, 2018 288.0
$ 2.9
$ 3,205.5
$ 119.0
$ (82.8 ) $ 3,244.6
Net income (loss) —
—
—
122.3
—
122.3
Other comprehensive income (loss) —
—
—
—
(5.3 ) (5.3 )
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes 1.8
—
3.2
—
—
3.2
Share-based compensation —
—
22.4
—
—
22.4
Dividends declared ($0.3375 per share) —
—
—
(97.8)
—
(97.8)
Cumulative adjustment from adoption of new accounting standard
(see Note 3)
—
—
—
20.2
—
20.2
Balance at September 29, 2018 289.8
$ 2.9
$ 3,231.1
$ 163.7
$ (88.1 ) $ 3,309.6
Net income (loss) —
—
—
254.8
—
254.8
Other comprehensive income (loss) —
—
—
—
(3.4 ) (3.4 )
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes 0.2
—
3.7
—
—
3.7
Share-based compensation —
—
21.5
—
—
21.5
Dividends declared ($0.3375 per share) —
—
—
(97.8 ) —
(97.8 )
Balance at December 29, 2018 290.0
$ 2.9
$ 3,256.3
$ 320.7
$ (91.5 ) $ 3,488.4
Net income (loss) —
—
—
117.4
—
117.4
Other comprehensive income —
—
—
—
1.0
1.0
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes 0.1
—
(1.2 ) —
—
(1.2 )
Share-based compensation —
—
23.5
—
—
23.5
Dividends declared ($0.3375 per share) —
—
—
(97.9 ) —
(97.9 )

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

Balance at March 30, 2019 290.1
$ 2.9
$ 3,278.6
$ 340.2
$ (90.5 ) $ 3,531.2

Shares of
Common
Stock
Common Stock
Additional
Paid-in-
Capital
Retained Earnings / (Accumulated Deficit)
Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders'
Equity
(millions, except per share data)
Balance at June 29, 2019 286.8
$ 2.9
$ 3,302.1
$ 291.6
$ (83.2 ) $ 3,513.4
Net income (loss) —
—
—
20.0
—
20.0
Other comprehensive income (loss) —
—
—
—
(12.8 ) (12.8 )
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes 1.0
—
(14.5 ) —
—
(14.5 )
Share-based compensation —
—
26.8
—
—
26.8
Repurchase of common stock (11.9 ) (0.1 ) —
(299.9 ) —
(300.0 )
Dividends declared ($0.3375 per share) —
—
—
(97.1 ) —
(97.1 )
Cumulative adjustment from adoption of new accounting standard —
—
—
(48.9 ) —
(48.9 )
Balance at September 28, 2019 275.9
$ 2.8
$ 3,314.4
$ (134.3 ) $ (96.0 ) $ 3,086.9
Net income (loss) —
—
—
298.8
—
298.8
Other comprehensive income (loss) —
—
—
—
11.0
11.0
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes 0.1
—
2.1
—
—
2.1
Share-based compensation —
—
16.8
—
—
16.8
Dividends declared ($0.3375 per share) —
—
—
(93.2 ) —
(93.2 )
Balance at December 28, 2019 276.0
$ 2.8
$ 3,333.3
$ 71.3
$ (85.0 ) $ 3,322.4
Net income (loss) —
—
—
(677.1 ) —
(677.1 )
Other comprehensive income (loss) —
—
—
—
(11.7 ) (11.7 )
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes 0.1
—
(0.5 ) —
—
(0.5 )
Share-based compensation —
—
13.2
—
—
13.2
Dividends declared ($0.3375 per share) —
—
—
(93.2 ) —
(93.2 )
Balance at March 28, 2020 276.1
$ 2.8
$ 3,346.0
$ (699.0 ) $ (96.7 ) $ 2,553.1

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

The components of accumulated other comprehensive income (loss) ("AOCI"), as of the dates indicated, are as follows:

Unrealized Gains (Losses) on Cash
Flow
Hedging Derivatives⁽¹⁾

Unrealized Gains
(Losses) on Available-
for-Sale Investments

Cumulative
Translation
Adjustment

Other⁽²⁾
Total
(millions)
Balances at June 30, 2018 $ 1.4
$ —
$ (85.3 ) $ 1.1
$ (82.8 )
Other comprehensive income (loss) before reclassifications (0.4 ) 0.2
(5.2 ) —
(5.4 )
Less: amounts reclassified from accumulated other comprehensive income to earnings 2.3
—
—
—
2.3
Net current-period other comprehensive income (loss) (2.7 ) 0.2
(5.2 ) —
(7.7 )
Balances at March 30, 2019 $ (1.3 ) $ 0.2
$ (90.5 ) $ 1.1
$ (90.5 )

Balances at June 29, 2019 $ (4.5 ) $ (0.5 ) $ (79.9 ) $ 1.7
$ (83.2 )
Other comprehensive income (loss) before reclassifications (1.7 ) —
(18.3 ) —
(20.0 )
Less: amounts reclassified from accumulated other comprehensive income to earnings (8.2 ) —
—
1.7
(6.5 )
Net current-period other comprehensive income (loss) 6.5
—
(18.3 ) (1.7 ) (13.5 )
Balances at March 28, 2020 $ 2.0
$ (0.5 ) $ (98.2 ) $ —
$ (96.7 )


	Unrealized Gains (Losses) on Cash Flow Hedging Derivatives(1)		Unrealized Gains (Losses) on Available- for-Sale Investments		Cumulative Translation Adjustment		Other(2)		Total
	(millions)
Balances at June 29, 2019	$	(4.5)	$	(0.5)	$	(79.9)	$	1.7	$	(83.2)
Other comprehensive income (loss) before reclassifications	3.7		0		(5.4)		0		(1.7)
Less: amounts reclassified from accumulated other comprehensive income to earnings	(1.6)		0		0		1.7		0.1
Net current-period other comprehensive income (loss)	5.3		0		(5.4)		(1.7)		(1.8)
Balances at December 28, 2019	$	0.8	$	(0.5)	$	(85.3)	$	0	$	(85.0)

Balances at June 27, 2020	$	1.1	$	—	$	(93.3)	$	0	$	(92.2)
Other comprehensive income (loss) before reclassifications	(6.1)		0		47.1		0		41.0
Less: amounts reclassified from accumulated other comprehensive income to earnings	(0.8)		0		0		0		(0.8)
Net current-period other comprehensive income (loss)	(5.3)		0		47.1		0		41.8
Balances at December 26, 2020	$	(4.2)	$	0	$	(46.2)	$	0	$	(50.4)

(1)The ending balances of AOCI related to cash flow hedges are net of tax of less than $0.1 million and $0.4 million as of December 26, 2020 and December 28, 2019, respectively. The amounts reclassified from AOCI are net of tax of less than $0.1 million and$0.5 million as of December 26, 2020 and December 28, 2019, respectively.

(2)Other represents the accumulated loss on the Company's minimum pension liability adjustment. There was 0 remaining balance at December 26, 2020 and December 28, 2019.

The Company leases retail space, office space, warehouse facilities, distribution centers, storage space, machinery, equipment and certain other items under operating leases. The Company's leases have initial terms ranging from 1 to 20 years and may have renewal or early termination options ranging from 1 to 10 years. These leases may also include rent escalation clauses or lease incentives in the form of construction allowances and rent reduction. In determining the lease term used in the lease ROU asset and lease liability calculations, the Company considers various factors such as market conditions and the terms of any renewal or termination options that may exist. When deemed reasonably certain, the renewal and termination options are included in the determination of the lease term and calculation of the lease ROU asset and lease liability. The Company is typically required to make fixed minimum rent payments, variable rent payments primarily based on performance (i.e., percentage-of-sales-based payments), or a combination thereof, directly related to its ROU asset. The Company is also often required, by the lease, to pay for certain other costs including real estate taxes, insurance, common area maintenance fees, and/or certain other costs, which may be fixed or variable, depending upon the terms of the respective lease agreement. To the extent these payments are fixed, the Company has included them in calculating the lease ROU assets and lease liabilities.

The Company calculates lease ROU assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. ~~ASU 2016-02 requires the use of the implicit rate to determine the present value of lease payments.~~ As the rate implicit in the Company's leases is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of lease payments. The incremental borrowing rate is based on the information available at the lease commencement date, including the lease term, currency, country, Company specific risk premium and adjustments for collateral.

For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less ("short-term lease"), any fixed lease payments are recognized on a straight-line basis over such term,

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

and are not recognized on the Condensed Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred.

The Company acts as sublessor in certain leasing arrangements, primarily related to a sublease of a portion the Company's leased headquarters space as well as certain retail locations. Fixed sublease payments received are recognized on a straight-line basis over the sublease term.

ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment.

The following table summarizes the ROU assets and lease liabilities recorded on the Company's Condensed Consolidated Balance ~~Sheet~~Sheets as of ~~March 28,~~December 26, 2020 and June 27, 2020:

March 28, 2020 Location Recorded on Balance Sheet
(millions)
Assets:
Operating leases $ 1,970.9
Operating lease right-of-use assets
Finance leases 3.4
Property and equipment, net
Total lease assets $ 1,974.3

Liabilities:
Operating leases:
Current lease liabilities $ 353.4
Current lease liabilities
Long-term lease liabilities 1,897.3
Long-term lease liabilities
Total operating lease liabilities $ 2,250.7

Finance leases:
Current lease liabilities $ 0.8
Accrued liabilities
Long-term lease liabilities 4.7
Other liabilities
Total finance lease liabilities $ 5.5

Total lease liabilities $ 2,256.2

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~


	December 26, 2020		June 27, 2020		Location Recorded on Balance Sheet
	(millions)
Assets:
Operating leases	$	1,674.9	$	1,757.0	Operating lease right-of-use assets
Finance leases	2.9		3.3		Property and equipment, net
Total lease assets	$	1,677.8	$	1,760.3
Liabilities:
Operating leases:
Current lease liabilities	$	360.4	$	388.8	Current lease liabilities
Long-term lease liabilities	1,658.9		1,799.8		Long-term lease liabilities
Total operating lease liabilities	$	2,019.3	$	2,188.6
Finance leases:
Current lease liabilities	$	0.9	$	0.9	Accrued liabilities
Long-term lease liabilities	4.0		4.4		Other liabilities
Total finance lease liabilities	$	4.9	$	5.3

Total lease liabilities	$	2,024.2	$	2,193.9

The following table summarizes the composition of net lease costs, primarily recorded within SG&A expenses on the Company's Condensed Consolidated ~~Statement~~Statements of Operations for the three and ~~nine~~six months ~~ended March~~December 26, 2020 and December 28, ~~2020:~~2019:

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

Three Months Ended Nine Months Ended
March 28, 2020
(millions)
Finance lease cost:
Amortization of right-of-use assets $ 0.2
$ 0.6
Interest on lease liabilities⁽¹⁾
0.2
0.5
Total finance lease cost 0.4
1.1
Operating lease cost 107.3
324.6
Short-term lease cost 3.5
7.1
Variable lease cost⁽²⁾
39.6
151.7
Operating lease right-of-use impairment 27.9
63.7
Less: sublease income (4.5 ) (15.2 )
Total net lease cost $ 174.2
$ 533.0

Interest on lease liabilities(1)

Variable lease cost(2)

⁽¹⁾Interest on lease liabilities is recorded within Interest expense, net on the Company's Condensed Consolidated Statement of Operations.

(2) Rent concessions negotiated related to Covid-19 are recorded in variable lease ~~expense and have an immaterial impact as of~~ ~~March 28, 2020~~.expense.

The following table summarizes certain cash flow information related to the Company's leases for the ~~nine~~six months ~~ended~~ ~~March~~December 26, 2020 and December 28, ~~2020:~~2019:

Nine Months Ended
March 28, 2020
(millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 322.8
Operating cash flows from finance leases 0.5
Financing cash flows from finance leases 0.6
Non-cash transactions:
Right-of-use assets obtained in exchange for operating lease liabilities 184.7
Right-of-use assets obtained in exchange for finance lease liabilities —

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~The following table provides a maturity analysis of the Company's lease liabilities recorded on the Condensed Consolidated Balance Sheet as of~~ ~~March 28, 2020:~~

March 28, 2020
Operating Leases Finance Leases Total
(millions)
Remainder of Fiscal 2020 $ 106.4
$ 0.4
$ 106.8
Fiscal 2021 413.7
1.4
415.1
Fiscal 2022 371.9
1.4
373.3
Fiscal 2023 326.6
1.4
328.0
Fiscal 2024 276.5
1.4
277.9
Fiscal 2025 and thereafter 1,199.5
1.3
1,200.8
Total lease payments 2,694.6
7.3
2,701.9
Less: imputed interest (443.9 ) (1.8 ) (445.7 )
Total lease liabilities $ 2,250.7
$ 5.5
$ 2,256.2

~~The future minimum fixed sublease receipts under non-cancelable operating lease agreements as of March 28, 2020 are as follows:~~

March 28, 2020
(millions)
Remainder of Fiscal 2020 $ 5.2
Fiscal 2021 21.0
Fiscal 2022 19.9
Fiscal 2023 15.9
Fiscal 2024 15.5
Fiscal 2025 and thereafter 187.5
Total sublease income $ 265.0

The following table summarizes the weighted-average remaining lease terms and weighted-average discount rates related to the Company's operating leases and finance leases recorded on the Condensed Consolidated Balance Sheet as of March 28, 2020:



	~~March 28, 2020~~
~~Weighted average remaining lease term (years):~~
~~Operating leases~~	~~8.72~~
~~Finance leases~~	~~5.18~~
~~Weighted average discount rate:~~
~~Operating leases~~	~~3.7~~	%
~~Finance leases~~	~~11.3~~	%

Additionally, the Company ~~had approximately $3.3 million of~~did not have future payment obligations related to executed lease agreements for which the related lease has not yet commenced as of ~~March 28,~~December 26, 2020.

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~As reported under the previous accounting standard, the following table provides a summary of future minimum rental payments under non-cancelable operating leases, as of June 29, 2019:~~

June 29, 2019
(millions)
2020 $ 399.0
2021 341.5
2022 308.2
2023 270.4
2024 226.5
Subsequent to 2024 1,065.7
Total minimum future rental payments $ 2,611.3

10. EARNINGS PER SHARE

Basic net income per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted net income per share is calculated similarly but includes potential dilution from the exercise of stock options and restricted stock units and any other potentially dilutive instruments, only in the periods in which such effects are dilutive under the treasury stock method.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

The following is a reconciliation of the weighted-average shares outstanding and calculation of basic and diluted earnings per share:

Three Months Ended Nine Months Ended
March 28,
2020 March 30,
2019 March 28,
2020 March 30,
2019
(millions, except per share data)
Net income (loss) $ (677.1 ) $ 117.4
$ (358.3 ) $ 494.5

Weighted-average basic shares 276.1
290.0
279.4
289.5
Dilutive securities:

Effect of dilutive securities 0.5
0.9
0.8
1.7
Weighted-average diluted shares 276.6
290.9
280.2
291.2

Net income per share:

Basic $ (2.45 ) $ 0.40
$ (1.28 ) $ 1.71
Diluted $ (2.45 ) $ 0.40
$ (1.28 ) $ 1.70


	Three Months Ended				Six Months Ended
	December 26, 2020		December 28, 2019		December 26, 2020		December 28, 2019
	(millions, except per share data)
Net income (loss)	$	311.0	$	298.8	$	542.7	$	318.8

Weighted-average basic shares	277.5		276.0		277.1		280.8
Dilutive securities:


Effect of dilutive securities	3.5		0.7		2.3		1.0
Weighted-average diluted shares	281.0		276.7		279.4		281.8

Net income per share:
Basic	$	1.12	$	1.08	$	1.96	$	1.14
Diluted	$	1.11	$	1.08	$	1.94	$	1.13

Earnings per share amounts have been calculated based on unrounded numbers. Options to purchase shares of the Company's common stock at an exercise price greater than the average market price of the common stock during the reporting period are anti-dilutive and therefore not included in the computation of diluted net income per common share. In addition, the Company has outstanding restricted stock unit awards that are issuable only upon the achievement of certain performance goals. Performance-based restricted stock unit awards are included in the computation of diluted shares only to the extent that the underlying performance conditions ~~(and any applicable market condition modifiers)~~ (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive under the treasury stock method. As of ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019, there were ~~13.0~~11.5 million and ~~11.3~~13.1 million, respectively, of additional shares issuable upon exercise of anti-dilutive options and contingent vesting of performance-based restricted stock unit awards, which were excluded from the diluted share calculations.

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

11. SHARE-BASED COMPENSATION

The following table shows the share-based compensation expense and the related tax benefits recognized in the Company's Condensed Consolidated Statements of Operations for the periods indicated:


	Three Months Ended				Six Months Ended
	December 26, 2020		December 28, 2019		December 26, 2020		December 28, 2019
	(millions)
Share-based compensation expense(1)	$	17.4	$	16.8	$	32.0	$	43.6
Income tax benefit related to share-based compensation expense	3.2		3.5		5.8		8.9

Three Months Ended Nine Months Ended
March 28,
2020 March 30, 2019 March 28,
2020 March 30, 2019
(millions)
Share-based compensation expense⁽¹⁾
$ 13.2
$ 23.5
$ 56.8
$ 67.4
Income tax benefit related to share-based compensation expense 2.9
4.4
11.8
12.6

(1)During the three and six months ended December 26, 2020, the Company incurred $2.5 million and $3.1 million of share-based compensation expense related to its Acceleration Program. During the three and six months ended December 28, 2019, the Company incurred $0.1 million and $9.8 million of share-based compensation expense related to its organization-related and integration activities, respectively.


⁽¹⁾ 17 TAPESTRY, INC. Notes to Condensed Consolidated Financial Statements (continued)	During the nine months ended March 28, 2020, the Company incurred $9.8 million of share-based compensation expense related to its organization-related and integration activities. During the three and nine months ended March 30, 2019, the Company incurred $1.2 million and $2.0 million of share-based compensation expense related to integration activities, respectively.

Stock Options

A summary of stock option activity during the ~~nine~~six months ended ~~March 28,~~December 26, 2020 is as follows:


			Number of Options Outstanding
			(millions)
Outstanding at June 27, 2020			15.0
Granted			1.5
Exercised			(0.2)
Forfeited or expired			(1.2)
Outstanding at December 26, 2020			15.1

			~~Number of~~ ~~Options~~ ~~Outstanding~~
			~~(millions)~~
~~Outstanding at June 29, 2019~~	~~12.4~~
~~Granted~~	~~5.4~~
~~Exercised~~	—
~~Forfeited or expired~~	~~(0.8~~	)
~~Outstanding at March 28, 2020~~	~~17.0~~

The weighted-average grant-date fair value of options granted during the ~~nine~~six months ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019 was ~~$3.83~~$7.03 and ~~$9.77,~~$3.83, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and the following weighted-average assumptions:

March 28,
2020 March 30,
2019
Expected term (years) 5.1
5.0
Expected volatility 37.6 % 30.3 %
Risk-free interest rate 1.5 % 3.1 %
Dividend yield 6.4 % 3.1 %

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~


	December 26, 2020		December 28, 2019
Expected term (years)	5.1		5.1
Expected volatility	48.8	%	37.6	%
Risk-free interest rate	0.3	%	1.5	%
Dividend yield	0	%	6.4	%

Service-based Restricted Stock Unit Awards ("RSUs")

A summary of service-based RSU activity during the ~~nine~~six months ended ~~March 28,~~December 26, 2020 is as follows:



	Number of Non-vested RSUs
	(millions)
Non-vested at June ~~29, 2019~~27, 2020	~~3.3~~4.9
Granted	~~4.0~~4.7
Vested	~~(1.4~~(1.5)	)
Forfeited	~~(0.5~~(0.3)	)
Non-vested at ~~March 28,~~December 26, 2020	~~5.4~~7.8

The weighted-average grant-date fair value of share awards granted during the ~~nine~~six months ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019 was ~~$21.34~~$15.92 and ~~$49.87,~~$21.45, respectively.

Performance-based Restricted Stock Unit Awards ("PRSUs")

A summary of PRSU activity during the ~~nine~~six months ended ~~March 28,~~December 26, 2020 is as follows:



	Number of Non-vested PRSUs
	(millions)
Non-vested at June ~~29, 2019~~27, 2020	~~0.9~~0.8
Granted	~~0.6~~0.9
Change due to performance condition achievement	—0
Vested	~~(0.3~~(0.2)	)
Forfeited	~~(0.1~~0	)
Non-vested at ~~March 28,~~December 26, 2020	~~1.1~~1.5

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

The PRSU awards included in the non-vested amount are based on certain Company-specific financial metrics. The effect of the change due to performance condition on the non-vested amount is recognized at the conclusion of the performance period, which may differ from the date on which the award vests.

The weighted-average grant-date fair value per share of PRSU awards granted during the ~~nine~~six months ended ~~March 28,~~December 26, 2020 and ~~March 30,~~December 28, 2019 was ~~$21.30~~$16.62 and ~~$50.35,~~$21.65, respectively.

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

12. DEBT

The following table summarizes the components of the Company’s outstanding debt:


	March 28, 2020			June 29, 2019				December 26, 2020		June 27, 2020
	(millions)							(millions)
Current debt:							Current debt:
Capital lease obligations	$	—		$	0.8

Revolving Credit Facility							Revolving Credit Facility	$	200.0	$	700.0
Note Payable	11.5			—			Note Payable	0		11.5
Total current debt	$	11.5		$	0.8		Total current debt	$	200.0	$	711.5

Long-term debt:							Long-term debt:

4.250% Senior Notes due 2025	$	600.0		$	600.0		4.250% Senior Notes due 2025	$	600.0	$	600.0
3.000% Senior Notes due 2022	400.0			400.0			3.000% Senior Notes due 2022	400.0		400.0
4.125% Senior Notes due 2027	600.0			600.0			4.125% Senior Notes due 2027	600.0		600.0
Note Payable	—			11.4
Capital lease obligations⁽¹⁾	—			5.3

Total long-term debt	1,600.0			1,616.7			Total long-term debt	1,600.0		1,600.0
Less: Unamortized discount and debt issuance costs on Senior Notes	(12.8		)	(14.8		)	Less: Unamortized discount and debt issuance costs on Senior Notes	(10.7)		(12.1)
Total long-term debt, net	$	1,587.2		$	1,601.9		Total long-term debt, net	$	1,589.3	$	1,587.9


⁽¹⁾	~~Refer to Note 3, "Recent Accounting Pronouncements," for further information.~~

During the three and ~~nine~~six months ended ~~March 28,~~December 26, 2020, the Company recognized interest expense related to its debt of ~~$16.7~~$19.2 million and ~~$50.2~~$39.3 million, respectively. During the ~~three~~three-month and ~~nine months~~six-month periods ended ~~March 30,~~December 28, 2019, the Company recognized interest expense related to its debt of $16.7 million and ~~$50.1~~$33.5 million, respectively.

Revolving Credit Facility

On October 24, 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 ~~refinanced and replaced the Company’s unsecured revolving facility dated May 30, 2017. The 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 back-up). Letters of credit and swing line loans may be issued under the Revolving Credit Facility as described below. There were 0 outstanding borrowings on the Revolving Credit Facility as of March 28, 2020. On March 30, 2020, the Company borrowed $700.0 million in the aggregate under the Revolving Credit Facility. Refer to Note 2, "Basis of Presentation and Organization" and Note 18, "Subsequent Events" for further information.

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, as 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

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

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 December 26, 2020, $200.0 million of borrowings were outstanding under the Revolving Credit Facility. Refer to Note 18, "Subsequent Events" for further information on the repayment of outstanding borrowings under the Revolving Credit Facility.

4.250% Senior Notes due 2025

On March 2, 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”). Interest is payable semi-annually on April 1 and October 1 beginning October 1, 2015. Prior to January 1, 2025 (90 days prior to the scheduled maturity date), the Company may redeem the 2025 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to the greater of (1) 100% of

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

the principal amount of the 2025 Senior Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon that would have been payable in respect of the 2025 Senior Notes calculated as if the maturity date of the 2025 Senior Notes was January 1, 2025 (not including any portion of payments of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis at the Adjusted Treasury Rate (as defined in the indenture for the 2025 Senior Notes) plus 35 basis points, plus, in the case of each of (1) and (2), accrued and unpaid interest to the redemption date. On and after January 1, 2025 (90 days prior to the scheduled maturity date), the Company may redeem the 2025 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to 100% of the principal amount of the 2025 Senior Notes to be redeemed, plus accrued and unpaid interest to the redemption date.

3.000% Senior Notes due 2022

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"). Interest is payable semi-annually on January 15 and July 15 beginning January 15, 2018. Prior to June 15, 2022 (one month prior to the scheduled maturity date), the Company may redeem the 2022 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2022 Senior Notes to be redeemed or (2) as determined by a Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon that would have been payable in respect of the 2022 Senior Notes calculated as if the maturity date of the 2022 Senior Notes was June 15, 2022 (not including any portion of payments of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined in the Prospectus Supplement) plus 25 basis points, plus, in the case of each of (1) and (2), accrued and unpaid interest to the redemption date.

4.125% Senior Notes due 2027

On June 20, 2017, the Company issued $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"). Interest is payable semi-annually on January 15 and July 15 beginning January 15, 2018. Prior to April 15, 2027 (the date that is three months prior to the scheduled maturity date), the Company may redeem the 2027 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2027 Senior Notes to be redeemed or (2) as determined by a Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon that would have been payable in respect of the 2027 Senior Notes calculated as if the maturity date of the 2027 Senior Notes was April 15, 2027 (not including any portion of payments of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined in the Prospectus Supplement) plus 30 basis points, plus, in the case of each of (1) and (2), accrued and unpaid interest to the redemption date.

At ~~March 28,~~December 26, 2020, the fair value of the 2025, 2022 and 2027 Senior Notes was approximately ~~$556.7~~$644.8 million, ~~$388.5~~$412.1 million, and ~~$474.2~~$647.0 million,, respectively, based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as a Level 2 measurement within the fair value hierarchy. At June ~~29, 2019,~~27, 2020, the fair value of the 2025, 2022 and 2027 Senior Notes was approximately ~~$629.6~~$576.6 million, ~~$398.6~~$393.4 million and ~~$605.5~~$565.0 million, respectively.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

Note Payable

As a result of taking operational control of the Kate Spade Joint Ventures in China, the Company ~~has~~had an outstanding Note Payable of $11.5 million ~~and $11.4 million~~ as of ~~March 28,~~June 27, 2020, ~~and June 29, 2019, respectively,~~ to the other partner of the Kate Spade Joint ~~Ventures, to be paid in fiscal 2021.~~Ventures. The Note Payable was fully repaid during the three months ended December 26, 2020.

13. FAIR VALUE MEASUREMENTS

The Company categorizes its assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. The three levels of the hierarchy are defined as follows:

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1. Level 2 inputs include quoted prices for identical assets or liabilities in non-active markets, quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for substantially the full term of the asset or liability.

Level 3 — Unobservable inputs reflecting management’s own assumptions about the input used in pricing the asset or liability. The Company does not have any Level 3 investments.

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

The following table shows the fair value measurements of the Company’s financial assets and liabilities at ~~March 28,~~December 26, 2020 and June ~~29, 2019:~~27, 2020:

Level 1 Level 2
March 28,
2020 June 29,
2019 March 28,
2020 June 29,
2019
(millions)
Assets:

Cash equivalents⁽¹⁾
$ 293.6
$ 454.3
$ 0.3
$ 0.4
Short-term investments:

Time deposits⁽²⁾
—
—
0.6
0.6
Commercial paper⁽²⁾
—
—
—
17.9
Government securities - U.S.⁽²⁾
—
102.6
—
—
Corporate debt securities - U.S.⁽²⁾
—
—
102.2
95.8
Corporate debt securities - non U.S.⁽²⁾
—
—
42.9
37.3
Other —
—
9.9
10.4
Long-term investments:

Other —
—
0.1
0.1
Derivative assets:

Inventory-related instruments⁽³⁾
—
—
4.7
1.1
Intercompany loan and payable hedges⁽³⁾
—
—
2.0
—
Liabilities:

Derivative liabilities:

Inventory-related instruments⁽³⁾
—
—
2.5
4.9
Intercompany loan and payable hedges⁽³⁾
—
—
2.4
0.1


	Level 1				Level 2
	December 26, 2020		June 27, 2020		December 26, 2020		June 27, 2020
	(millions)
Assets:
Cash equivalents(1)	$	621.4	$	569.4	$	0.1	$	0.3
Short-term investments:
Time deposits(2)	0		0		0.7		0.7




Other	0		0		8.5		7.4
Long-term investments:
Other	0		0		0.1		0.1


Derivative assets:
Inventory-related instruments(3)	0		0		1.7		2.8
Intercompany loan and payable hedges(3)	0		0		0.1		0.1
Liabilities:

Derivative liabilities:
Inventory-related instruments(3)	0		0		5.0		1.3
Intercompany loan and payable hedges(3)	0		0		0.6		0.4

⁽¹⁾

(1)Cash equivalents consist of money market funds and time deposits with maturities of three months or less at the date of purchase. Due to their short-term maturity, management believes that their carrying value approximates fair value.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(2)Short-term investments are recorded at fair value, which approximates their carrying value, and are primarily based upon quoted vendor or broker priced securities in active markets.

(3)The fair value of these hedges is primarily based on the forward curves of the specific indices upon which settlement is based and includes an adjustment for the counterparty’s or Company’s credit risk.

Cash equivalents consist of money market funds and time deposits with maturities of three months or less at the date of purchase. Due to their short-term maturity, management believes that their carrying value approximates fair value.


⁽²⁾	~~Short-term investments are recorded at fair value, which approximates their carrying value, and are primarily based upon quoted vendor or broker priced securities in active markets.~~


⁽³⁾	The fair value of these hedges is primarily based on the forward curves of the specific indices upon which settlement is based and includes an adjustment for the counterparty’s or Company’s credit risk.

Refer to Note 12, "Debt," for the fair value of the Company's outstanding debt instruments.

Non-Financial Assets and Liabilities

The Company’s non-financial instruments, which primarily consist of goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written-down to and recorded at fair value, considering market participant assumptions.

~~During~~There were 0 impairment charges recorded during the three and six months ended December 26, 2020. Additionally, there were 0 impairment charges recorded during the three months ended ~~March~~December 28, ~~2020,~~2019. During the six months ended December 28, 2019, the Company recorded ~~a full~~$39.8 million of impairment charges to reduce the carrying amount of ~~$267.0~~certain store assets within property and equipment, net to their fair values of $10.1 million. Also during the six months ended December 28, 2019, the Company recorded $35.8 million of impairment charges to reduce the ~~Stuart Weitzman indefinite-lived brand intangibles, and a full impairment~~carrying amount of ~~$210.7 million~~certain operating lease right-of-use assets to ~~goodwill pertaining to the Stuart Weitzman reporting unit. Refer to Note 7, "Goodwill and Other Intangible Assets" for further information.~~their fair values of $119.3 million.

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~Furthermore, when~~When the Company evaluates its long-lived assets for impairment, the assessment is performed for the related asset group that represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets. This determination requires a significant amount of judgment, and is dependent on the Company's overall operating strategy. The Company historically grouped select flagship locations with other stores located within the geographic area surrounding the flagship store as the Company believed the assets of the related group benefited from the Company's investments in the flagship location. Beginning in fiscal 2020, the Company began to (i) evaluate select flagship store closures across all brands, (ii) be more selective about new store openings as it focuses on store productivity and (iii) invest more significantly in growing its digital business and capabilities. Following this shift in strategy during the first quarter ~~ended September 28, 2019,~~of fiscal 2020, the Company determined for these certain flagship locations that the individual store represents the lowest level of independent identifiable cash flows.

As a result, in the first quarter of fiscal 2020, the Company identified impairment indicators at certain flagship store locations and recorded lease ROU assets and property and equipment asset impairment charges. ~~In addition, during the third quarter of fiscal 2020, the Company identified impairment indicators at various store locations globally as a result of the Covid-19 pandemic.~~ The fair value of these assets were determined based on Level 3 measurements. Inputs to these fair value measurements included estimates of the amounts and the timing of the stores' net future discounted cash flows based on historical experience, current trends and market conditions.

During the three months and nine months ended March 28, 2020, the Company recorded $46.7 million and $86.5 million of impairment charges to reduce the carrying amount of certain store assets within property and equipment, net to their estimated fair values. During the three months and nine months ended March 28, 2020, the Company recorded $27.9 million and $63.7 million of impairment charges to reduce the carrying amount of certain operating lease right-of-use assets to their estimated fair values.

14. INVESTMENTS

The following table summarizes the Company’s U.S. dollar-denominated investments, recorded within the Company's Condensed Consolidated Balance Sheets as of ~~March 28,~~December 26, 2020 and June ~~29, 2019:~~27, 2020:

March 28, 2020 June 29, 2019
Short-term Long-term Total Short-term Long-term Total
(millions)
Available-for-sale investments:

Commercial paper⁽¹⁾
$ —
$ —
$ —
$ 17.9
$ —
$ 17.9
Government securities - U.S.⁽²⁾
—
—
—
102.6
—
102.6
Corporate debt securities - U.S.⁽²⁾
102.2
—
102.2
95.8
—
95.8
Corporate debt securities - non-U.S.⁽²⁾
42.9
—
42.9
37.3
—
37.3
Available-for-sale investments, total $ 145.1
$ —
$ 145.1
$ 253.6
$ —
$ 253.6
Other:

Time deposits⁽¹⁾
0.6
—
0.6
0.6
—
0.6
Other 9.9
0.1
10.0
10.4
0.1
10.5
Total Investments $ 155.6
$ 0.1
$ 155.7
$ 264.6
$ 0.1
$ 264.7


	December 26, 2020						June 27, 2020
	Short-term		Long-term		Total		Short-term		Long-term		Total
	(millions)









Other:
Time deposits(1)	$	0.7	$	—	$	0.7	$	0.7	$	—	$	0.7
Other	8.5		0.1		8.6		7.4		0.1		7.5
Total Investments	$	9.2	$	0.1	$	9.3	$	8.1	$	0.1	$	8.2


(1)⁽¹⁾	These securities have original maturities greater than three months ~~and are recorded at fair value.~~


⁽²⁾	~~These securities as of March 28, 2020 have maturity dates between calendar years 2020 and 2021 and are recorded at fair value.~~

~~There were 0 material gross unrealized gains or losses on available-for-sale investments as of the periods ended March 28, 2020~~ and ~~June 29, 2019.~~are recorded at fair value.

~~15. INCOME TAXES~~

The effective tax rate for the nine months ended March 28, 2020, was calculated based on year to date results. The Company normally calculates the rate based on annual forecasted results (“annual effective tax rate method”). However, given the rapidly evolving Covid-19 pandemic and the difficulty predicting the full magnitude of the effects on the Company's forecasted results, it was determined that the historical method of calculating the provision for income taxes during interim reporting periods would not provide a reliable estimate for the period ended March 28, 2020.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

15. INCOME TAXES

The Company's effective tax rate for the ~~nine~~three months ended ~~March 28,~~December 26, 2020 was ~~(10.8%)~~16.9%, as compared to ~~18.6%~~15.8% for the ~~nine~~three months ended ~~March 30,~~December 28, 2019. ~~The negative rate resulted from tax expense being recorded on an overall operating loss for the period ended March 28, 2020. The decrease~~This increase in ~~the~~our effective tax rate was primarily attributable to ~~certain goodwill~~the geographic mix of earnings. The Company's effective tax rate for the six months ended December 26, 2020 was 3.0%, as compared to 16.5% for the six months ended December 28, 2019. This decrease in the effective tax rate primarily resulted from the net operating loss ("NOL") carryback claim recognized under the Coronavirus Aid, Relief and ~~trade name impairments that were non-deductible for tax purposes and~~Economic Security ("CARES") Act during the ~~overall decline in revenue.~~

six months ended December 26, 2020. On March 27, 2020, H.R. 748, known as the CARES Act, was enacted. The provisions of the Act most applicable to the Company are the modification to allow for a five-year carryback of net operating losses and the technical amendment allowing businesses to claim an immediate deduction for costs associated with qualified improvement property. ~~Given~~This reflects the ~~Company’s approach for reporting its effective tax rate for the nine months ended March 28, 2020, based on year~~Company's provisional estimate and is subject to ~~date results, neither of these provisions materially impacted the Company’s rate for the period ended March 28, 2020.~~adjustment as estimation approaches are refined.

16. COMMITMENTS AND CONTINGENCIES

Letters of Credit

The Company had standby letters of credit, surety bonds and bank guarantees totaling ~~$33.2~~$46.7 million and ~~$34.5~~$33.3 million outstanding at ~~March 28,~~December 26, 2020 and June ~~29, 2019,~~27, 2020, respectively. The agreements, which expire at various dates through calendar ~~2039,~~2025, primarily collateralize the Company's obligation to third parties for duty, leases, insurance claims and materials used in product manufacturing. The Company pays certain fees with respect to these instruments that are issued.

Other

The Company had other contractual cash obligations as of ~~March 28,~~December 26, 2020 related to debt repayments. Refer to Note 12, "Debt," for further information.

InThe Company is involved in various routine legal proceedings as both plaintiff and defendant incident to the ordinary course of its business, including proceedings to protect Tapestry's intellectual property rights, litigation instituted by persons alleged to have been injured by advertising claims or upon premises within the Company’s control, litigation involving contractual disputes and litigation with present or former employees.

As part of Tapestry Inc.’s policing program for its intellectual property rights, from time to time, the Company files lawsuits in the U.S. and abroad alleging acts of trademark counterfeiting, trademark infringement, patent infringement, trade dress infringement, copyright infringement, unfair competition, trademark dilution and/or state or foreign law claims. At any given point in time, Tapestry may have a number of such actions pending. These actions often result in seizure of counterfeit merchandise and/or out of court settlements with defendants. From time to time, defendants will raise, either as affirmative defenses or as counterclaims, the invalidity or unenforceability of certain of Tapestry’s intellectual properties.

Although the Company’s litigation as a defendant is routine and incidental to the conduct of Tapestry’s business, as well as for any business of its size, such litigation can result in large monetary awards, such as when a ~~party~~civil jury is allowed to ~~several pending legal proceedings and claims. Although~~determine compensatory and/or punitive damages.

The Company believes that the outcome of all such ~~items cannot be determined with certainty,~~pending routine legal proceedings in the ~~Company's Chief Legal Officer and management are of the opinion that the final outcome~~aggregate will not have a material effect on the Company's business or condensed consolidated financial statements.

In addition to such routine legal proceedings, the Company is currently addressing a putative class action complaint filed in the Delaware Court of Chancery on May 7, 2020, naming the former chief executive officer and director of Kate Spade & Company and the other former directors of Kate Spade & Company, which the Company acquired on July 11, 2017 (the “Acquisition”), as defendants, and captioned Butler v. Leavitt, et al., C.A. No. 2020-0343-JTL. The complaint asserts claims on behalf of former Kate Spade & Company shareholders alleging breaches of fiduciary duty in connection with the Acquisition, including with respect to the defendants’ decision to pursue the Acquisition and Kate Spade & Company’s ~~cash flow, results~~disclosures to stockholders in connection with the Acquisition. Under the terms of ~~operations~~the agreement pursuant to which the Company acquired Kate Spade & Company, the Company is required to indemnify the defendants under this claim. The Company vigorously disputes the allegations of the complaint, believes it has strong defenses against the claims and has filed a motion to dismiss the complaint with prejudice. The ultimate outcome of this matter, including the amount or ~~financial position.~~range of possible loss, cannot be predicted or reasonably estimated at this time.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

17. SEGMENT INFORMATION

The Company has 3 reportable segments:

•

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

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

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


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


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

In deciding how to allocate resources and assess performance, the Company's chief operating decision maker regularly evaluates the sales and operating income of these segments. Operating income is the gross margin of the segment less direct expenses of the segment.

~~TAPESTRY, INC.~~

~~Notes to Condensed Consolidated Financial Statements (continued)~~

~~The following table summarizes segment performance for the three and nine months ended March 28, 2020 and March 30, 2019:~~

Coach Kate
Spade Stuart Weitzman
Corporate⁽¹⁾
Total
(millions)
Three Months Ended March 28, 2020

Net sales $ 772.5
$ 249.5
$ 50.7
$ —
$ 1,072.7
Gross profit⁽²⁾
475.7
122.5
18.0
—
616.2
Operating income (loss) 38.1
(91.3 ) (530.7 ) (101.6 ) (685.5 )
Income (loss) before provision for income taxes 38.1
(91.3 ) (530.7 ) (121.1 ) (705.0 )
Depreciation and amortization expense⁽³⁾
42.0
42.1
487.5
13.6
585.2
Additions to long-lived assets⁽⁴⁾
21.5
19.2
3.0
7.0
50.7

Three Months Ended March 30, 2019

Net sales $ 965.0
$ 281.1
$ 85.3
$ —
$ 1,331.4
Gross profit 691.7
177.9
46.3
—
915.9
Operating income (loss) 238.9
7.1
(14.1 ) (122.1 ) 109.8
Income (loss) before provision for income taxes 238.9
7.1
(14.1 ) (136.7 ) 95.2
Depreciation and amortization expense⁽³⁾
31.8
14.7
4.3
12.8
63.6
Additions to long-lived assets⁽⁴⁾
17.3
15.2
4.7
30.6
67.8

Nine Months Ended March 28, 2020

Net sales $ 3,008.3
$ 985.4
$ 252.9
$ —
$ 4,246.6
Gross profit⁽²⁾
2,030.6
576.4
133.4
—
2,740.4
Operating income (loss) 620.4
(30.6 ) (540.4 ) (320.2 ) (270.8 )
Income (loss) before provision for income taxes 620.4
(30.6 ) (540.4 ) (372.8 ) (323.4 )
Depreciation and amortization expense⁽³⁾
121.1
84.1
505.2
39.8
750.2
Additions to long-lived assets⁽⁴⁾
66.2
54.5
13.3
38.9
172.9

Nine Months Ended March 30, 2019

Net sales $ 3,174.3
$ 1,034.9
$ 304.2
$ —
$ 4,513.4
Gross profit 2,231.5
658.0
165.0
—
3,054.5
Operating income (loss) 848.4
140.1
(21.9 ) (318.0 ) 648.6
Income (loss) before provision for income taxes 848.4
140.1
(21.9 ) (359.3 ) 607.3
Depreciation and amortization expense⁽³⁾
98.9
43.3
12.4
36.5
191.1
Additions to long-lived assets⁽⁴⁾
50.6
53.8
8.5
71.3
184.2


⁽¹⁾	Corporate, which is not a reportable segment, represents certain costs that are not directly attributable to a brand. These costs primarily include administration and certain information systems expense.

⁽²⁾

Gross profit reflects charges recorded within Cost of sales of $61.9 million within the Coach segment, $32.3 million within the Kate Spade segment and $9.8 million within the Stuart Weitzman segment for the three and nine months ended March 28, 2020 as a result of establishing inventory reserves directly related to the expected impact of Covid-19 on the Company's future sales projections. The non-cash portion of these charges are presented within Impairment charges on the Condensed Consolidated Statement of Cash Flows.

⁽³⁾

Depreciation and amortization expense includes $0.2 million of integration costs recorded within the Kate Spade segment for the nine months ended March 28, 2020 and $0.1 million and $1.3 million for the three and nine months ended March 30, 2019, respectively. Depreciation and amortization expense includes impairment charges of $11.9 million for Coach, $21.0 million for Kate Spade and $482.4 million for Stuart Weitzman for the three months ended March 28, 2020, as a result of impairment of Stuart Weitzman intangible assets as well as store impairments due to the Covid-19 pandemic. Depreciation

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

The following table summarizes segment performance for the three and six months ended December 26, 2020 and December 28, 2019:


	Coach		Kate Spade		Stuart Weitzman		Corporate(1)		Total
	(millions)
Three Months Ended December 26, 2020
Net sales	$	1,225.3	$	375.6	$	84.5	$	0	$	1,685.4
Gross profit	888.1		233.1		52.5		0		1,173.7
Operating income (loss)	412.0		58.8		11.9		(93.3)		389.4
Income (loss) before provision for income taxes	412.0		58.8		11.9		(108.4)		374.3
Depreciation and amortization expense(2)	23.5		11.3		3.0		13.7		51.5
Additions to long-lived assets(3)	8.8		4.0		0.8		10.1		23.7

Three Months Ended December 28, 2019
Net sales	$	1,269.9	$	430.4	$	115.7	$	0	$	1,816.0
Gross profit	877.3		262.4		70.0		0		1,209.7
Operating income (loss)	382.8		67.9		9.6		(97.2)		363.1
Income (loss) before provision for income taxes	382.8		67.9		9.6		(105.3)		355.0
Depreciation and amortization expense(2)	29.0		14.7		4.2		13.0		60.9
Additions to long-lived assets(3)	20.1		18.3		5.1		6.8		50.3

Six Months Ended December 26, 2020
Net sales	$	2,100.7	$	616.0	$	140.9	$	0	$	2,857.6
Gross profit	1,533.0		387.2		83.7		0		2,003.9
Operating income (loss)	682.0		82.0		11.9		(184.3)		591.6
Income (loss) before provision for income taxes	682.0		82.0		11.9		(216.2)		559.7
Depreciation and amortization expense(2)	48.3		21.7		5.4		27.3		102.7
Additions to long-lived assets(3)	19.7		8.6		1.3		20.1		49.7

Six Months Ended December 28, 2019
Net sales	$	2,235.8	$	735.9	$	202.2	$	0	$	3,173.9
Gross profit	1,554.9		453.9		115.4		0		2,124.2
Operating income (loss)	582.3		60.7		(9.7)		(218.6)		414.7
Income (loss) before provision for income taxes	582.3		60.7		(9.7)		(251.7)		381.6
Depreciation and amortization expense(2)	79.1		42.0		17.7		26.2		165.0
Additions to long-lived assets(3)	44.7		35.3		10.3		31.9		122.2

(1) Corporate, which is not a reportable segment, represents certain costs that are not directly attributable to a brand. These costs primarily include administration and certain information systems expense.

(2) Depreciation and amortization expense includes $0.3 million of Acceleration Program costs for the three and six months ended December 26, 2020 and $0.1 million and $0.2 million of integration costs recorded within the Kate Spade segment for the three and six months ended December 28, 2019, respectively. Depreciation and amortization expense includes impairment charges of ~~$31.4~~$19.5 million for Coach, ~~$33.0~~$12.0 million for Kate Spade and ~~$490.7~~$8.3 million for Stuart Weitzman for the ~~nine~~six months ended ~~March~~December 28, ~~2020.~~2019. Refer to ~~Note 7, "Goodwill and Other Intangible Assets" and~~ Note 13, "Fair Value Measurements," for further information. Depreciation and amortization expense for the segments includes an allocation of expense related to assets which support multiple segments.

TAPESTRY, INC.

Notes to Condensed Consolidated Financial Statements (continued)

(3) Additions to long-lived assets for the reportable segments primarily includes store assets as well as assets that support a specific brand. Corporate additions include all other assets which include a combination of Corporate assets, as well as assets that may support all segments. As such, depreciation expense for these assets may be subsequently allocated to a reportable segment.

⁽⁴⁾

Additions to long-lived assets for the reportable segments primarily includes store assets as well as assets that support a specific brand. Corporate additions include all other assets which include a combination of Corporate assets, as well as assets that may support all segments. As such, depreciation expense for these assets may be subsequently allocated to a reportable segment.

18. SUBSEQUENT EVENTS

On ~~March~~January 25, ~~2020,~~2021, the Company ~~elected to draw down $700~~repaid the remaining $200 million ~~in the aggregate~~of outstanding borrowings under the Revolving Credit Facility. The draw down was funded to the Company on March 30, 2020. The Company elected to borrow under the Credit Agreement as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the Covid-19 outbreak. The draw-down proceeds from the Credit Agreement are expected to be held on the Company’s balance sheet and may be used for general corporate purposes.

Furthermore, in response to the Covid-19 pandemic, the Company has taken other actions to reinforce its liquidity and financial flexibility. Specific actions that the Company is undertaking include, but are not limited to, actively reducing non-essential SG&A expense, reducing corporate compensation, terminating 2,100 part-time store associates, tightly managing inventory, reducing capital expenditures, in addition to suspending its quarterly dividend and all share repurchases for the foreseeable future which was announced during the third fiscal quarter. Refer to Note ~~2, "Basis of Presentation and Organization"~~12, "Debt" for further ~~information.~~information about the Company's outstanding debt.


~~ITEM 2.~~	~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company's financial condition and results of operations should be read together with the Company's condensed consolidated financial statements and notes to those financial statements included elsewhere in this document. When used herein, the terms "the Company," "Tapestry," "we," "us" and "our" refer to Tapestry, Inc., including consolidated subsidiaries. References to "Coach," "Stuart Weitzman," "Kate Spade" or "kate spade new york" refer only to the referenced brand.

EXECUTIVE OVERVIEW

Tapestry is a leading New York-based house of modern luxury accessories and lifestyle brands. Tapestry is powered by optimism, innovation and inclusivity. Our brands are approachable and inviting and create joy every day for people around the world. Defined by quality, craftsmanship and creativity, our house of brands gives global audiences the opportunity for exploration and self-expression. Tapestry is comprised of the Coach, Kate Spade and Stuart Weitzman brands, all of which have been part of the American landscape for over 25 years.

The Company has three reportable segments:


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


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


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

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

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

Each of our brands is unique and independent, while sharing a commitment to innovation and authenticity defined by distinctive products and differentiated customer experiences across channels and geographies. Our success does not depend solely on the performance of a single channel, geographic area or brand.

~~Recent Developments and Initiatives~~Acceleration Program

~~Strategic Initiatives~~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:

~~Tapestry began fiscal 2020~~•Sharpening our Focus on the Consumer: Operating with a clearly defined purpose and strategy for each brand and an unwavering focus on ~~profitable growth through innovation, global expansion, investing in~~the consumer at the core of everything we do

•Leveraging Data and Leading with a Digital-First Mindset: Building significant data and analytics capabilities to drive decision-making and increase efficiency; Offering immersive customer experiences across our e-commerce and social channels to meet the needs of consumers who are increasingly utilizing digital ~~capabilities,~~platforms to engage with brands; Rethinking the role of stores with an intent to optimize our fleet

•Transforming into a Leaner and ~~harnessing~~More Responsive Organization: Moving with greater agility, simplifying internal processes and empowering teams to act quickly to meet the ~~power~~rapidly changing needs of ~~a multi-brand model. However, in December 2019, a novel strain of coronavirus ("Covid-19") was reported to have surfaced and officially declared a global pandemic by~~ the ~~World Health Organization on March 11, 2020. The virus has had significant impacts on our business globally. As a result, while~~consumer

In the second fiscal quarter, the Company ~~remains confident~~made meaningful progress against its previously announced Acceleration Program to sharpen its focus on the consumer, leverage data to lead with a digital-first mindset and transform into a leaner and more responsive organization:

•Recruited over 1.5 million new customers in ~~its long-term strategy, its short-term focus has pivoted towards~~North America across brands through our e-commerce channels, a meaningful increase versus prior year, as we continue to meet consumers where they choose to shop and utilize marketing capabilities to drive engagement and enhance the customer’s digital journey;

•Leveraged Tapestry’s scale and agility to deliver triple-digit digital growth by expanding our network through added fulfillment capacity and the diversification of parcel carrier partnerships, swiftly adapting to ~~these challenges.~~the current environment and navigating market constraints to support increased customer demand;

•Drove significant growth in China through compelling product assortments, enhanced marketing and expanded reach across direct channels and third party online distribution;

•Deployed new data and analytics tools to drive strategic, data-driven decision making to optimize marketing messaging, assortment planning and promotional levels, supporting higher AUR and conversion rates;

•Continued to enhance flexibility of operating model, with a streamlined organizational structure and empowered teams, while optimizing our global fleet with 18 net closures in the fiscal first half representing a net decrease of 84 stores from the prior year; Remain on track to achieve gross run-rate savings of $300 million, including gross savings of $200 million in fiscal 2021.

Recent Developments

Covid-19 Pandemic

The Covid-19 virus has impacted regions all around the world, resulting in restrictions and shutdowns implemented by national, state, and local authorities. Consequently, the spread of Covid-19 has caused significant global business ~~disruptions, including full and partial store closures.~~disruptions. As a result of the widespread impact of Covid-19, Tapestry had temporarily closed the majority of its ~~stores on mainland China in January 2020, which have all been reopened by April 2020. Tapestry temporarily closed all~~ directly operated stores ~~in North America and Europe as~~globally for some period of ~~March 2020, as well as some stores in the Asia-Pacific region by April 2020,~~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 ~~our~~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 ~~impacted by~~subject to temporary re-closures and tighter capacity restrictions operating in compliance with the ~~spread~~rules of certain local governments. However, there is still uncertainty around the ~~virus, resulting in decreased demand~~duration of these disruptions and ~~shipments through this channel.~~the possibility of other effects on the business. We will continue to monitor the rapidly evolving situation pertaining to the Covid-19 outbreak, including guidance from international and domestic authorities. In these circumstances, the Company will need to make adjustments to our operating plan. Refer to Part II, Item 1A. "Risk Factors" herein for further information.

In response to ~~this challenging environment,~~ the ~~Company's focus is~~challenges that Covid-19 has imposed on our business, the Company implemented the following ~~actions:~~actions to mitigate these headwinds:

~~A Focus on Revenue~~

~~Re-opening~~•Re-opened stores ~~in China~~ as quickly as possible, while following governmental and public health ~~guidelines; and~~guidelines.

~~Aggressively leaning into the global digital opportunity~~•Driving with a digital-first mindset for all brands. ~~Ensuring that~~Implemented practices designed to support the continued operations of our e-commerce platforms and distribution centers remain operational across all major regions.

•Reduced capital expenditures for the second half of fiscal 2020 and continuing into fiscal 2021 through optimization of our fleet and prioritizing investment in digital.

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

~~Driving~~•Continue to drive SG&A savings, including actions taken under the Acceleration Program, through the reduction of corporate and retail workforce, right-sizing of marketing expenses, ~~to adjust to the lower revenue base, while maintaining a focus on digital; reducing~~reduction of fixed costs such as ~~rent; driving~~rent as well as procurement savings, including reducing external third party services.

~~Strengthening~~•Did not pay out bonuses under the ~~Company’s Balance Sheet~~Annual Incentive Plan for fiscal year 2020, eliminated merit salary increases for all employees and ~~Enhancing Financial Flexibility~~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 ~~managing~~managed inventories by reflowing ~~late spring and early summer~~ product introductions and cancelling inventory receipts ~~for late summer/early fall 2020; and~~as well as planned reduction of stock keeping units ("SKUs").

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

~~Preserving Liquidity~~

~~Drawing~~•Drew down $700 million from its $900 million Revolving Credit Facility to add to cash ~~balances;~~balances, of which $500 million was repaid during the second quarter of fiscal 2021 and the remaining $200 million was repaid on January 25, 2021.

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

~~Suspending its share repurchase program.~~

~~Addressing Organizational Costs~~

~~Reducing our retail workforce in North America by approximately 2,100 part-time store associates across the three brands;~~

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

A 50% reduction in cash compensation for the Board of Directors, a 50% reduction of salary for its Chairman and Chief Executive Officer Jide Zeitlin, and salary reductions of 5% to 20%, depending on salary level, for all North America corporate employees above a certain salary threshold. Tapestry plans to achieve similar compensation reductions outside North America through similar measures;

~~Cancellation of our Annual Incentive Plan for fiscal year 2020, which will result in no bonuses being paid for the current fiscal year; and~~

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

In addition, we are working to identify long-term efficiency opportunities by accelerating the work that was already underway as part of our multi-year growth agenda. As part of this initiative, to create an agile operating model, we anticipate making additional changes in the short-term which will result in a streamlined organization, including reductions in the corporate workforce. We believe that these actions will result in further cost savings and will enable Tapestry to be more responsive to the rapidly changing retail environment.2020.

The Company will continue to consider near-term exigencies and the long-term financial health of the business as clear steps are taken to mitigate the consequences of the Covid-19 pandemic.

~~Fiscal~~On March 27, 2020, ~~Impairments~~

~~During fiscal~~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, ~~Stuart Weitzman results continued~~the Covid-19 stimulus package was signed into law, which contained enhancements to ~~be negatively impacted by trailing impacts of operational challenges which occurred in 2018. While~~certain tax credits enacted under the CARES Act. These laws require the Company ~~addressed these challenges through investment~~to make significant judgments and estimates in ~~talent, operational process improvements, and a focus on~~ the ~~fashion sensibility~~interpretation of the ~~core design aesthetic,~~law and in the ~~Brand experienced a reduction in demand. This reduction in cash flows as well as future expected cash flows was exacerbated~~calculation of the provision for income taxes. However, additional guidance may be issued by the ~~Covid-19 pandemic,~~Internal Revenue Service (“IRS”), the Department of the Treasury, or other governing body that may significantly differ from our interpretation of the law, which ~~resulted~~may result in a ~~decline in sales driven by full and partial closures~~material adverse effect on our business, cash flow, results of ~~a significant portion of our stores globally. During the third quarter of fiscal~~operations, or financial conditions.

Since March 2020, the governments of numerous countries in which we operate have issued relief packages in response to Covid-19. These packages include, amongst other things, extended filing deadlines, wage subsidies, social security relief, rent relief and deferred tax payments. The Company ~~recorded $210.7 million of impairment charges~~is seeking relief under these provisions where eligible. As noted above in relation 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 the first quarter and third quarter of fiscal 2020,~~U.S. legislation, the Company ~~recorded $75.6 million and $75.1 million, respectively, of impairment charges related~~does have to ~~store assets, inclusive of lease assets as well as purchase commitments. Impairment charges recorded~~make certain judgements in ~~the first quarter related to an accounting policy change made in conjunction with the adoption~~interpretation of the ~~new lease accounting standard, whereas~~law and/or await guidance from the ~~impairment charges recorded in~~local authorities.

Acceleration Program

The Company has implemented a strategic growth plan after undergoing a review of its business under the ~~third quarter were primarily driven by lower cash flows due~~Acceleration Program and expects to ~~Covid-19. Refer~~incur certain costs reflecting: (i) actions to ~~Note 13, "Fair Value Measurements," and Note 17, "Segment Information," for further information.~~

~~During~~streamline the ~~third quarter of fiscal 2020,~~Company's organization; (ii) select store closures as the Company ~~recorded $104.0 million of increases~~optimizes its fleet (including store closure costs incurred as the Company exits certain regions in ~~inventory reserves, similarly driven by current~~which it currently operates); and ~~expected changes to operations~~(iii) professional fees and compensation costs incurred as a result of ~~Covid-19.~~

~~Corporate~~the development and ~~Retail Workforce Reduction~~

~~As part~~execution of ~~Tapestry’s multi-year growth agenda,~~ the ~~Company announced additional actions to streamline its organization, including reductions~~Company's comprehensive strategic initiatives aimed at increasing profitability. Including charges taken in ~~its corporate and retail workforce. In aggregate, the~~fiscal 2020, Company expects to incur total pre-tax charges ~~associated with these actions~~ of approximately ~~$55-$70~~$185 - $200 million primarily related to cash severance costs, which will be reflected beginning in the fourth quarter of fiscal 2020, and are expected to be completed by the end of fiscal 2021. These charges will be recorded within SG&A expenses. These actions will allow Tapestry to emerge as a global, consumer-centric company, with a more agile organizational structure that will be more responsive to the rapidly changing retail environment.

~~ERP Implementation~~

During fiscal 2018, the Company implemented a global consolidation system which provides a common platform for financial reporting, a point-of-sale system for Coach in North America as well as a human resource information system for Corporate, Coach and Stuart Weitzman employees. During the second quarter of fiscal 2019, the Company deployed global finance and accounting systems for Corporate, Coach and Stuart Weitzman. During the third quarter of fiscal 2019, the Company deployed global finance, accounting, supply chain and human resource information systems for Kate Spade. During the first quarter of fiscal 2020, the Company deployed the final major phase of its ERP Implementation, specifically, the supply chain functions for Coach and Stuart Weitzman.

~~Organization-related and Integration Costs~~

During fiscal 2019, the Company acquired certain distributors for the Kate Spade and Stuart Weitzman brands. The operating results of the respective entities have been consolidated in the Company's operating results commencing on the date of each acquisition. As a result of these acquisitions, the Company incurred charges related to the ~~integration~~Acceleration Program with most of the ~~businesses. These~~remaining charges are primarily associated with organization-related costs, professional fees, one-time write-off of inventory and limited life purchase accounting adjustments. The Company currently estimates that it will incur approximately $5 millionexpected in ~~pre-tax charges, of which the majority are expected to be cash charges, for the remainder of~~ fiscal ~~2020.~~

2021. Refer to Note ~~5, "Integration," Note~~ 6, ~~"Acquisitions,~~"Restructuring Activities," and the "GAAP to Non-GAAP Reconciliation," herein, for further information.

~~Change~~ The Company estimates that it will realize approximately $300 million in ~~Chief Executive Officer~~

~~On September 4, 2019, the Company announced that Victor Luis departed as the Company’s Chief Executive Officer and resigned~~gross run rate expense savings from the Board of Directors, effective as of September 3, 2019. On September 4, 2019, the Company named Jide Zeitlin, Chairman of the Board of Directors, as the Company’s Chief Executive Officer. In connection with Mr. Luis’s departure, the Company and Mr. Luis entered into a separation and mutual release agreement.these initiatives, including $200 million projected for fiscal 2021.

Current Trends and Outlook

The environment in which we operate is subject to a number of different factors driving global consumer spending. Consumer preferences, macroeconomic conditions, foreign currency fluctuations and geopolitical events continue to impact overall levels of consumer travel and spending on discretionary items, with inconsistent patterns across channels and geographies.

As previously noted, Covid-19 was officially declared a global pandemic by the World Health Organization in March 2020. The 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 full and partial store closures globally, causing a significant reduction in sales starting in the third quarter of fiscal ~~2020,~~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 ~~some level~~local government regulation, and otherstores may be required to close again for an extended period of ~~ongoing closures anticipated.~~time due to the possibility of a resurgence of increased infections. Covid-19 may also cause disruptions in the Company’s supply chain, resulting in facility closures, labor instability, potential inability to source raw materials and disrupted operating procedures in attempts to curb the spread of Covid-19 within our third-party manufacturers, distribution centers, and other vendors. The Company’s e-commerce sites continue to operate, subject to the local guidance related to Covid-19 surrounding our distribution centers. In addition, the Company has started to experience delays as a result of port congestion for imported products, which may result in longer lead times or increased inbound freight costs. Furthermore, the Kate Spade brand has inventory on the Maersk Essen and One Apus cargo ships, which have experienced weather related incidents resulting in delays of expected inventory receipts, as well as possible loss or damage to the product. The Company is working to mitigate the impact of these incidents through various actions. If these mitigation efforts are not successful, there is a risk that these incidents could adversely impact the brand’s sales in the second half of fiscal 2021.

The ~~disruptions related to Covid-19~~new U.S. presidential administration may enact additional stimulus legislation or support public health policies, including the widespread distribution of vaccines, which may mitigate the impact of the pandemic. Furthermore, the new U.S. presidential administration has announced certain tax plans that, if passed as currently communicated, could have ~~materially adversely impacted~~an adverse impact on our ~~operations, cash flow,~~tax rate and liquidity. There is uncertainty around the duration of these disruptions and the possibility of other effects on the business. We will continue to monitor the rapidly evolving situation pertaining to the Covid-19 outbreak, including guidance from international and domestic authorities. In these circumstances, the Company will need to make adjustments to our operating plan. Refer to Part II, Item 1A. “Risk Factors” for further information.financial results.

Several organizations that monitor the world’s economy, including the International Monetary Fund, observed that ~~global expansion has declined significantly in the last year and~~ the outbreak of the Covid-19 pandemic has negatively shocked the global economy ~~contributing~~and may have a sustained negative impact on the global economic growth as compared to ~~further anticipated declines for the remainder~~pre-pandemic estimates. Initial signs of ~~calendar 2020. These~~recovery have been prevalent, however, these organizations expect recovery to continue on a slow or gradual pace with the ~~economy~~possibility of slight setbacks after a period of temporary economic rebound. Economic activity continues to ~~recover slightly next year, under~~be marked by uncertainty as the ~~assumption~~factors surrounding the ability to control the spread of or treat Covid-19 remain considerable. Consumer behavior is largely impacted by governments’ ability to enforce policies to prevent the resurgence of the virus and make strategic investments that aid economic ~~activity begins~~recovery. While uncertainty continues to ~~normalize paired with~~surround future economic growth, multilateral cooperation and support from local ~~policymakers. Even so,~~policymakers is pivotal in shaping the ~~current global outlook remains uncertain as projected recoveries are critically dependent on the return~~

of consumer and investor confidence through a fading pandemic as well as effective policy support. Consequently, it is still too early to understand the magnitude and kind of sustained impact Covid-19 will have on consumer discretionary spending.economic outlook.

Furthermore, currency volatility, political instability and potential changes to trade agreements or duty rates may contribute to a worsening of the macroeconomic environment. During fiscal 2020, Hong Kong SAR, China has been the subject of worsening political unrest, as demonstrated through ongoing public demonstrations and protests, which has impacted and is expected to continue toenvironment or adversely impact our business. Furthermore, during fiscal 2019 and continuing into fiscal 2020, the Trump Administration and China have both imposed new tariffs on the importation of certain product categories into the respective country. We expect these changes to have a modest impact on gross margin in fiscal 2020. Continued increases in trade tensions could impact the Company's ability to grow its business, particularly with the Chinese consumer globally. Since fiscal 2019, the

U.S. and China have both imposed tariffs on the importation of certain product categories into the respective country. There continues to be a possibility of increases in tariffs on goods imported into the U.S. from China and Vietnam, or other countries.

Additional macroeconomic impacts include but are not limited to the United Kingdom ("U.K.") voting to leave the European Union ("E.U."), commonly known as "Brexit." ~~On March 29, 2017, the U.K. triggered Article 50 of the Lisbon Treaty formally starting a 2 year negotiation period with the E.U., which was subsequently extended to January 31, 2020.~~ The U.K. officially terminated its membership of the E.U. on January 31, 2020 under the terms of a withdrawal agreement concluded between the U.K. and E.U. and ~~has now entered into a~~concluded the transition phase ~~until~~on December 31, 2020. ~~During the transition phase,~~On December 24, 2020, the U.K. ~~will generally continue operating as if it were still a member of the~~and E.U. ~~Trade talks between the E.U. and U.K., to determine~~announced an agreement on their future ~~relationship, are still underway. If a trade deal~~relationship. This includes, but is not ~~reached by December 31, 2020, absent a request by June 30, 2020~~limited to, ~~extend~~ the ~~transition period,~~free movement of U.K. and E.U. originating products. However, products originating outside the U.K. ~~can expect checks~~ and ~~tariffs on products~~E.U. going to and coming from the E.U. will be subject to tariffs beginning on January 1, 2021. The Company does not expect Brexit to materially impact our business.

As part of our efforts to improve our working capital efficiency, we have worked with certain suppliers to revisit terms and conditions, including the extension of payment terms. As an alternative to our payment terms, available to certain suppliers is a voluntary supply chain finance (“SCF”) program that enables our suppliers to sell their receivables from the Company to a global financial institution on a non-recourse basis at a rate that leverages our credit rating. We do not have the ability to refinance or modify payment terms to the global financial institution through the SCF program. No guarantees are provided by the Company or any of our subsidiaries under the SCF program.

We will continue to monitor these trends and evaluate and adjust our operating strategies and cost management opportunities to mitigate the related impact on our results of operations, while remaining focused on the long-term growth of our business and protecting the value of our brands.

For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, see Part II, Item 1A. "Risk Factors" ~~herein and Part I, Item 1A. "Risk Factors" disclosed in our Annual Report on Form 10-K for the fiscal year ended June 29, 2019.~~herein.

~~THIRD~~SECOND QUARTER FISCAL ~~2020~~2021 COMPARED TO ~~THIRD~~SECOND QUARTER FISCAL ~~2019~~2020

The following table summarizes results of operations for the ~~third~~second quarter of fiscal ~~2020~~2021 compared to the ~~third~~second quarter of fiscal ~~2019.~~2020. All percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers.

Three Months Ended
March 28, 2020 March 30, 2019 Variance
(millions, except per share data)
Amount
% of
net sales
Amount
% of
net sales
Amount %
Net sales $ 1,072.7
100.0 % $ 1,331.4
100.0 % $ (258.7 ) (19.4 )%
Gross profit 616.2
57.4
915.9
68.8
(299.7 ) (32.7 )
SG&A expenses 1,301.7
NM
806.1
60.6
495.6
61.5
Operating income (loss) (685.5 ) (63.9 ) 109.8
8.2
(795.3 ) NM
Interest expense, net 13.5
1.3
10.6
0.8
2.9
26.6
Other expense (income) 6.0
0.6
4.0
0.3
2.0
51.7
Provision for income taxes (27.9 ) (2.6 ) (22.2 ) (1.7 ) (5.7 ) (25.2 )
Net income (loss) (677.1 ) (63.1 ) 117.4
8.8
(794.5 ) NM
Net income (loss) per share:

Basic $ (2.45 )
$ 0.40

$ (2.85 ) NM
Diluted $ (2.45 )
$ 0.40

$ (2.85 ) NM


	Three Months Ended
	December 26, 2020				December 28, 2019				Variance
	(millions, except per share data)
	Amount		% of net sales		Amount		% of net sales		Amount		%
Net sales	$	1,685.4	100.0	%	$	1,816.0	100.0	%	$	(130.6)	(7.2)	%
Gross profit	1,173.7		69.6		1,209.7		66.6		(36.0)		(3.0)
SG&A expenses	784.3		46.5		846.6		46.6		(62.3)		(7.4)
Operating income (loss)	389.4		23.1		363.1		20.0		26.3		7.3
Interest expense, net	18.7		1.1		14.0		0.8		4.7		33.1
Other expense (income)	(3.6)		(0.2)		(5.9)		(0.3)		2.3		38.6
Provision for income taxes	63.3		3.8		56.2		3.1		7.1		12.6
Net income (loss)	311.0		18.5		298.8		16.5		12.2		4.1
Net income (loss) per share:
Basic	$	1.12			$	1.08			$	0.04	3.5
Diluted	$	1.11			$	1.08			$	0.03	2.5

~~NM - Not meaningful~~

GAAP to Non-GAAP Reconciliation

The Company’s reported results are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The reported results during the ~~third~~second quarter of fiscal ~~2020~~2021 and fiscal ~~2019~~2020 reflect the costs attributable to the CARES Act Tax Impact, the Acceleration Program, ERP system implementation efforts ~~organization-related, integration~~ and ~~acquisition~~Organization-related and Integration costs, ~~and impairment charges,~~ as noted in the following tables. Refer to "Non-GAAP Measures" herein for further discussion on the Non-GAAP measures.

~~Third~~Second Quarter Fiscal ~~2020~~2021 Items

Three Months Ended March 28, 2020
Items affecting comparability

GAAP Basis
(As Reported)
ERP Implementation Organization-related & Integration costs Impairment
Non-GAAP Basis
(Excluding Items)
(millions, except per share data)
Coach 475.7
—
—
(61.9 ) 537.6
Kate Spade 122.5
—
—
(32.3 ) 154.8
Stuart Weitzman 18.0
—
—
(9.8 ) 27.8
Gross profit⁽¹⁾
$ 616.2
$ —
$ —
$ (104.0 ) $ 720.2

Coach 437.6
—
—
16.4
421.2
Kate Spade 213.8
—
0.3
41.5
172.0
Stuart Weitzman 548.7
—
0.2
485.8
62.7
Corporate 101.6
2.8
2.9
—
95.9
SG&A expenses $ 1,301.7
$ 2.8
$ 3.4
$ 543.7
$ 751.8

Coach 38.1
—
—
(78.3 ) 116.4
Kate Spade (91.3 ) —
(0.3 ) (73.8 ) (17.2 )
Stuart Weitzman (530.7 ) —
(0.2 ) (495.6 ) (34.9 )
Corporate (101.6 ) (2.8 ) (2.9 ) —
(95.9 )
Operating income (loss) $ (685.5 ) $ (2.8 ) $ (3.4 ) $ (647.7 ) $ (31.6 )

Provision for income taxes (27.9 ) (0.7 ) (2.5 ) (49.4 ) 24.7
Net income (loss) $ (677.1 ) $ (2.1 ) $ (0.9 ) $ (598.3 ) $ (75.8 )
Net income (loss) per diluted common share $ (2.45 ) $ (0.01 ) $ —
$ (2.17 ) $ (0.27 )


	Three Months Ended December 26, 2020
			Item Affecting Comparability
	GAAP Basis (As Reported)		CARES Act Tax Impact		Acceleration Program		Non-GAAP Basis (Excluding Items)
	(millions, except per share data)
Coach	888.1		—		—		888.1
Kate Spade	233.1		—		—		233.1
Stuart Weitzman	52.5		—		—		52.5
Gross profit(1)	$	1,173.7	$	—	$	—	$	1,173.7

Coach	476.1		—		5.8		470.3
Kate Spade	174.3		—		2.4		171.9
Stuart Weitzman	40.6		—		(2.3)		42.9
Corporate	93.3		—		15.8		77.5
SG&A expenses	$	784.3	$	—	$	21.7	$	762.6

Coach	412.0		—		(5.8)		417.8
Kate Spade	58.8		—		(2.4)		61.2
Stuart Weitzman	11.9		—		2.3		9.6
Corporate	(93.3)		—		(15.8)		(77.5)
Operating income (loss)	$	389.4	$	—	$	(21.7)	$	411.1



Provision for income taxes	63.3		(3.3)		(6.4)		73.0
Net income (loss)	$	311.0	$	3.3	$	(15.3)	$	323.0
Net income (loss) per diluted common share	$	1.11	$	0.01	$	(0.05)	$	1.15

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

In the ~~third~~second quarter of fiscal ~~2020~~2021 the Company incurred charges as follows:

•

~~ERP Implementation~~ ~~- Total charges represent technology implementation costs.~~

•CARES Act Tax Impact - Total amount relates to the income tax benefits under the CARES Act, most notably the Net Operating Loss ("NOL") carryback claim. This reflects the adjustment to the Company's provisional estimate. Refer to Note 15, "Income Taxes" for further information.

•Acceleration Program - Total charges incurred under the Acceleration Program are primarily professional fees incurred as a result of the development and execution of the Company's comprehensive strategic initiatives, as well as actions to streamline the Company's organization, which include severance. Refer to the "Executive Overview" and Note 6, "Restructuring Activities," herein for further information.


•	~~Organization-related and Integration costs~~ - Total charges represent integration costs primarily related to professional fees. Refer to the "Executive Overview" herein and Note 5, "Integration," for more information regarding integration costs.

•

~~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 7, "Goodwill and Other Intangible Assets," Note 13, "Fair Value Measurements," and Note 17, "Segment Information," for further information.

These actions taken together increased the Company's SG&A expenses by ~~$549.9 million, Cost of sales by $104.0~~$21.7 million and reduced Provision for income taxes by ~~$52.6~~$9.7 million, negatively impacting Net income by ~~$601.3~~$12.0 million or ~~$2.18~~$0.04 per diluted share.

~~Third~~Second Quarter Fiscal ~~2019~~2020 Items

Three Months Ended March 30, 2019
Items affecting comparability

GAAP Basis
(As Reported)
ERP Implementation Integration & Acquisition Impact of Tax Legislation
Non-GAAP Basis
(Excluding Items)
(millions, except per share data)
Cost of sales

Coach 691.7
—
—
—
691.7
Kate Spade 177.9
—
(4.3 ) —
182.2
Stuart Weitzman 46.3
—
(0.7 ) —
47.0
Gross profit⁽¹⁾
$ 915.9
$ —
$ (5.0 ) $ —
$ 920.9

SG&A expenses
Coach 452.8
—
5.5
—
447.3
Kate Spade 170.8
—
3.0
—
167.8
Stuart Weitzman 60.4
—
0.1
—
60.3
Corporate 122.1
14.7
7.0
—
100.4
SG&A expenses $ 806.1
$ 14.7
$ 15.6
$ —
$ 775.8

Operating income (loss)
Coach 238.9
—
(5.5 ) —
244.4
Kate Spade 7.1
—
(7.3 ) —
14.4
Stuart Weitzman (14.1 ) —
(0.8 ) —
(13.3 )
Corporate (122.1 ) (14.7 ) (7.0 ) —
(100.4 )
Operating income (loss) $ 109.8
$ (14.7 ) $ (20.6 ) $ —
$ 145.1

Provision for income taxes (22.2 ) (3.7 ) (2.4 ) (24.9 ) 8.8
Net income (loss) $ 117.4
$ (11.0 ) $ (18.2 ) $ 24.9
$ 121.7
Net income (loss) per diluted common share $ 0.40
$ (0.05 ) $ (0.06 ) $ 0.09
$ 0.42


	Three Months Ended December 28, 2019
			Items Affecting Comparability
	GAAP Basis (As Reported)		ERP Implementation		Organization-related & Integration costs		Non-GAAP Basis (Excluding Items)
	(millions, except per share data)
Coach	877.3		—		—		877.3
Kate Spade	262.4		—		—		262.4
Stuart Weitzman	70.0		—		(1.5)		71.5
Gross profit(1)	$	1,209.7	$	—	$	(1.5)	$	1,211.2

Coach	494.5		—		(0.4)		494.9
Kate Spade	194.5		—		0.7		193.8
Stuart Weitzman	60.4		—		0.3		60.1
Corporate	97.2		6.3		1.8		89.1
SG&A expenses	$	846.6	$	6.3	$	2.4	$	837.9

Coach	382.8		—		0.4		382.4
Kate Spade	67.9		—		(0.7)		68.6
Stuart Weitzman	9.6		—		(1.8)		11.4
Corporate	(97.2)		(6.3)		(1.8)		(89.1)
Operating income (loss)	$	363.1	$	(6.3)	$	(3.9)	$	373.3

Provision for income taxes	56.2		(1.5)		(4.0)		61.7
Net income (loss)	$	298.8	$	(4.8)	$	0.1	$	303.5
Net income (loss) per diluted common share	$	1.08	$	(0.02)	$	—	$	1.10

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

In the ~~third~~second quarter of fiscal ~~2019,~~2020, the Company incurred the following:


•	•ERP Implementation - Total charges represent technology implementation costs. •Organization-related and Integration costs - Total charges represent integration costs related to inventory and professional fees. Refer to ~~the "Executive Overview" herein for further information.~~


•	~~Integration & Acquisition~~ ~~- Total charges represent integration and acquisition costs related to organization-related costs, limited life purchase accounting adjustments and professional fees.~~

~~Refer to the "Executive Overview" herein and~~ Note 5, "Integration," for more ~~information.~~information regarding integration costs.


•	~~Impact of Tax Legislation~~ ~~- Total benefit primarily due to the transition tax related to foreign earnings deemed to be repatriated.~~

These actions taken together increased the Company's SG&A expenses by $8.7 million, Cost of sales by ~~$5.0 million, SG&A expenses by $30.3~~$1.5 million and ~~decreased~~reduced Provision for income taxes by ~~$31.0~~$5.5 million, negatively impacting Net income by ~~$4.3~~$4.7 million or $0.02 per diluted share.

Tapestry, Inc. Summary – ~~Third~~Second Quarter of Fiscal ~~2020~~2021

Currency Fluctuation Effects

The change in net sales and gross margin for the ~~third~~second quarter of fiscal ~~2020~~2021 compared to the ~~third~~second quarter of fiscal ~~2019~~2020 has been presented both including and excluding currency fluctuation effects. All percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers.

Net Sales


	Three Months Ended				Variance
	December 26, 2020		December 28, 2019		Amount		%		Constant Currency Change
	(millions)
Coach	$	1,225.3	$	1,269.9	$	(44.6)	(3.5)	%	(5.0)	%
Kate Spade	375.6		430.4		(54.8)		(12.7)		(13.2)
Stuart Weitzman	84.5		115.7		(31.2)		(26.9)		(28.4)
Total Tapestry	$	1,685.4	$	1,816.0	$	(130.6)	(7.2)		(8.4)

Net sales in the ~~third~~second quarter of fiscal ~~2020~~2021 decreased ~~19.4%~~7.2% or ~~$258.7~~$130.6 million to ~~$1.07~~$1.69 billion. Excluding the effects of foreign currency, net sales decreased by ~~19.4%~~8.4% or ~~$259.0~~$153.0 million.

•Coach Net Sales decreased 3.5% or $44.6 million to $1.23 billion in the second quarter of fiscal 2021. Excluding the ~~effects~~impact of foreign currency, ~~the~~ net sales decreased 5.0% or $63.4 million. This decrease in net sales is primarily attributed to a decline of $62.1 million in net global retail sales driven by lower sales in stores in North America, Other Asia, including Japan, and Europe due to the impact of Covid-19, which was partially offset by an increase in global e-commerce sales and store sales in mainland China.

•Kate Spade Net Sales decreased 12.7% or $54.8 million to $375.6 million in the second quarter of fiscal 2021. Excluding the impact of foreign currency, net sales decreased 13.2% or $56.8 million. This decrease is primarily due to a decline of $33.2 million in net global retail sales driven by lower sales in stores, primarily in North America, due to the impact of the Covid-19, partially offset by an increase in global e-commerce sales. Wholesale sales also declined $21.7 million due to a strategic pullback in disposition and lower demand as a result of Covid-19.

•Stuart Weitzman Net Sales decreased 26.9% or $31.2 million to $84.5 million in the second quarter of fiscal 2021. Excluding the impact of foreign currency, net sales decreased 28.4% or $32.8 million. This decrease was ~~driven by Coach, Stuart Weitzman and Kate Spade.~~primarily due to a net decline of $24.8 million in the retail business, which is attributed to store closures related to fleet optimization under the Acceleration Program, as well as a decline in demand as a result of Covid-19. Additionally, wholesale sales decreased $8.0 million, which is primarily due to a decline in demand as a result of the Covid-19.

Gross Profit


	Three Months Ended
	December 26, 2020				December 28, 2019				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	888.1	72.5	%	$	877.3	69.1	%	$	10.8	1.2	%
Kate Spade	233.1		62.1		262.4		61.0		(29.3)		(11.2)
Stuart Weitzman	52.5		62.2		70.0		60.5		(17.5)		(24.9)
Tapestry	$	1,173.7	69.6		$	1,209.7	66.6		$	(36.0)	(3.0)

Gross profit decreased ~~32.7%~~3.0% or ~~$299.7~~$36.0 million to ~~$616.2 million~~$1.17 billion in the ~~third~~second quarter of fiscal ~~2020~~2021 from ~~$915.9 million~~$1.21 billion in the ~~third~~second quarter of fiscal ~~2019.~~2020. Gross margin for the ~~third~~second quarter of fiscal ~~2020~~2021 was ~~57.4%~~69.6% as compared to ~~68.8%~~66.6% in the ~~third~~second quarter of fiscal ~~2019.~~2020. Excluding items affecting comparability of ~~$104.0 million and $5.0~~$1.5 million in the ~~third~~second quarter of fiscal 2020 ~~and fiscal 2019, respectively,~~ as discussed in the "GAAP to non-GAAP Reconciliation" herein, gross profit decreased ~~21.8%~~3.1% or ~~$200.7~~$37.5 million to ~~$720.2 million~~$1.17 billion from $1.21 billion in the ~~third~~second quarter of fiscal 2020. Excluding items affecting comparability, gross margin increased 290 basis points to 69.6% compared to 66.7% in the second quarter of fiscal 2020, and on a constant currency basis, gross margin ~~decreased 210~~increased 280 basis points ~~to 67.1% compared to 69.2% in~~from the ~~third~~second quarter of fiscal ~~2019. This decrease in gross profit was driven by a decrease in Coach of $154.1 million, in Kate Spade of $27.4 million and in Stuart Weitzman of $19.2 million.~~

~~Selling, General and Administrative Expenses~~2020.

The Company includes inbound product-related transportation costs from our service providers within Cost of sales. The Company, similar to some companies, includes certain transportation-related costs due to our distribution network in SG&A expenses rather than in Cost of sales; for this reason, our gross margins may not be comparable to that of entities that include all costs related to their distribution network in Cost of sales.

~~SG&A expenses, which include the impairment of goodwill and intangible assets as well as other expenses,~~

•Coach Gross Profit increased ~~61.5%~~1.2% or ~~$495.6~~$10.8 million to ~~$1.30 billion~~$888.1 million in the ~~third~~second quarter of fiscal ~~2020 as compared to $806.1~~2021 from $877.3 million in the ~~third~~second quarter of fiscal ~~2019.~~2020. Gross margin increased 340 basis points to 72.5% in the second quarter of fiscal 2021 from 69.1% in the second quarter of fiscal 2020. Coach gross margin was not materially impacted by foreign currency. This increase in gross margin was primarily due to reduced promotional activity.

•Kate Spade Gross Profit decreased 11.2% or $29.3 million to $233.1 million in the second quarter of fiscal 2021 from $262.4 million in the second quarter of fiscal 2020. Gross margin increased 110 basis points to 62.1% in the second quarter of fiscal 2021 from 61.0% in the second quarter of fiscal 2020. Kate Spade gross margin was not materially impacted by foreign currency. This increase in gross margin was primarily due to favorable channel mix including a strategic pullback in disposition and reduced promotional activity, which was partially offset by the impact of directly operating the footwear business.

•Stuart Weitzman Gross Profit decreased 24.9% or $17.5 million to $52.5 million during the second quarter of fiscal 2021 from $70.0 million in the second quarter of fiscal 2020. Gross margin increased to 62.2% in the second quarter of fiscal 2021 from 60.5% in the second quarter of fiscal 2020. Excluding items affecting comparability of ~~$549.9 million and $30.3~~$1.5 million in the ~~third~~second quarter of fiscal 2020, Stuart Weitzman gross profit decreased 26.5% or $19.0 million to $52.5 million from $71.5 million in the second quarter of fiscal 2020. Excluding items affecting comparability, gross margin increased 40 basis points to 62.2% from 61.8% in the second quarter of fiscal 2020, and on a constant currency basis gross margin decreased 140 basis points from the second quarter of fiscal ~~2019,~~2020. This decrease in gross margin was primarily due to channel mix.

Selling, General and Administrative Expenses ("SG&A")


	Three Months Ended
	December 26, 2020				December 28, 2019				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	476.1	38.9	%	$	494.5	38.9	%	$	(18.4)	(3.7)	%
Kate Spade	174.3		46.4		194.5		45.2		(20.2)		(10.4)
Stuart Weitzman	40.6		48.0		60.4		52.3		(19.8)		(32.9)
Corporate	93.3		NA		97.2		NA		(3.9)		(4.0)
Tapestry	$	784.3	46.5		$	846.6	46.6		$	(62.3)	(7.4)

SG&A expenses decreased 7.4% or $62.3 million to $784.3 million in the second quarter of fiscal 2021 as compared to $846.6 million in the second quarter of fiscal 2020. As a percentage of net sales, SG&A expenses decreased to 46.5% during the second quarter of fiscal 2021 as compared to 46.6% during the second quarter of fiscal 2020. Excluding items affecting comparability of $21.7 million and $8.7 million in the second quarter of fiscal 2021 and fiscal 2020, respectively, SG&A expenses decreased ~~3.1%~~9.0% or ~~$24.0~~$75.3 million to ~~$751.8~~$762.6 million from $837.9 million in the ~~third~~second quarter of fiscal ~~2019.~~2020. SG&A as a percentage of sales decreased to 45.2% as compared to 46.1% during the second quarter of fiscal 2020. This decrease ~~was~~in SG&A expenses includes actions taken as part of the Acceleration Program as well as benefits from wage subsidies, rent concessions and a gain realized on the deferred purchase price of the Kate Spade joint venture, partially offset by an increase in accrued Annual Incentive Plan expenses.

•Coach SG&A Expenses decreased 3.7% or $18.4 million to $476.1 million in the second quarter of fiscal 2021 as compared to $494.5 million in the second quarter of fiscal 2020. SG&A expenses as a percentage of net sales remained flat at 38.9% during the second quarter of fiscal 2021. Excluding items affecting comparability of $5.8 million and $(0.4) million in the second quarter of fiscal 2021 and fiscal 2020, respectively, SG&A expenses decreased 5.0% or $24.6 million to $470.3 million during the second quarter of fiscal 2021; and SG&A expenses as a percentage of net sales decreased to 38.4% in the second quarter of fiscal 2021 from 39.0% in the second quarter of fiscal 2020. This decrease in SG&A expenses is primarily due to a ~~decrease~~decline in ~~Coach of $26.1 million~~compensation costs and ~~Corporate expenses of $4.5 million,~~occupancy costs, partially offset by ~~increases~~an increase in e-commerce related selling costs and digital marketing spend in support of higher e-commerce sales.

•Kate Spade SG&A Expenses decreased 10.4% or $20.2 million to $174.3 million in the second quarter of ~~$4.2~~fiscal 2021 as compared to $194.5 million in the second quarter of fiscal 2020. As a percentage of net sales, SG&A expenses increased to 46.4% during the second quarter of fiscal 2021 as compared to 45.2% during the second quarter of fiscal 2020. Excluding items affecting comparability of $2.4 million and $0.7 million in the second quarter of fiscal 2021 and fiscal 2020, respectively, SG&A expenses decreased 11.3% or $21.9 million to $171.9 million during the second quarter of fiscal 2021; and SG&A expenses as a percentage of net sales increased to 45.8% in the second quarter of fiscal 2021 from 45.0% in the second quarter of fiscal 2020. This decrease in SG&A expenses is primarily due to a

decline in compensation costs, occupancy costs and depreciation expense, partially offset by an increase in digital marketing spend in support of higher e-commerce sales.

•Stuart Weitzman SG&A Expenses decreased 32.9% or $19.8 million to $40.6 million in the second quarter of ~~$2.4 million.~~fiscal 2021 as compared to $60.4 million in the second quarter of fiscal 2020. As a percentage of net sales, SG&A expenses decreased to 48.0% during the second quarter of fiscal 2021 as compared to 52.3% during the second quarter of fiscal 2020. Excluding items affecting comparability of $(2.3) million and $0.3 million in the second quarter of fiscal 2021 and fiscal 2020, respectively, SG&A expenses decreased 28.5% or $17.2 million to $42.9 million during the second quarter of fiscal 2021 from $60.1 million during the second quarter of fiscal 2020; and SG&A expenses as a percentage of net sales decreased to 50.9% in the second quarter of fiscal 2021 from 52.0% in the second quarter of fiscal 2020. This decrease is primarily due to a decline in occupancy and compensation costs, mainly as a result of fleet optimization under the Acceleration Program, as well as reduced marketing spend.

•Corporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment, decreased ~~16.8%~~4.0% or ~~$20.5~~$3.9 million to ~~$101.6~~$93.3 million in the ~~third~~second quarter of fiscal ~~2020~~2021 as compared to ~~$122.1~~$97.2 million in the ~~third~~second quarter of fiscal ~~2019.~~2020. Excluding items affecting comparability of ~~$5.7~~$15.8 million and ~~$21.7~~$8.1 million in the ~~third~~second quarter of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, respectively, SG&A expenses decreased ~~4.5%~~13.1% or ~~$4.5~~$11.6 million to ~~$95.9~~$77.5 million in the ~~third~~second quarter of fiscal ~~2020~~2021 as compared to ~~$100.4~~$89.1 million in the ~~third~~second quarter of fiscal ~~2019.~~2020. This decrease in SG&A expenses was primarily driven by ~~lower compensation costs.~~a gain realized on the deferred purchase price of the Kate Spade joint venture.

Operating Income (Loss)


	Three Months Ended
	December 26, 2020				December 28, 2019				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	412.0	33.6	%	$	382.8	30.1	%	$	29.2	7.6	%
Kate Spade	58.8		15.7		67.9		15.8		(9.1)		(13.4)
Stuart Weitzman	11.9		14.1		9.6		8.2		2.3		25.5
Corporate	(93.3)		NA		(97.2)		NA		3.9		4.0
Tapestry	$	389.4	23.1		$	363.1	20.0		$	26.3	7.3

Operating income ~~decreased $795.3~~increased 7.3% or $26.3 million to ~~an operating loss of $685.5~~$389.4 million in the ~~third~~second quarter of fiscal ~~2020~~2021 as compared to ~~operating income of $109.8~~$363.1 million in the ~~third~~second quarter of fiscal ~~2019.~~2020. Operating margin was ~~(63.9)%~~23.1% in the ~~third~~second quarter of fiscal ~~2020~~2021 as compared to ~~8.2%~~20.0% in the ~~third~~second quarter of fiscal ~~2019.~~2020. Excluding items affecting comparability of ~~$653.9~~$21.7 million and ~~$35.3~~$10.2 million in the ~~third~~second quarter of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, respectively, operating income ~~decreased $176.7~~increased 10.1% or $37.8 million to ~~an operating loss of $31.6~~$411.1 million in the ~~third~~second quarter of fiscal ~~2020~~2021 from ~~an operating income of $145.1~~$373.3 million in the third quarter of fiscal 2019; and operating margin decreased to (2.9)% in the third quarter of fiscal 2020 as compared to 10.9% in the third quarter of fiscal 2019. The decrease in operating income was primarily driven by decreases within Coach of $128.0 million, Kate Spade of $31.6 million and Stuart Weitzman of $21.6 million, partially offset by a decrease in Corporate expenses of $4.5 million.

~~Interest Expense, net~~

~~Interest expense, net increased 26.6% or $2.9 million to $13.5 million in the third quarter of fiscal 2020 as compared to $10.6 million in the third quarter of fiscal 2019.~~

~~Other Expense (Income)~~

Other expense increased $2.0 million to $6.0 million in the third quarter of fiscal 2020 as compared to expense of $4.0 million in the third quarter of fiscal 2019. The increase in other expense is related to an increase in foreign exchange losses.

~~Provision for Income Taxes~~

The effective tax rate was 4.0% in the third quarter of fiscal 2020 as compared to (23.4)% in the third quarter of fiscal 2019. Excluding items affecting comparability, the effective tax rate was (48.2)% in the third quarter of 2020 as compared to 6.8% in the third quarter of fiscal 2019. The decrease in our effective tax rate was primarily attributable to a decline in revenue.

~~Net Income (Loss)~~

Net income decreased $794.5 million to a net loss of $677.1 million in the third quarter of fiscal 2020 as compared to a net income of $117.4 million in the third quarter of fiscal 2019. Excluding items affecting comparability, net income decreased $197.5 million to a net loss of $75.8 million in the third quarter of fiscal 2020 as compared to a net income of $121.7 million in the third quarter of fiscal 2019. This decrease was primarily due to lower operating income.

~~Net Income (Loss) per Share~~

Net loss per diluted share was $2.45 in the third quarter of fiscal 2020 as compared to net income per diluted share of $0.40 in the third quarter of fiscal 2019. Excluding items affecting comparability, net loss per diluted share was $0.27 in the third quarter of fiscal 2020 as compared to net income per diluted share of $0.42 in the third quarter of fiscal 2019. This change was primarily due to lower net income.

~~Segment Performance - Third Quarter of Fiscal 2020~~

The following tables summarize results of operations by reportable segment for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019. All percentages shown in the tables below and the discussion that follows have been calculated using unrounded numbers.

~~Coach~~

Three Months Ended
March 28, 2020 March 30, 2019 Variance
(millions)
Amount
% of
net sales
Amount
% of
net sales
Amount %
Net sales $ 772.5
100.0 % $ 965.0
100.0 % $ (192.5 ) (20.0 )%
Gross profit 475.7
61.6
691.7
71.7
(216.0 ) (31.2 )
SG&A expenses 437.6
56.6
452.8
46.9
(15.2 ) (3.3 )
Operating income (loss) 38.1
4.9
238.9
24.8
(200.8 ) (84.0 )

~~Coach Net Sales~~ decreased 20.0% or $192.5 million to $772.5 million in the third quarter of fiscal 2020. Coach net sales for the third quarter of fiscal 2020 were not materially impacted by foreign currency. This decrease in net sales is primarily attributed to a net decline of $187.0 million in retail sales globally due to full and partial store closures related to the Covid-19 outbreak, which was partially offset by an increase in e-commerce sales in North America and mainland China. Wholesale sales also declined $6.8 million due to lower demand as a result of the Covid-19 outbreak.

~~Coach Gross Profit~~ decreased 31.2% or $216.0 million to $475.7 million in the third quarter of fiscal 2020 from $691.7 million in the third quarter of fiscal 2019. Gross margin decreased to 61.6% in the third quarter of fiscal 2020 from 71.7% in the third quarter of fiscal 2019. Excluding items affecting comparability of $61.9 million in the third quarter of fiscal 2020, gross profit decreased 22.3% or $154.1 million to $537.6 million from $691.7 million in the third quarter of fiscal 2019. Gross margin decreased 210 basis points to 69.6% from 71.7% in the third quarter of fiscal 2019. Excluding the impact of foreign currency in both periods, gross margin decreased 170 basis points. This decrease in gross margin was primarily due to the impact of product costing and unfavorable channel mix.

~~Coach SG&A Expenses~~ decreased 3.3% or $15.2 million to $437.6 million in the third quarter of fiscal 2020 as compared to $452.8 million in the third quarter of fiscal 2019. SG&A expenses as a percentage of net sales increased to 56.6% during the third quarter of fiscal 2020 from 46.9% during the third quarter of fiscal 2019. Excluding items affecting comparability of $16.4 million and $5.5 million in the third quarter of fiscal 2020 and fiscal 2019, respectively, SG&A expenses decreased 5.8% or $26.1 million to $421.2 million during the thirdsecond quarter of fiscal 2020; and ~~SG&A expenses as a percentage of net sales~~operating margin increased to ~~54.5%~~24.4% in the ~~third~~second quarter of fiscal ~~2020 from 46.3%~~2021 as compared to 20.6% in the ~~third~~second quarter of fiscal ~~2019. This decrease in SG&A expenses was driven by lower variable selling costs.~~2020.

•Coach Operating Income ~~decreased 84.0%~~increased 7.6% or ~~$200.8~~$29.2 million to ~~$38.1~~$412.0 million in the ~~third~~second quarter of fiscal ~~2020,~~2021, resulting in an operating margin of ~~4.9%~~33.6%, as compared to ~~$238.9~~$382.8 million and ~~24.8%~~30.1%, respectively, in the ~~third~~second quarter of fiscal ~~2019.~~2020. Excluding items affecting comparability, Coach operating income ~~decreased 52.4%~~increased 9.3% or ~~$128.0~~$35.4 million to ~~$116.4~~$417.8 million from ~~$244.4~~$382.4 million

in the ~~third~~second quarter of fiscal ~~2019;~~2020; and operating margin was ~~15.1%~~34.1% in the ~~third~~second quarter of fiscal ~~2020~~2021 as compared to ~~25.3%~~30.1% in the ~~third~~second quarter of fiscal ~~2019.~~2020. This increase in operating income was due to lower SG&A expenses and higher gross profit.

•Kate Spade Operating Income decreased 13.4% or $9.1 million to $58.8 million in the second quarter of fiscal 2021, resulting in an operating margin of 15.7%, as compared to $67.9 million and operating margin of 15.8% in the second quarter of fiscal 2020. Excluding items affecting comparability, Kate Spade operating income decreased 10.9% or $7.4 million to $61.2 million from $68.6 million in the second quarter of fiscal 2020; and operating margin was 16.3% in the second quarter of fiscal 2021 as compared to 15.9% in the second quarter of fiscal 2020. This decrease in operating income was ~~primarily~~due lower gross profit, partially offset by lower SG&A expenses.

•Stuart Weitzman Operating Income increased 25.5% or $2.3 million to $11.9 million in the second quarter of fiscal 2021, resulting in an operating margin of 14.1%, as compared to $9.6 million and operating margin of 8.2% in the second quarter of fiscal 2020. Excluding items affecting comparability, Stuart Weitzman operating income decreased 16.3% or $1.8 million to $9.6 million from $11.4 million in the second quarter of fiscal 2020; and operating margin was 11.3% in the second quarter of fiscal 2021 as compared to 9.8% in the second quarter of fiscal 2020. This decrease in operating income was due to lower gross profit, partially offset by lower SG&A expenses.

~~Kate Spade~~

Three Months Ended
March 28, 2020 March 30, 2019 Variance
(millions)
Amount
% of
net sales
Amount
% of
net sales
Amount %
Net sales $ 249.5
100.0 % $ 281.1
100.0 % $ (31.6 ) (11.2 )%
Gross profit 122.5
49.1
177.9
63.3
(55.4 ) (31.2 )
SG&A expenses 213.8
85.7
170.8
60.8
43.0
25.1
Operating income (loss) (91.3 ) (36.6 ) 7.1
2.5
(98.4 ) NM
Interest Expense, net

~~Kate Spade Net Sales~~ ~~decreased 11.2%~~Interest expense, net increased 33.1% or ~~$31.6~~$4.7 million to ~~$249.5~~$18.7 million in the ~~third~~second quarter of fiscal 2021 as compared to $14.0 million in the second quarter of fiscal 2020. The increase in interest expense, net is due to the additional interest expense related to the draw down on the Revolving Credit Facility in the fourth quarter of fiscal 2020 and lower interest income.

Other Expense (Income)

Other income decreased $2.3 million to $3.6 million in the second quarter of fiscal 2021 as compared to income of $5.9 million in the second quarter of fiscal 2020. The decrease in other income is related to a decrease in foreign exchange gains.

Provision for Income Taxes

The effective tax rate was 16.9% in the second quarter of fiscal 2021 as compared to 15.8% in the second quarter of fiscal 2020. Excluding items affecting comparability, the ~~favorable impact~~effective tax rate was 18.5% in the second quarter of ~~foreign currency, net sales decreased 11.4% or $32.1 million. This decrease is~~2021 as compared to 16.9% in the second quarter of fiscal 2020. The increase in our effective tax rate was primarily ~~due to a decline of $29.3 million in retail sales mainly in North America due to full and partial store closures related~~attributable to the ~~Covid-19 outbreak. Furthermore, wholesale sales declined $3.7 million due to lower demand as a result~~geographic mix of ~~the Covid-19 outbreak.~~earnings.

~~Kate Spade Gross Profit~~ ~~decreased 31.2%~~Net Income (Loss)

Net income increased 4.1% or ~~$55.4~~$12.2 million to ~~$122.5~~$311.0 million in the ~~third~~second quarter of fiscal ~~2020 from $177.9~~2021 as compared to $298.8 million in the third quarter of fiscal 2019. Gross margin decreased to 49.1% in the third quarter of fiscal 2020 from 63.3% in the third quarter of fiscal 2019. Excluding items affecting comparability of $32.3 million and $4.3 million in the third quarter of fiscal 2020 and fiscal 2019, respectively, gross profit decreased 15.0% or $27.4 million to $154.8 million from $182.2 million in the third quarter of fiscal 2019, and gross margin decreased 280 basis points to 62.0% from 64.8% in the third quarter of fiscal 2019. This decrease in gross margin is primarily due to promotional activity, unfavorable channel mix and the impact of directly operating the footwear business.

~~Kate Spade SG&A Expenses~~ increased 25.1% or $43.0 million to $213.8 million in the third quarter of fiscal 2020 as compared to $170.8 million in the third quarter of fiscal 2019. As a percentage of net sales, SG&A expenses increased to 85.7% during the third quarter of fiscal 2020 as compared to 60.8% during the third quarter of fiscal 2019. Excluding items affecting comparability of $41.8 million and $3.0 million in the third quarter of fiscal 2020 and fiscal 2019, respectively, SG&A expenses increased 2.4% or $4.2 million to $172.0 million during the third quarter of fiscal 2020; and SG&A expenses as a percentage of net sales increased to 68.9% in the third quarter of fiscal 2020 from 59.8% in the third quarter of fiscal 2019. This increase in SG&A expenses of $4.2 million was due to the timing of store impairment charges, partially offset by lower variable selling costs.

~~Kate Spade Operating Income~~ decreased $98.4 million to operating loss of $91.3 million in the third quarter of fiscal 2020, resulting in an operating margin of (36.6)%, as compared to an operating income of $7.1 million and operating margin of 2.5% in the third quarter of fiscal 2019. Excluding items affecting comparability, Kate Spade operating income decreased $31.6 million to an operating loss of $17.2 million from an operating income of $14.4 million in the third quarter of fiscal 2019; and operating margin was (6.9)% in the third quarter of fiscal 2020 as compared to 5.0% in the third quarter of fiscal 2019. This decrease in operating income was due to lower gross profit and higher SG&A expenses.

~~Stuart Weitzman~~

Three Months Ended
March 28, 2020 March 30, 2019 Variance
(millions)
Amount
% of
net sales
Amount
% of
net sales
Amount %
Net sales $ 50.7
100.0 % $ 85.3
100.0 % $ (34.6 ) (40.4 )%
Gross profit 18.0
35.4
46.3
54.3
(28.3 ) (61.2 )
SG&A expenses 548.7
NM
60.4
70.8
488.3
NM
Operating income (loss) (530.7 ) NM
(14.1 ) (16.5 ) (516.6 ) NM

~~Stuart Weitzman Net Sales~~ ~~decreased 40.4% or $34.6 million to $50.7 million in the third~~second quarter of fiscal 2020. Excluding items affecting comparability, net income increased 6.4% or $19.5 million to a net income of $323.0 million in the ~~unfavorable impact~~second quarter of ~~foreign currency,~~fiscal 2021 as compared to a net ~~sales decreased 40.0% or $34.1 million.~~income of $303.5 million in the second quarter of fiscal 2020. This ~~decrease~~increase was primarily due to ~~lower~~higher operating income.

Net Income (Loss) per Share

~~shipments~~Net income per diluted share increased 2.5% to $1.11 in the ~~wholesale business of $17.5 million and a decline in the retail business of $16.1 million, both of which were primarily due to a decline in demand as a result of the Covid-19 outbreak.~~

~~Stuart Weitzman Gross Profit~~ ~~decreased 61.2% or $28.3 million to $18.0 million during the third~~second quarter of fiscal ~~2020 from $46.3 million~~2021 as compared to $1.08 in the ~~third~~second quarter of fiscal ~~2019. Gross margin decreased to 35.4% in the third quarter of fiscal 2020 from 54.3% in the third quarter of fiscal 2019.~~2020. Excluding items affecting comparability, ~~of $9.8 million and $0.7 million~~net income per diluted share increased 4.8% to $1.15 in the ~~third~~second quarter of fiscal ~~2020 and fiscal 2019, respectively, Stuart Weitzman gross profit decreased 40.9% or $19.2 million~~2021 as compared to ~~$27.8 million from $47.0 million~~$1.10 in the ~~third~~second quarter of fiscal 2019, and gross margin decreased 50 basis points to 54.7% from 55.2% in the third quarter of fiscal 2019. Excluding the impact of foreign currency, gross margin decreased 180 basis points primarily due to unfavorable channel mix.

~~Stuart Weitzman SG&A Expenses~~ increased $488.3 million to $548.7 million in the third quarter of fiscal 2020 as compared to $60.4 million in the third quarter of fiscal 2019. Excluding items affecting comparability of $486.0 million and $0.1 million in the third quarter of fiscal 2020 and fiscal 2019, respectively, SG&A expenses increased 4.3% or $2.4 million to $62.7 million during the third quarter of fiscal 2020 from $60.3 million during the third quarter of fiscal 2019.2020. This increase is primarily due to increased bad debt reserves in addition to new store openings in China and the direct ownership of the businesses in Australia. This increase in SG&A expenses was partially offset by lower marketing expenses and compensation.

~~Stuart Weitzman Operating Loss~~ increased $516.6 million to $530.7 million in the third quarter of fiscal 2020, as compared to an operating loss of $14.1 million in the third quarter of fiscal 2019. Excluding items affecting comparability, Stuart Weitzman operating loss increased $21.6 million to $34.9 million from an operating loss of $13.3 million in the third quarter of fiscal 2019. This increase in operating losschange was primarily due to ~~lower gross profit.~~higher net income.

FIRST ~~NINE~~SIX MONTHS FISCAL 2021 COMPARED TO FIRST SIX MONTHS FISCAL 2020 ~~COMPARED TO FIRST NINE MONTHS FISCAL 2019~~

The following table summarizes results of operations for the first ~~nine~~six months of fiscal ~~2020~~2021 compared to the first ~~nine~~six months of fiscal ~~2019.~~2020. All percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers.

Nine Months Ended
March 28, 2020 March 30, 2019 Variance
(millions, except per share data)

Amount
% of
net sales
Amount
% of
net sales
Amount %
Net sales $ 4,246.6
100.0 % $ 4,513.4
100.0 % $ (266.8 ) (5.9 )%
Gross profit 2,740.4
64.5
3,054.5
67.7
(314.1 ) (10.3 )
SG&A expenses 3,011.2
70.9
2,405.9
53.3
605.3
(25.2 )
Operating income (loss) (270.8 ) (6.4 ) 648.6
14.4
(919.4 ) NM
Interest expense, net 39.8
0.9
36.9
0.8
2.9
7.6
Other expense (income) 12.8
0.3
4.4
0.1
8.4
NM
Provision for income taxes 34.9
0.8
112.8
2.5
(77.9 ) (69.1 )
Net income (loss) (358.3 ) (8.4 ) 494.5
11.0
(852.8 ) NM
Net income (loss) per share:

Basic $ (1.28 )
$ 1.71

$ (2.99 ) NM
Diluted $ (1.28 )
$ 1.70

$ (2.98 ) NM


	Six Months Ended
	December 26, 2020				December 28, 2019				Variance
	(millions, except per share data)

	Amount		% of net sales		Amount		% of net sales		Amount		%
Net sales	$	2,857.6	100.0	%	$	3,173.9	100.0	%	$	(316.3)	(10.0)	%
Gross profit	2,003.9		70.1		2,124.2		66.9		(120.3)		(5.7)
SG&A expenses	1,412.3		49.4		1,709.5		53.9		(297.2)		(17.4)
Operating income (loss)	591.6		20.7		414.7		13.1		176.9		42.7
Interest expense, net	38.1		1.3		26.3		0.8		11.8		44.7
Other expense (income)	(6.2)		(0.2)		6.8		0.2		(13.0)		NM
Provision for income taxes	17.0		0.6		62.8		2.0		(45.8)		(73.0)
Net income (loss)	542.7		19.0		318.8		10.0		223.9		70.3
Net income (loss) per share:
Basic	$	1.96			$	1.14			$	0.82	72.5
Diluted	$	1.94			$	1.13			$	0.81	71.7

NM - Not meaningful

GAAP to Non-GAAP Reconciliation

The Company’s reported results are presented in accordance with GAAP. The reported results during the first ~~nine~~six months of fiscal ~~2020~~2021 and fiscal ~~2019~~2020 reflect the impact of the costs attributable to the attributable to the CARES Act Tax Impact, the Acceleration Program, ERP system implementation efforts, ~~organization-related, integration~~Organization-related and ~~acquisition~~Integration costs ~~impairment~~and Impairment charges, ~~and the impact of the new tax legislation,~~ as noted in the following tables. Refer to "Non-GAAP Measures" herein for further discussion on the Non-GAAP ~~Measures.~~measures.

First ~~Nine~~Six Months of Fiscal ~~2020~~2021 Items

Nine Months Ended March 28, 2020
Items affecting comparability
GAAP Basis
(As Reported) ERP Implementation Organization-related & Integration costs Impairment Non-GAAP Basis
(Excluding Items)
(millions, except per share data)
Cost of sales
Coach 2,030.6
—
(0.1 ) (61.9 ) 2,092.6
Kate Spade 576.4
—
(1.2 ) (32.3 ) 609.9
Stuart Weitzman 133.4
—
(4.3 ) (9.8 ) 147.5
Gross profit⁽¹⁾
$ 2,740.4
$ —
$ (5.6 ) $ (104.0 ) $ 2,850.0

SG&A expenses
Coach 1,410.2
—
(0.1 ) 57.9
1,352.4
Kate Spade 607.0
—
1.1
66.7
539.2
Stuart Weitzman 673.8
—
(1.9 ) 494.7
181.0
Corporate 320.2
23.6
27.4
—
269.2
SG&A expenses $ 3,011.2
$ 23.6
$ 26.5
$ 619.3
$ 2,341.8

Operating income (loss)
Coach 620.4
—
—
(119.8 ) 740.2
Kate Spade (30.6 ) —
(2.3 ) (99.0 ) 70.7
Stuart Weitzman (540.4 ) —
(2.4 ) (504.5 ) (33.5 )
Corporate (320.2 ) (23.6 ) (27.4 ) —
(269.2 )
Operating income (loss) $ (270.8 ) $ (23.6 ) $ (32.1 ) $ (723.3 ) $ 508.2

Provision for income taxes 34.9
(5.7 ) (11.9 ) (61.5 ) 114.0
Net income (loss) $ (358.3 ) $ (17.9 ) $ (20.2 ) $ (661.8 ) $ 341.6
Net income (loss) per diluted common share $ (1.28 ) $ (0.06 ) $ (0.07 ) $ (2.37 ) $ 1.22


	Six Months Ended December 26, 2020
			Items affecting comparability
	GAAP Basis (As Reported)		CARES Act Tax Impact		Acceleration Program		Non-GAAP Basis (Excluding Items)
	(millions, except per share data)
Cost of sales
Coach	1,533.0		—		—		1,533.0
Kate Spade	387.2		—		—		387.2
Stuart Weitzman	83.7		—		—		83.7
Gross profit(1)	$	2,003.9	$	—	$	—	$	2,003.9

SG&A expenses
Coach	851.0		—		16.5		834.5
Kate Spade	305.2		—		3.4		301.8
Stuart Weitzman	71.8		—		(4.7)		76.5
Corporate	184.3		—		33.1		151.2
SG&A expenses	$	1,412.3	$	—	$	48.3	$	1,364.0

Operating income (loss)
Coach	682.0		—		(16.5)		698.5
Kate Spade	82.0		—		(3.4)		85.4
Stuart Weitzman	11.9		—		4.7		7.2
Corporate	(184.3)		—		(33.1)		(151.2)
Operating income (loss)	$	591.6	$	—	$	(48.3)	$	639.9

Provision for income taxes	17.0		(95.0)		(12.2)		124.2
Net income (loss)	$	542.7	$	95.0	$	(36.1)	$	483.8
Net income (loss) per diluted common share	$	1.94	$	0.34	$	(0.13)	$	1.73

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

In the first ~~nine~~six months of fiscal ~~2020~~2021 the Company incurred charges as follows:

•

~~ERP Implementation~~ ~~- Total charges represent technology implementation costs.~~

•CARES Act Tax Impact - Total amount relates to the income tax benefits under the CARES Act, most notably the Net Operating Loss ("NOL") carryback claim. Refer to Note 15, "Income Taxes" for further information.

•

~~Organization-related and Integration costs~~ - Total charges represent organization-related costs as a result of the departure of the Company's CEO in September 2019 and integration costs related to inventory, professional fees and share-based compensation. Refer to the "Executive Overview" herein for information regarding CEO departure and Note 5, "Integration," for more information regarding integration costs.

•

These actions taken together ~~increased the Company's Cost of sales by $109.6 million, increased SG&A expenses by $669.4 million and~~ decreased Provision for income taxes by ~~$79.1~~$107.2 million ~~negatively~~and increased the Company's SG&A expenses by $48.3 million, positively impacting Net income by ~~$699.9~~$58.9 million or ~~$2.50~~$0.21 per diluted share.

First ~~Nine~~Six Months of Fiscal ~~2019~~2020 Items

Nine Months Ended March 30, 2019
Items affecting comparability
GAAP Basis
(As Reported) ERP Implementation Integration & Acquisition Impact of Tax Legislation Non-GAAP Basis
(Excluding Items)
(millions, except per share data)
Cost of sales
Coach 2,231.5
—
(2.0 ) —
2,233.5
Kate Spade 658.0
—
(5.4 ) —
663.4
Stuart Weitzman 165.0
—
(1.7 ) —
166.7
Gross profit⁽¹⁾
$ 3,054.5
$ —
$ (9.1 ) $ —
$ 3,063.6

SG&A expenses
Coach 1,383.1
—
5.5
—
1,377.6
Kate Spade 517.9
—
10.1
—
507.8
Stuart Weitzman 186.9
—
12.2
—
174.7
Corporate 318.0
25.1
18.4
—
274.5
SG&A expenses $ 2,405.9
$ 25.1
$ 46.2
$ —
$ 2,334.6

Operating income (loss)
Coach 848.4
—
(7.5 ) —
855.9
Kate Spade 140.1
—
(15.5 ) —
155.6
Stuart Weitzman (21.9 ) —
(13.9 ) —
(8.0 )
Corporate (318.0 ) (25.1 ) (18.4 ) —
(274.5 )
Operating income (loss) $ 648.6
$ (25.1 ) $ (55.3 ) $ —
$ 729.0

Provision for income taxes 112.8
(6.3 ) (4.5 ) 9.2
114.4
Net income (loss) $ 494.5
$ (18.8 ) $ (50.8 ) $ (9.2 ) $ 573.3
Net income (loss) per diluted common share $ 1.70
$ (0.06 ) $ (0.17 ) $ (0.04 ) $ 1.97


	Six Months Ended December 28, 2019
			Items affecting comparability
	GAAP Basis (As Reported)		ERP Implementation		Organization-related & Integration costs		Impairment		Non-GAAP Basis (Excluding Items)
	(millions, except per share data)
Cost of sales
Coach	1,554.9		—		(0.1)		—		1,555.0
Kate Spade	453.9		—		(1.2)		—		455.1
Stuart Weitzman	115.4		—		(4.3)		—		119.7
Gross profit(1)	$	2,124.2	$	—	$	(5.6)	$	—	$	2,129.8

SG&A expenses
Coach	972.6		—		(0.1)		41.5		931.2
Kate Spade	393.2		—		0.8		25.2		367.2
Stuart Weitzman	125.1		—		(2.1)		8.9		118.3
Corporate	218.6		20.8		24.5		—		173.3
SG&A expenses	$	1,709.5	$	20.8	$	23.1	$	75.6	$	1,590.0

Operating income (loss)
Coach	582.3		—		—		(41.5)		623.8
Kate Spade	60.7		—		(2.0)		(25.2)		87.9
Stuart Weitzman	(9.7)		—		(2.2)		(8.9)		1.4
Corporate	(218.6)		(20.8)		(24.5)		—		(173.3)
Operating income (loss)	$	414.7	$	(20.8)	$	(28.7)	$	(75.6)	$	539.8

Provision for income taxes	62.8		(5.0)		(9.4)		(12.1)		89.3
Net income (loss)	$	318.8	$	(15.8)	$	(19.3)	$	(63.5)	$	417.4
Net income (loss) per diluted common share	$	1.13	$	(0.06)	$	(0.07)	$	(0.22)	$	1.48

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

In the first ~~nine~~six months of fiscal ~~2019,~~2020, the Company incurred charges as follows:

•

•ERP Implementation - Total charges primarily relate to technology implementation costs.

•Organization-related and Integration costs - Total charges represent organization-related costs as a result of the departure of the Company's former CEO in September 2019 and integration costs related to inventory, professional fees and share-based compensation. Refer to ~~the "Executive Overview" herein for further information.~~


•	~~Integration & Acquisitions Costs~~ ~~- Total charges represent integration and acquisition costs related to professional fees, organization-related costs, contract termination charges and limited life purchase accounting adjustments.~~

~~Refer to the "Executive Overview" herein and~~ Note 5, "Integration," for more information regarding integration costs.

•Impairment - Total charges are primarily due to impairment charges on property and equipment assets and lease ROU assets. Refer to the Note 13, "Fair Value Measurements," for further information.


•	~~Impact of Tax Legislation~~ ~~- Total charges primarily due to transition tax related to foreign earnings deemed to be repatriated.~~

These actions taken together increased the Company's Cost of sales by ~~$9.1~~$5.6 million, increased SG&A expenses by ~~$71.3~~$119.5 million and decreased Provision for income taxes by ~~$1.6~~$26.5 million, negatively impacting Net income by ~~$78.8~~$98.6 million or ~~$0.27~~$0.35 per diluted share.

Tapestry, Inc. Summary – First ~~Nine~~Six Months of Fiscal ~~2020~~2021

Currency Fluctuation Effects

The change in net sales and gross margin for the first ~~nine~~six months of fiscal ~~2020~~2021 compared to fiscal ~~2019~~2020 has been presented both including and excluding currency fluctuation effects.

Net Sales


	Six Months Ended				Variance
	December 26, 2020		December 28, 2019		Amount		%		Constant Currency Change
	(millions)
Coach	$	2,100.7	$	2,235.8	$	(135.1)	(6.0)	%	(7.0)	%
Kate Spade	616.0		735.9		(119.9)		(16.3)		(16.6)
Stuart Weitzman	140.9		202.2		(61.3)		(30.3)		(31.3)
Total Tapestry	$	2,857.6	$	3,173.9	$	(316.3)	(10.0)		(10.8)

Net sales in the first ~~nine~~six months of fiscal ~~2020~~2021 decreased ~~5.9%~~10.0% or ~~$266.8~~$316.3 million to ~~$4.25~~$2.86 billion. Excluding the effects of foreign currency, net sales decreased by ~~5.8%~~10.8% or ~~$263.0~~$341.6 million.

•Coach Net Sales decreased 6.0% or $135.1 million to $2.10 billion in the first six months of fiscal 2021. Excluding the ~~effects~~impact of foreign currency, ~~the~~ net sales decreased 7.0% or $156.0 million. This decrease in net sales is primarily attributed to a net decline of $151.6 million in net global retail sales driven by lower sales in stores in North America, Other Asia, including Japan, and Europe, due to the impact of Covid-19, which was partially offset by an increase in global e-commerce sales and store sales in mainland China.

•Kate Spade Net Sales decreased 16.3% or $119.9 million to $616.0 million in the first six months of fiscal 2021. Excluding the impact of foreign currency, net sales decreased 16.6% or $122.3 million. The decrease in net sales is driven by a decline of $67.6 million in net global retail sales driven by lower sales in stores, primarily in North America, due to the impact of the Covid-19, partially offset by an increase in global e-commerce sales. Wholesale sales also declined $53.7 million due to a strategic pullback in disposition and lower demand as a result of the Covid-19 outbreak.

•Stuart Weitzman Net Sales decreased 30.3% or $61.3 million to $140.9 million in the first six months of fiscal 2021. Excluding the impact of foreign currency, net sales decreased 31.3% or $63.3 million. This decrease was ~~driven by Coach, Kate Spade and Stuart Weitzman.~~primarily due to a net decline of $39.1 million in the retail business, which is attributed to store closures related to fleet optimization under the Acceleration Program, as well as a decline in demand as a result of Covid-19. Additionally, wholesale sales decreased $24.2 million, which is primarily due to a decline in demand as a result of Covid-19.

Gross Profit


	Six Months Ended
	December 26, 2020				December 28, 2019				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	1,533.0	73.0	%	$	1,554.9	69.5	%	$	(21.9)	(1.4)	%
Kate Spade	387.2		62.9		453.9		61.7		(66.7)		(14.7)
Stuart Weitzman	83.7		59.4		115.4		57.1		(31.7)		(27.5)
Tapestry	$	2,003.9	70.1		$	2,124.2	66.9		$	(120.3)	(5.7)

Gross profit decreased ~~10.3%~~5.7% or ~~$314.1~~$120.3 million to ~~$2.74~~$2.00 billion during the first ~~nine~~six months of fiscal ~~2020~~2021 from ~~$3.05~~$2.12 billion in the first ~~nine~~six months of fiscal ~~2019.~~2020. Gross margin for the first ~~nine~~six months of fiscal ~~2020~~2021 was ~~64.5%~~70.1% as compared to ~~67.7%~~66.9% in the first ~~nine~~six months of fiscal ~~2019.~~2020. Excluding items affecting comparability of ~~$109.6 million and $9.1~~$5.6 million in the first ~~nine~~six months of fiscal 2020, ~~and 2019, respectively,~~ as discussed in the "GAAP to Non-GAAP Reconciliation" herein, gross profit decreased ~~7.0%~~5.9% or ~~$213.6~~$125.9 million to ~~$2.85~~$2.00 billion in the first ~~nine~~six months of fiscal 2021, and gross margin increased 70.1% from 67.1% in the first six months of fiscal 2020, and on a constant currency basis, gross margin increased 290 basis points from the first six months of fiscal 2020.

•Coach Gross Profit decreased 1.4% or $21.9 million to $1.53 billion in the first six months of fiscal 2021 from $1.55 billion in the first six months of fiscal 2020. Gross margin increased 350 basis points to 73.0% in the first six months of fiscal 2021 from 69.5% in the first six months of fiscal 2020. Excluding items affecting comparability of $0.1 million in the first six months of fiscal 2020, Coach gross profit decreased 1.4% or $22.0 million to $1.53 billion in the first six months of fiscal 2021 from $1.56 billion in the first six months of fiscal 2020. Excluding items affecting comparability, gross margin increased 340 basis points to 73.0% from 69.6% in the first six months of fiscal 2020, and was not materially impacted by foreign currency. This increase in gross margin is primarily attributed to reduced promotional activity.

•Kate Spade Gross Profit decreased 14.7% or $66.7 million to $387.2 million in the first six months of fiscal 2021 from $453.9 million in the first six months of fiscal 2020. Gross margin increased 120 basis points to 62.9% in the first six months of fiscal 2021 from 61.7% in the first six months of fiscal 2020. Excluding items affecting comparability of $1.2 million in the first six months of fiscal 2020, Kate Spade gross profit decreased 14.9% or $67.9 million to $387.2 million in the first six months of fiscal 2021 from $455.1 million in the first six months of fiscal 2020. Excluding items affecting comparability, gross margin increased 110 basis points to 62.9% from 61.8% in the first six months of fiscal 2020, and was not materially impacted by foreign currency. This increase in gross margin was primarily due to favorable channel mix including a strategic pullback in disposition and reduced promotional activity, which was partially offset by the impact of directly operating the footwear business.

•Stuart Weitzman Gross Profit decreased 27.5% or $31.7 million to $83.7 million during the first six months of fiscal 2021 from $115.4 million in the first six months of fiscal 2020. Gross margin increased 230 basis points to 59.4% in the first six months of fiscal 2021 from 57.1% in the first six months of fiscal 2020. Excluding items affecting comparability of $4.3 million in the first six months of fiscal 2020, Stuart Weitzman gross profit decreased 30.1% or $36.0 million to $83.7 million in the first six months of fiscal 2021 compared to $119.7 million in the first six months of fiscal 2020, and gross margin ~~decreased 80~~increased 20 basis points to ~~67.1%~~59.4% from ~~67.9%~~59.2% in the first ~~nine~~six months of fiscal ~~2019.~~2021. On a constant currency basis, gross margin decreased 130 basis points. This decrease in gross ~~profit is~~margin was primarily ~~driven by a decrease in Coach of $140.9 million, Kate Spade of $53.5 million and Stuart Weitzman of $19.2 million.~~attributed to channel mix.

Selling, General and Administrative Expenses


	Six Months Ended
	December 26, 2020				December 28, 2019				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	851.0	40.5	%	$	972.6	43.5	%	$	(121.6)	(12.5)	%
Kate Spade	305.2		49.5		393.2		53.4		(88.0)		(22.4)
Stuart Weitzman	71.8		50.9		125.1		61.9		(53.3)		(42.7)
Corporate	184.3		NA		218.6		NA		(34.3)		(15.7)
Tapestry	$	1,412.3	49.4		$	1,709.5	53.9		$	(297.2)	(17.4)

SG&A expenses ~~which include the impairment of goodwill and intangible assets as well as other expenses, increased 25.2%~~decreased 17.4% or ~~$605.3~~$297.2 million to ~~$3.01~~$1.41 billion in the first ~~nine~~six months of fiscal ~~2020~~2021 as compared to ~~$2.41~~$1.71 billion in the first ~~nine~~six months of fiscal ~~2019.~~2020. As a percentage of net sales, SG&A expenses ~~increased~~decreased to ~~70.9%~~49.4% during the first ~~nine~~six months of fiscal ~~2020~~2021 as compared to ~~53.3%~~53.9% during the first ~~nine~~six months of fiscal ~~2019.~~2020. Excluding items affecting comparability of ~~$669.4~~$48.3 million and ~~$71.3~~$119.5 million in the first ~~nine~~six months of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively, SG&A expenses ~~increased 0.3%~~decreased 14.2% or ~~$7.2~~$226.0 million from the first ~~nine~~six months of fiscal 2019. This increase is primarily due to increases in Kate Spade of $31.4 million and Stuart Weitzman of $6.3 million, partially offset by a decrease in Coach of $25.2 million and Corporate of $5.3 million.2020. Excluding items affecting comparability, SG&A expenses as a percentage of net sales ~~increased~~decreased to ~~55.1%~~47.7% in the first ~~nine~~six months of fiscal ~~2020~~2021 from ~~51.7%~~50.1% in the first ~~nine~~six months of fiscal ~~2019.~~2020. This decrease in SG&A expenses includes actions taken as part of the Acceleration Program as well as benefits from wage subsidies and rent concessions, partially offset by an increase in accrued Annual Incentive Plan expenses.

•Coach SG&A Expenses decreased 12.5% or $121.6 million to $851.0 million in the first six months of fiscal 2021 as compared to $972.6 million in the first six months of fiscal 2020. As a percentage of net sales, SG&A expenses decreased to 40.5% during the first six months of fiscal 2021 as compared to 43.5% during the first six months of fiscal 2020. Excluding items affecting comparability of $16.5 million and $41.4 million in the first six months of fiscal 2021 and fiscal 2020, respectively, SG&A expenses decreased 10.4% or $96.7 million to $834.5 million in the first six months of fiscal 2021; and SG&A expenses as a percentage of net sales decreased to 39.7% in the first six months of fiscal 2021 from 41.7% in the first six months of fiscal 2020. This decrease in SG&A expenses was primarily due to a decline in compensation costs, occupancy costs and depreciation expense, partially offset by an increase in e-commerce related selling costs and digital marketing spend in support of higher e-commerce sales.

•Kate Spade SG&A Expenses decreased 22.4% or $88.0 million to $305.2 million in the first six months of fiscal 2021 from $393.2 million in the first six months of fiscal 2020. As a percentage of net sales, SG&A expenses decreased to 49.5% during the first six months of fiscal 2021 as compared to 53.4% during the first six months of fiscal 2020. Excluding items affecting comparability of $3.4 million and $26.0 million in the first six months of fiscal 2021 and 2020, respectively, SG&A expenses decreased 17.8% or $65.4 million to $301.8 million in the first six months of fiscal 2021; and SG&A expenses as a percentage of net sales decreased to 49.0% in the first six months of fiscal 2021 from 49.9% in the first six months of fiscal 2020. This decrease in SG&A expenses was due to a decline in compensation costs, occupancy costs and depreciation expense.

•Stuart Weitzman SG&A Expenses decreased 42.7% or $53.3 million to $71.8 million in the first six months of fiscal 2021 as compared to $125.1 million in the first six months of fiscal 2020. Excluding items affecting comparability of $(4.7) million and $6.8 million in the first six months of fiscal 2021 and 2020, respectively, SG&A expenses decreased 35.3% or $41.8 million to $76.5 million in the first six months of fiscal 2021; and SG&A expenses as a percentage of net sales decreased to 54.3% in the first six months of fiscal 2021 from 58.5% in the first six months of fiscal 2020. This decrease in SG&A expenses is primarily due to a decline in occupancy and compensation costs mainly as a result of fleet optimization under the Acceleration Program, as well as declines in marketing spend and a reduction in wholesale selling costs.

•Corporate expenses, which are included within SG&A expenses discussed above but are not directly attributable to a reportable segment, ~~increased 0.7%~~decreased 15.7% or ~~$2.2~~$34.3 million to ~~$320.2~~$184.3 million in the first ~~nine~~six months of fiscal ~~2020~~2021 as compared to ~~$318.0~~$218.6 million in the first ~~nine~~six months of fiscal ~~2019.~~2020. Excluding items affecting comparability of ~~$51.0~~$33.1 million and ~~$43.5~~$45.3 million in the first ~~nine~~six months of fiscal ~~2020~~2021 and ~~2019,~~2020, respectively, SG&A expenses decreased by ~~2.0%~~12.8% or ~~$5.3~~$22.1 million to ~~$269.2~~$151.2 million in the first ~~nine~~six months of fiscal ~~2020~~2021 as compared to $173.3 million in the first ~~nine~~six months of fiscal ~~2019. The~~2020. This decrease in corporate expenses is due to ~~lower ongoing IT systems costs~~a gain realized on the sale of our corporate office in Hong Kong and ~~lower compensation costs.~~a gain realized on the deferred purchase price of the Kate Spade joint venture.

Operating Income (Loss)


	Six Months Ended
	December 26, 2020				December 28, 2019				Variance
	(millions)
	Amount		% of Net Sales		Amount		% of Net Sales		Amount		%
Coach	$	682.0	32.5	%	$	582.3	26.0	%	$	99.7	17.1	%
Kate Spade	82.0		13.3		60.7		8.2		21.3		35.1
Stuart Weitzman	11.9		8.5		(9.7)		(4.8)		21.6		NM
Corporate	(184.3)		NA		(218.6)		NA		34.3		15.7
Tapestry	$	591.6	20.7		$	414.7	13.1		$	176.9	42.7

Operating income ~~decreased $919.4~~increased 42.7% or $176.9 million to ~~an operating loss of $270.8~~$591.6 million in the first ~~nine~~six months of fiscal ~~2020~~2021 as compared to income of ~~$648.6~~$414.7 million in the first ~~nine~~six months of fiscal ~~2019.~~2020. Operating margin was ~~(6.4)%~~20.7% in the first ~~nine~~six months of fiscal ~~2020~~2021 as compared to ~~14.4%~~13.1% in the first ~~nine~~six months of fiscal ~~2019.~~2020. Excluding items affecting comparability of ~~$779.0~~$48.3 million and ~~$80.4~~$125.1 million in the first ~~nine~~six months of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, respectively, operating income ~~decreased 30.3%~~increased 18.5% or ~~$220.8~~$100.1 million to ~~$508.2~~$639.9 million from ~~$729.0~~$539.8 million in the first nine months of fiscal 2019; and operating margin was 12.0% in the first nine months of fiscal 2020 as compared to 16.2% in the first nine months of fiscal 2019. The decrease in operating income is driven by a decrease in Coach of $115.7 million and Kate Spade of $84.9 million, an increase in operating loss in Stuart Weitzman of $25.5 million, partially offset by a decrease in Corporate expenses of $5.3 million.

~~Interest Expense, net~~

~~Interest expense, net increased $2.9 million to $39.8 million in the first nine months of fiscal 2020 as compared to the first nine months of fiscal 2019.~~

~~Other Expense (Income)~~

Other expense increased $8.4 million to $12.8 million in the third quarter of fiscal 2020 as compared to expense of $4.4 million in the third quarter of fiscal 2019. The increase in other expense is related to an increase in foreign exchange losses.

~~Provision for Income Taxes~~

The effective tax rate was (10.8)% in the first nine months of fiscal 2020 as compared to 18.6% in the first nine months of fiscal 2019. Excluding items affecting comparability, the effective tax rate was 25.0% in the first nine months of fiscal 2020 as compared to 16.6% in the first nine months of fiscal 2019. The increase in our effective tax rate was primarily attributable to the geographic mix of earnings partially offset by a decline in revenue.

~~Net Income (Loss)~~

Net income decreased $852.8 million to a net loss of $358.3 million in the first nine months of fiscal 2020 as compared to net income of $494.5 million in the first nine months of fiscal 2019. Excluding items affecting comparability, net income decreased 40.4% or $231.7 million to $341.6 million in the first nine months of fiscal 2020 as compared to $573.3 million in the first nine months of fiscal 2019. This decrease was primarily due to lower operating income.

~~Net Income (Loss) per Share~~

Net loss per diluted share was of $1.28 in the first nine months of fiscal 2020 as compared to net income per diluted share of $1.70 in the first nine months of fiscal 2019. Excluding items affecting comparability, net income per diluted share decreased to $1.22 in the first nine months of fiscal 2020 from $1.97 in the first nine months of fiscal 2019, primarily due to lower net income.

~~Segment Performance - First Nine Months of Fiscal 2020~~

The following tables summarize results of operations by reportable segment for the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019. All percentages shown in the table below and the discussion that follows have been calculated using unrounded numbers.

~~Coach~~

Nine Months Ended
March 28, 2020 March 30, 2019 Variance
(millions)
Amount
% of
net sales
Amount
% of
net sales
Amount %
Net sales $ 3,008.3
100.0 % $ 3,174.3
100.0 % $ (166.0 ) (5.2 )%
Gross profit 2,030.6
67.5
2,231.5
70.3
(200.9 ) (9.0 )
SG&A expenses 1,410.2
46.9
1,383.1
43.6
27.1
2.0
Operating income (loss) 620.4
20.6
848.4
26.7
(228.0 ) (26.9 )

~~Coach Net Sales~~ decreased 5.2% or $166.0 million to $3.01 billion in the first nine months of fiscal 2020. Excluding the unfavorable impact of foreign currency, net sales decreased 5.1% or $163.3 million. This decrease in net sales is primarily attributed to a net decline of $153.0 million in retail sales due to full and partial store closures related to the Covid-19 outbreak, partially offset by an increase in e-commerce in North America and mainland China. Wholesale sales also declined $12.1 million due to lower demand as a result of the Covid-19 outbreak.

~~Coach Gross Profit~~ decreased 9.0% or $200.9 million to $2.03 billion in the first nine months of fiscal 2020 from $2.23 billion in the first nine months of fiscal 2019. Gross margin decreased 280 basis points to 67.5% in the first nine months of fiscal 2020 from 70.3% in the first nine months of fiscal 2019. Excluding items affecting comparability of $62.0 million in the first nine months of fiscal 2020 and $2.0 million in the first nine months of fiscal 2019, Coach gross profit decreased 6.3% or $140.9 million to $2.09 billion. Gross margin decreased 80 basis points to 69.6% in the first nine months of fiscal 2020 from 70.4% in the first nine months of fiscal 2019 when excluding items affecting comparability. Excluding the impact of foreign currency in both periods, gross margin decreased 40 basis points primarily due to unfavorable channel mix.

~~Coach SG&A Expenses~~ increased 2.0% or $27.1 million to $1.41 billion in the first nine months of fiscal 2020 as compared to $1.38 billion in the first nine months of fiscal 2019. As a percentage of net sales, SG&A expenses increased to 46.9% during the first nine months of fiscal 2020 as compared to 43.6% during the first nine months of fiscal 2019. Excluding items affecting comparability of $57.8 million and $5.5 million in the first nine months of fiscal 2020 and fiscal 2019, respectively, SG&A expenses decreased 1.8% or $25.2 million to $1.35 billion in the first ninesix months of fiscal 2020; and ~~SG&A expenses as a percentage of net sales increased to 45.0%~~operating margin was 22.4% in the first ~~nine~~six months of fiscal ~~2020 from 43.4%~~2021 as compared to 17.0% in the first ~~nine~~six months of fiscal ~~2019. This decrease in SG&A expenses was primarily due to lower variable selling costs.~~2020.

•Coach Operating Income ~~decreased 26.9%~~increased 17.1% or ~~$228.0~~$99.7 million to ~~$620.4~~$682.0 million in the first ~~nine~~six months of fiscal ~~2020,~~2021, resulting in an operating margin of ~~20.6%~~32.5%, as compared to ~~$848.4~~$582.3 million and ~~26.7%~~26.0%, respectively, in the first ~~nine~~six months of fiscal ~~2019.~~2020. Excluding items affecting comparability, Coach operating income ~~decreased 13.5%~~increased 12.0% or ~~$115.7~~$74.7 million to ~~$740.2~~$698.5 million from

~~$855.9~~ $623.8 million in the first ~~nine~~six months of fiscal ~~2019;~~2020; and operating margin was ~~24.6%~~33.3% in the first ~~nine~~six months of fiscal ~~2020~~2021 as compared to ~~27.0%~~27.9% in the first ~~nine~~six months of fiscal ~~2019.~~2020. This ~~decrease~~increase in operating income was due to ~~a decrease in gross profit,~~lower SG&A expenses, partially offset by lower ~~SG&A expenses.~~

~~Kate Spade~~

Nine Months Ended
March 28, 2020 March 30, 2019 Variance
(millions)
Amount
% of
net sales
Amount
% of
net sales
Amount %
Net sales $ 985.4
100.0 % $ 1,034.9
100.0 % $ (49.5 ) (4.8 )%
Gross profit 576.4
58.5
658.0
63.6
(81.6 ) (12.4 )
SG&A expenses 607.0
61.6
517.9
50.1
89.1
17.2
Operating income (loss) (30.6 ) (3.1 ) 140.1
13.5
(170.7 ) NM

~~Kate Spade Net Sales~~ decreased 4.8% or $49.5 million to $985.4 million in the first nine months of fiscal 2020. Excluding the favorable impact of foreign currency, net sales decreased 4.9% or $51.1 million. The decrease in net sales is driven by a decline of $58.9 million in retail sales mainly in North America due to full and partial store closures related to the Covid-19 outbreak, as well as a decline in traffic in North America in the first half of the fiscal year. This was partially offset by a $9.3 million increase in wholesale sales driven by disposition sales in a plan to work through excess inventory.gross profit.

~~Kate Spade Gross Profit~~• decreased 12.4% or $81.6 million to $576.4 million in the first nine months of fiscal 2020 from $658.0 million in the first nine months of fiscal 2019. Gross margin decreased 510 basis points to 58.5% in the first nine months of fiscal 2020 from 63.6% in the first nine months of fiscal 2019. Excluding items affecting comparability of $33.5 million and $5.4 million in the first nine months of fiscal 2020 and of fiscal 2019, respectively, Kate Spade gross profit decreased 8.1% or $53.5 million to $609.9 million in the first nine months of fiscal 2020 from $663.4 million in the first nine months of fiscal 2019. Gross margin decreased 220 basis points to 61.9% from 64.1% in the first nine months of fiscal 2019. This gross margin decrease of 220 basis points was primarily due to unfavorable channel mix and promotional activity.

~~Kate Spade SG&A Expenses~~ ~~increased 17.2% or~~ ~~$89.1 million~~ to $607.0 million in the first nine months of fiscal 2020 from $517.9 million in the first nine months of fiscal 2019. As a percentage of net sales, SG&A expenses increased to 61.6% during the first nine months of fiscal 2020 as compared to 50.1% during the first nine months of fiscal 2019. Excluding items affecting comparability of $67.8 million and $10.1 million in the first nine months of fiscal 2020 and 2019, respectively, SG&A expenses increased 6.2% or ~~$31.4 million~~ to $539.2 million in the first nine months of fiscal 2020; and SG&A expenses as a percentage of net sales increased to 54.7% in the first nine months of fiscal 2020 from 49.1% in the first nine months of fiscal 2019. This increase in SG&A expenses was due to new store openings, increased marketing expenses, and the timing of store impairment charges.

Kate Spade Operating Income ~~decreased $170.7~~increased 35.1% or $21.3 million to ~~an operating loss of $30.6~~$82.0 million in the first ~~nine~~six months of fiscal ~~2020,~~2021, resulting in an operating margin of ~~(3.1)%~~13.3%, as compared to ~~an operating income of $140.1~~$60.7 million and ~~13.5%~~8.2%, respectively, in the first ~~nine~~six months of fiscal ~~2019.~~2020. Excluding items affecting comparability, Kate Spade operating income decreased ~~54.5%~~2.9% or ~~$84.9~~$2.5 million to ~~$70.7~~$85.4 million from ~~$155.6~~$87.9 million in the first ~~nine~~six months of fiscal ~~2019;~~2020; and operating margin was ~~7.2%~~13.9% in the first ~~nine~~six months of fiscal ~~2020~~2021 as compared to ~~15.0%~~11.9% in the first ~~nine~~six months of fiscal ~~2019.~~2020. This decrease in operating income was due a decrease in gross profit, ~~and higher~~partially offset by lower SG&A expenses.

~~Stuart Weitzman~~

Nine Months Ended
March 28, 2020 March 30, 2019 Variance
(millions)
Amount
% of
net sales
Amount
% of
net sales
Amount %
Net sales $ 252.9
100.0 % $ 304.2
100.0 % $ (51.3 ) (16.8 )%
Gross profit 133.4
52.7
165.0
54.2
(31.6 ) (19.1 )
SG&A expenses 673.8
NM
186.9
61.4
486.9
NM
Operating income (loss) (540.4 ) NM
(21.9 ) (7.2 ) (518.5 ) NM

•Stuart Weitzman ~~Net Sales~~ Operating Income~~decreased 16.8% or $51.3~~ increased $21.6 million to ~~$252.9~~$11.9 million in the first ~~nine~~six months of fiscal 2021, resulting in an operating margin of 8.5%, as compared to an operating loss of $9.7 million and operating margin of (4.8)% in first six months of fiscal 2020. Excluding the unfavorable impact of foreign currency, net sales decreased 16.0% or $48.6 million. This decrease was primarily due to lower shipments in the wholesale business of $50.4 million primarily due to a decline in demand as a result of the Covid-19 outbreak. This decrease was partially offset by growth in the retail business of $2.9 million primarily attributable to new store openings and the direct ownership of the businesses in Australia, partially offset by full and partial store closures related to the Covid-19 outbreak.

items affecting comparability, Stuart Weitzman ~~Gross Profit~~ ~~decreased 19.1% or $31.6~~operating income increased $5.8 million to ~~$133.4~~$7.2 million ~~during the first nine months of fiscal 2020~~ from ~~$165.0~~$1.4 million in the first ~~nine~~six months of fiscal ~~2019. Gross~~2020; and operating margin ~~decreased 150 basis points to 52.7%~~was from 5.1% in the first ~~nine~~six months of fiscal ~~2020 from 54.2%~~2021 as compared to 0.7% in the first nine months of fiscal 2019. Excluding items affecting comparability of $14.1 million and $1.7 million in the first nine months of fiscal 2020 and fiscal 2019, respectively, Stuart Weitzman gross profit decreased 11.5% or $19.2 million to $147.5 million in the first nine months of fiscal 2020 compared to $166.7 million in the first nine months of fiscal 2019, and gross margin increased 350 basis points to 58.3% from 54.8% in the first nine months of fiscal 2020. Excluding the impact of foreign currency, gross margin increased 210 basis points primarily due to favorable channel mix.

~~Stuart Weitzman SG&A Expenses~~ increased $486.9 million to $673.8 million in the first nine months of fiscal 2020 as compared to $186.9 million in the first nine months of fiscal 2019. Excluding items affecting comparability of $492.8 million and $12.2 million in the first nine months of fiscal 2020 and 2019, respectively, SG&A expenses increased 3.7% or $6.3 million to $181.0 million in the first ninesix months of fiscal 2020. This increase in operating income was due to lower SG&A expenses, ~~is primarily due to new store openings, the direct ownership of the business in Australia and increased bad debt reserves,~~ partially offset by ~~lower compensation and marketing expenses.~~a decrease in gross profit.

~~Stuart Weitzman Operating Loss~~Interest Expense, net

Interest expense, net increased ~~$518.5~~44.7% or $11.8 million to ~~an operating loss of $540.4~~$38.1 million in the first ~~nine~~six months of fiscal 2021 as compared to interest expense, net of $26.3 million in the first six months of 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.

Other Expense (Income)

Other income increased $13.0 million to income of $6.2 million in the first six months of fiscal 2021 as compared to expense of $6.8 million in the first six months of fiscal 2020. This increase in other income is related to an increase in foreign exchange gains.

Provision for Income Taxes

The effective tax rate was 3.0% in the first six months of fiscal 2021 as compared to 16.5% in the first six months of fiscal 2020. Excluding items affecting comparability, the effective tax rate was 20.4% in the first six months of fiscal 2021 as compared to 17.6% in the first six months of fiscal 2020. This increase in our effective tax rate was primarily attributable to geographic mix of earnings.

Net income increased 70.3% or $223.9 million to $542.7 million in the first six months of fiscal 2021 as compared to $318.8 million in the first six months of fiscal 2020. Excluding items affecting comparability, net income increased 15.9% or $66.4 million to $483.8 million in the first six months of fiscal 2021 as compared to $417.4 million in the first six months of fiscal 2020. This increase was primarily due to lower SG&A expenses, partially offset by a decrease in gross profit.

Net Income (Loss) per Share

Net income per diluted share increased 71.7% to $1.94 in the first six months of fiscal 2021 as compared to net income per diluted share of $1.13 in the first six months of fiscal 2020. Excluding items affecting comparability, net income per diluted share increased 16.9% to $1.73 in the first six months of fiscal 2021 from $1.48 in the first six months of fiscal 2020, as compared to an operating loss of $21.9 million in first nine months of fiscal 2019. Excluding items affecting comparability, Stuart Weitzman operating loss increased $25.5 million to an operating loss of $33.5 million from operating loss of $8.0 million in the first nine months of fiscal 2019. This increase in operating loss wasprimarily due to ~~a decrease in gross profit and~~ higher ~~SG&A expenses.~~net income.

The Company’s reported results are presented in accordance with GAAP. The reported gross profit, SG&A expenses, operating income, provision for income taxes, net income and earnings per diluted share in the ~~third~~second quarter and the first six months of fiscal ~~2020~~2021 and fiscal ~~2019~~2020 reflect certain items, including ~~the impact of Tax Legislation in fiscal 2019,~~ the impact of ERP Implementation, Organization-related and Integration ~~and Acquisition~~ costs ~~in fiscal 2020 and fiscal 2019~~ and Impairment charges in fiscal ~~2020.~~2020, as well as Acceleration Program costs and CARES Act Tax Impact in fiscal 2021. As a supplement to the Company's reported results, these metrics are also reported on a non-GAAP basis to exclude the impact of these items, along with a reconciliation to the most directly comparable GAAP measures.

The Company has historically reported comparable store sales, which reflects sales performance at stores that have been open for at least 12 months, and includes sales from the Internet. The Company excludes new stores, including newly acquired locations, from the comparable store base for the first twelve months of operation. The Company excludes closed stores from the calculation. Comparable store sales are not adjusted for store expansions. Due to ~~extensive full and partial store closures~~the uncertain business environment resulting from the impact of the Covid-19 pandemic, comparable store sales are not reported for the three ~~or nine~~and six months ended ~~March 28,~~December 26, 2020 as the Company does not believe this metric is currently meaningful to the readers of its financial statements for this period.

These non-GAAP performance measures were used by management to conduct and evaluate its business during its regular review of operating results for the periods affected. Management and the Company’s Board utilized these non-GAAP measures to make decisions about the uses of Company resources, analyze performance between periods, develop internal projections and measure management performance. The Company’s internal management reporting excluded these items. In addition, the Human Resources Committee of the Company’s Board uses these non-GAAP measures when setting and assessing achievement of incentive compensation goals.

The Company operates on a global basis and reports financial results in U.S. dollars in accordance with GAAP. Fluctuations in foreign currency exchange rates can affect the amounts reported by the Company in U.S. dollars with respect to its foreign revenues and profit. Accordingly, certain material increases and decreases in operating results for the Company and its segments have been presented both including and excluding currency fluctuation effects. These effects occur from translating foreign-denominated amounts into U.S. dollars and comparing to the same period in the prior fiscal year. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. The Company calculates constant currency ~~revenue~~ results by translating current period ~~revenue~~Net sales and Cost of sales, in local currency using the prior year period's currency conversion rate. The constant currency gross margin results are reported excluding items affecting comparability.

We believe these non-GAAP measures are useful to investors and others in evaluating the Company’s ongoing operating and financial results in a manner that is consistent with management's evaluation of business performance and understanding how such results compare with the Company’s historical performance. Additionally, we believe presenting certain increases and decreases in constant currency provides a framework for assessing the performance of the Company's business outside the United States and helps investors and analysts understand the effect of significant year-over-year currency fluctuations. We believe excluding these items assists investors and others in developing expectations of future performance.

By providing the non-GAAP measures, as a supplement to GAAP information, we believe we are enhancing investors’ understanding of our business and our results of operations. The non-GAAP financial measures are limited in their usefulness and should be considered in addition to, and not in lieu of, GAAP financial measures. Further, these non-GAAP measures may be unique to the Company, as they may be different from non-GAAP measures used by other companies.

For a detailed discussion on these non-GAAP measures, see Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

The Company’s cash and cash equivalents ~~decreased~~increased by ~~$226.6~~$216.3 million in the first ~~nine~~six months of fiscal ~~2020~~2021 as compared to a decrease of ~~$168.1~~$72.3 million in the first ~~nine~~six months of fiscal ~~2019,~~2020, as discussed below.

Net cash provided by (used in) operating activities

Net cash provided by operating activities ~~decreased $156.7~~increased $184.6 million due to ~~lower~~higher net income of ~~$852.8~~$223.9 million ~~partially offset by~~and changes in operating assets and liabilities of ~~$37.7~~$236.5 million, ~~and higher~~partially off by the impact of non-cash adjustments of ~~$658.4~~$275.8 million.

The ~~$37.7~~$236.5 million ~~decrease~~increase in changes in operating asset and liability balances were primarily driven by the following:

~~Other assets~~•Accounts payable were a source of cash of $253.8 million in the first six months of fiscal 2021 compared to a source of cash of $19.3 million in the first six months of 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.

•Inventories were a source of cash of ~~$19.1~~$144.3 million in the first ~~nine~~six months of fiscal 2021 compared to a source of cash of $19.5 million in the first six months of fiscal 2020, primarily driven by higher than expected sales, more disciplined inventory management and actions taken to exit certain markets.

•Trade accounts receivable were a use of cash of $143.2 million in the first six months of fiscal 2021 compared to a use of cash of ~~$54.5~~$78.7 million in the first ~~nine~~six months of fiscal ~~2019,~~2020, primarily ~~related~~driven by a lower balance in the fourth quarter of fiscal 2020 due to ~~the timing of tax related payments.~~impacts from Covid-19.

~~Accounts payable~~•Other assets were a use of cash of ~~$18.5~~$76.8 million in the first ~~nine~~six months of fiscal ~~2020~~2021 compared to a use of cash of ~~$43.5~~$27.7 million in the first ~~nine months of fiscal 2019, primarily due to higher in-transit inventory for Coach.~~

Net cash used in investing activities

Net cash used in investing activities in the first ~~nine~~six months of fiscal ~~2020~~2021 was ~~$69.2~~$25.8 million as compared to a use of cash of ~~$477.7~~$127.9 million in the first ~~nine~~six months of fiscal ~~2019,~~2020, resulting in a ~~$408.5~~$102.1 million decrease in net cash used in investing activities.

The ~~$69.2~~$25.8 million use of cash in the first ~~nine~~six months of fiscal 2021 is primarily due to capital expenditures of $49.7 million partially offset by proceeds from the sale of building of $23.9 million.

The $127.9 million use of cash in the first six months of fiscal 2020 is primarily due to ~~cash used for purchases of investments of $212.4 million in the nine months of fiscal 2020 and~~ capital expenditures of ~~$172.9 million, partially offset by proceeds from maturities and sales of investments of $316.1 million.~~

The $477.7 million use of cash in the first nine months of fiscal 2019 is primarily due net cash used for purchases, maturities and sales of investments of $254.1 million in the first nine months of fiscal 2019 and capital expenditures of $184.2$122.2 million.

Net cash used in financing activities

Net cash used in financing activities was ~~$603.1~~$518.9 million in the first ~~nine~~six months of fiscal ~~2020~~2021 as compared to a use of cash of ~~$287.9~~$506.5 million in the first ~~nine~~six months of fiscal ~~2019,~~2020, resulting in a net increase in use of cash for financing activities of ~~$315.2~~$12.4 million.

The ~~$603.1~~$518.9 million of cash used in the first ~~nine~~six months of fiscal 2021 was primarily due to repayments on the revolving credit facility of $500.0 million and note payable of $11.5 million.

The $506.5 million use of cash in the first six months of fiscal 2020 was primarily due to repurchases of common stock of ~~300.0~~$300.0 million and dividend payments of ~~$287.1~~$194.0 million.

~~The $287.9 million use of cash in the first nine months of fiscal 2019 was primarily due to dividend payments of $292.8 million.~~

Working Capital and Capital Expenditures

As of ~~March 28,~~December 26, 2020, in addition to our cash flows from operations, our sources of liquidity and capital resources were comprised of the following:

Sources of Liquidity Outstanding Indebtedness
Total Available Liquidity⁽¹⁾
(millions)
Cash and cash equivalents⁽¹⁾
$ 742.6
$ —
$ 742.6
Short-term investments⁽¹⁾
155.6
—
155.6
Revolving Credit Facility⁽²⁾
900.0
—
900.0
3.000% Senior Notes due 2022⁽³⁾
400.0
400.0
—
4.250% Senior Notes due 2025⁽³⁾
600.0
600.0
—
4.125% Senior Notes due 2027⁽³⁾
600.0
600.0
—
Total $ 3,398.2
$ 1,600.0
$ 1,798.2


	Sources of Liquidity		Outstanding Indebtedness		Total Available Liquidity(1)
	(millions)
Cash and cash equivalents(1)	$	1,642.6	$	—	$	1,642.6
Short-term investments(1)	9.2		—		9.2

Revolving Credit Facility(2)	900.0		200.0		700.0

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

Total	$	4,151.8	$	1,800.0	$	2,351.8


⁽¹⁾	As of March 28, 2020, approximately 46% of our cash and short-term investments were held outside the United States. The Company will likely repatriate some portion of available foreign cash in the foreseeable future, and has recorded deferred taxes on certain earnings of non-US subsidiaries that are deemed likely to be repatriated.

⁽²⁾

In October 2019, the Company entered into a definitive credit agreement whereby Bank of America, N.A., as administrative agent, the other agents party thereto, and a syndicate of banks and financial institutions have made available to the Company a $900.0 million revolving credit facility, including sub-facilities for letters of credit, with a maturity date of October 24, 2024 (the "Revolving Credit Facility"). The Revolving Credit Facility refinanced and replaced the Company’s unsecured revolving facility dated May 30, 2017. 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. The Company had no outstanding borrowings under the Revolving Credit Facility as of March 28, 2020. On March 30, 2020, the Company borrowed $700.0 million in the aggregate under the Revolving Credit Facility. Refer to Note 12, "Debt" for further information on our existing debt instruments and Note 18, "Subsequent Events" for further information on the draw down.

⁽¹⁾As of December 26, 2020, approximately 36% of our cash and short-term investments were held outside the United States. The Company will likely repatriate some portion of available foreign cash in the foreseeable future, and has recorded deferred taxes on certain earnings of non-US subsidiaries that are deemed likely to be repatriated.

(2) In October 2019, the Company entered into a definitive credit agreement whereby Bank of America, N.A., as administrative agent, the other agents party thereto, and a syndicate of banks and financial institutions have made available to the Company a $900.0 million revolving credit facility, including sub-facilities for letters of credit, with a maturity date of October 24, 2024 (the "Revolving Credit Facility"). Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to, at the Borrowers’ option, either (a) an alternate base rate (which is a rate equal to the greatest of (i) the Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate in effect on such day plus ½ of 1% or (iii) the Adjusted LIBO Rate for a one month Interest Period on such day plus 1%) or (b) a rate based on the rates applicable for deposits in the interbank market for U.S. Dollars or the applicable currency in which the loans are made plus, in each case, an applicable margin. The applicable margin will be determined by reference to a grid, defined in the Credit Agreement, based on the ratio of (a) consolidated debt plus operating lease liability to (b) consolidated EBITDAR. Additionally, the Company pays a commitment fee at a rate determined by the reference to the aforementioned pricing grid. On May 19, 2020, the Company entered into Amendment No. 1 (the “Amendment”) to the Revolving Credit Facility. Under the terms of the Amendment, during the period from the Effective Date until October 2, 2021, the Company must maintain available liquidity of $700 million (with available liquidity defined as the sum of unrestricted cash and cash equivalents and available commitments under credit facilities, including the Revolving Credit Facility). Following the period from the Effective Date until the compliance certificate is delivered for the fiscal quarter ending July 3, 2021 (the “Covenant Relief Period”), the Company must comply on a quarterly basis with a maximum net leverage ratio of 4.0 to 1.0. In addition, the Amendment provides that during the Covenant Relief Period, if any two of the Company’s three credit ratings are non-investment grade, the Revolving Credit Facility will be guaranteed by the Company’s material domestic subsidiaries and will be subject to liens on accounts receivable, inventory and intellectual property, in each case subject to customary exceptions. The Amendment also contains negative covenants that limit the ability of the Company and its subsidiaries to, among other things, incur certain debt, incur certain liens, dispose of assets, make investments, loans or advances, and engage in share buybacks during the Covenant Relief Period. An increased interest rate will be applicable during the Covenant Relief Period when the Company’s gross leverage ratio exceeds 4.0 to 1.0. The $900 million aggregate commitment amount under the revolving credit facility remains unchanged. As of December 26, 2020, $200.0 million of borrowings were outstanding under the Revolving Credit Facility. Refer to Note 12, "Debt," for further information on our existing debt instruments and Note 18, "Subsequent Events" for further information on the repayment of outstanding borrowings under the Revolving Credit Facility.

(3) In March 2015, the Company issued $600.0 million aggregate principal amount of 4.250% senior unsecured notes due April 1, 2025 at 99.445% of par (the “2025 Senior Notes”). Furthermore, in June 2017, the Company issued $400.0 million aggregate principal amount of 3.000% senior unsecured notes due July 15, 2022 at 99.505% of par (the "2022 Senior Notes"), and $600.0 million aggregate principal amount of 4.125% senior unsecured notes due July 15, 2027 at 99.858% of par (the "2027 Senior Notes"). Furthermore, the indentures for the 2025 Senior Notes, 2022 Senior Notes and 2027 Senior Notes contain certain covenants limiting the Company’s ability to: (i) create certain liens, (ii) enter into certain sale and leaseback transactions and (iii) merge, or consolidate or transfer, sell or lease all or substantially all of the Company’s

assets. As of ~~March 28,~~December 26, 2020, no known events of default have occurred. Refer to Note 12, "Debt," for further information on our existing debt instruments.

We believe that our Revolving Credit Facility is adequately diversified with no undue concentrations in any one financial institution. As of ~~March 28,~~December 26, 2020, there were 12 financial institutions participating in the Revolving Credit Facility, with no one participant maintaining a combined maximum commitment percentage in excess of 14%.

We have the ability to draw on our credit facilities or access other sources of financing options available to us in the credit and capital markets for, among other things, acquisition or integration-related costs, our restructuring initiatives, settlement of a material contingency, or a material adverse business or macroeconomic development, as well as for other general corporate business purposes.

Management believes that cash flows from operations, access to the credit and capital markets and our credit lines, on-hand cash and cash equivalents and our investments will provide adequate funds to support our operating, capital, and debt service

requirements for fiscal ~~2020~~2021 and beyond. There can be no assurance that any such capital will be available to the Company on acceptable terms or at all. Our ability to fund working capital needs, planned capital expenditures, and scheduled debt payments, as well as to comply with all of the financial covenants under our debt agreements, depends on future operating performance and cash flow. This future operating performance and cash flow are subject to prevailing economic conditions, which is uncertain as a result of Covid-19, and to financial, business and other factors, some of which are beyond the Company's control.

Additionally, on March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law by the President of the United States. The CARES Act provides relief for U.S. corporations including, but not limited to, payroll relief (through the retention tax credit and deferral of employer social security payments), modifying net operating loss carryback periods, deferral of federal tax filing and payments and certain financing opportunities. We continue to examine the CARES Act for applicable provisions that provide relief to the Company, however, the total impact on the business is currently uncertain.

Furthermore, in response to the uncertainty, the Company has taken other actions to reinforce its liquidity and financial flexibility. Specific actions that the Company is undertaking include, but are not limited to, actively reducing non-essential SG&A expense, reducing corporate compensation, terminating 2,100 part-time store associates, tightly managing inventory, reducing capital expenditures, as well as suspending its quarterly dividend and all share repurchases for the foreseeable future.

Reference should be made to our most recent Annual Report on Form 10-K and other filings with the SEC for additional information regarding liquidity and capital resources. The Company expects total fiscal ~~2020~~2021 capital expenditures to be approximately ~~$200 - 225~~$135 million.

Seasonality

The Company's results are typically affected by seasonal trends. During the first fiscal quarter, we build inventory for the holiday selling season. In the second fiscal quarter, working capital requirements are reduced substantially as we generate higher net sales and operating income, especially during the holiday months of November and December. Accordingly, the Company’s net sales, operating income and operating cash flows for the three months ended ~~March 28,~~December 26, 2020 are not necessarily indicative of that expected for the full fiscal ~~2020.~~2021. However, fluctuations in net sales, operating income and operating cash flows of the Company in any fiscal quarter may be affected by the timing of wholesale shipments and other events affecting retail sales, including adverse weather conditions or other macroeconomic events.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are described in Note 23 to the audited consolidated financial statements in our fiscal ~~2019~~2020 10-K. Our discussion of results of operations and financial condition relies on our condensed consolidated financial statements that are prepared based on certain critical accounting policies that require management to make judgments and estimates which are subject to varying degrees of uncertainty. While we believe that these accounting policies are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts.

For a complete discussion of our critical accounting policies and estimates, see the "Critical Accounting Policies and Estimates" section of the Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal ~~2019~~2020 10-K. In the first quarter of fiscal 2020, we adopted new lease accounting guidance which resulted in certain changes to our accounting policies. Refer to Note 9, "Leases," for additional information about our accounting policies and estimates. As of ~~March 28,~~December 26, 2020, there have been no material changes to any of the critical accounting ~~policies other than the changes mentioned above.~~policies.

The Company performs its annual impairment assessment of goodwill as well as brand intangibles at the beginning of the fourth quarter of each fiscal year. The Company determined that there was no impairment in fiscal 2019. During the three months ended March 28, 2020, profitability trends continued to decline from those that were expected for the Stuart Weitzman brand. This reduction in both current and future expected cash flows was exacerbated by the Covid-19 pandemic, which resulted in a decline in sales driven by full and partial closures of a significant portion of our stores globally. As a result of these macroeconomic conditions, the Company concluded that a triggering event had occurred during the quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Stuart Weitzman reporting unit and indefinite-lived brand intangible assets. The assessment concluded that the fair values of the Stuart Weitzman reporting unit and indefinite-lived brand intangible asset as of March 28, 2020 did not exceed their respective carrying values. In considering the excess of the fair value over its carrying value for the Coach and Kate Spade reporting unit and indefinite-lived brand intangibles, management did not perform an interim assessment for these reporting units.

In all fiscal years, the fair values of our Coach brand reporting units significantly exceeded their respective carrying values. The fair values of the Kate Spade brand reporting unit and indefinite-lived brand as of the fiscal ~~2019~~2020 testing date exceeded their

respective carrying values by approximately ~~21%~~13% and ~~61%~~35%, respectively. Several factors could impact the Kate Spade brand's ability to achieve expected future cash flows, including continued economic volatility and potential operational challenges related to the Covid-19 pandemic, the reception of new collections in all channels, the success of international expansion strategies including the direct operation of certain previous distributor and joint venture businesses, the optimization of the store fleet productivity, the impact of promotional activity in department stores, and the simplification of certain corporate overhead structures and other initiatives aimed at increasing profitability of the business. Given the relatively small excess of fair value over carrying value as noted above, if profitability trends decline during fiscal 2021 from those that are expected, it is possible that an interim test, or our annual impairment test, could result in an impairment of these assets.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows, arising from adverse changes in foreign currency exchange rates or interest rates. The Company manages these exposures through operating and financing activities and, when appropriate, through the use of derivative financial instruments. The use of derivative financial instruments is in accordance with the Company's risk management policies, and we do not enter into derivative transactions for speculative or trading purposes.

The quantitative disclosures in the following discussion are based on quoted market prices obtained through independent pricing sources for the same or similar types of financial instruments, taking into consideration the underlying terms and maturities and theoretical pricing models. These quantitative disclosures do not represent the maximum possible loss or any expected loss that may occur, since actual results may differ from those estimates.

Foreign Currency Exchange Rate Risk

Foreign currency exposures arise from transactions, including firm commitments and anticipated contracts, denominated in a currency other than the entity’s functional currency, and from foreign-denominated revenues and expenses translated into U.S. dollars. The majority of the Company's purchases and sales involving international parties, excluding international consumer sales, are denominated in U.S. dollars and, therefore, our foreign currency exchange risk is limited. The Company is exposed to risk from foreign currency exchange rate fluctuations resulting from its operating subsidiaries’ transactions denominated in foreign currencies. To mitigate such risk, certain subsidiaries enter into forward currency contracts. As of ~~March 28,~~December 26, 2020 and June ~~29, 2019,~~27, 2020, forward currency contracts designated as cash flow hedges with a notional amount of ~~$459.3~~$113.8 million and ~~$398.4~~$586.2 million, respectively, were outstanding. As a result of the use of derivative instruments, we are exposed to the risk that counterparties to the derivative instruments will fail to meet their contractual obligations. To mitigate the counterparty credit risk, we only enter into derivative contracts with carefully selected financial institutions. The Company also reviews the creditworthiness of our counterparties on a regular basis. As a result of the above considerations, we do not believe that we are exposed to any undue concentration of counterparty credit risk associated with our derivative contracts as of ~~March 28,~~December 26, 2020.

The Company is also exposed to transaction risk from foreign currency exchange rate fluctuations with respect to various cross-currency intercompany loans and payables. This primarily includes exposure to exchange rate fluctuations in the Chinese Renminbi, the British Pound Sterling and the Euro. To manage the exchange rate risk related to these balances, the Company enters into forward currency contracts. As of ~~March 28,~~December 26, 2020 and June ~~29, 2019~~27, 2020 the total notional values of outstanding forward foreign currency contracts related to these loans were ~~$324.6~~$210.5 million and ~~$14.5~~$76.9 million, respectively.

The fair value of outstanding forward currency contracts included in current assets at ~~March 28,~~December 26, 2020 and June ~~29, 2019~~27, 2020 was ~~$6.7~~$1.8 million and ~~$1.1~~$2.9 million, respectively. The fair value of outstanding foreign currency contracts included in current liabilities at ~~March 28,~~December 26, 2020 and June ~~29, 2019~~27, 2020 was ~~$4.9~~$5.6 million and ~~$4.9~~$1.7 million, respectively. The fair value of these contracts is sensitive to changes in foreign currency exchange rates. A sensitivity analysis of the effects of foreign exchange rate fluctuations on the fair values of our derivative contracts was performed to assess the risk of loss.

The Company is exposed to interest rate risk in relation to its Revolving Credit Facility entered into under the credit agreement dated October 24, 2019 as amended on May 19, 2020, the 2025 Senior Notes, 2022 Senior Notes, 2027 Senior Notes (collectively the "Senior Notes") and investments. ~~The Company was also exposed to interest rate risk in relation to its Revolving Credit Facility, which was terminated on October 24, 2019.~~

Our exposure to changes in interest rates is primarily attributable to ~~(i)~~ debt outstanding under the Revolving Credit ~~Facility entered into on October 24, 2019.~~Facility. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to, at the Company’s 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, as set forth in the credit agreement, based on the ratio of (a) consolidated debt plus operating lease liability to (b) consolidated EBITDAR. Furthermore, a prolonged disruption on our business resulting from the Covid-19 pandemic may impact our ability to satisfy the terms of our Revolving Credit Facility, including our leverage ratio. The Company is actively seeking an amendment to the terms of the Revolving Credit Facility from its lenders, however no assurances can be given that the amendment will be granted, or on terms that are acceptable to the Company. Refer to Note 2, "Basis of Presentation and Organization" for further information.liquidity covenant.

The Company is exposed to changes in interest rates related to the fair value of the Senior Notes. At ~~March 28,~~December 26, 2020, the fair value of the 2025 Senior Notes, 2022 Senior Notes and 2027 Senior Notes was approximately ~~$557~~$645 million, ~~$389~~$412 million and ~~$474~~$647 million, respectively. At June ~~29, 2019,~~27, 2020, the fair value of the 2025 Senior Notes, 2022 Senior Notes and 2027 Senior Notes was approximately ~~$630~~$577 million, ~~$399~~$393 million and ~~$606~~$565 million, respectively. These fair values are based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and are classified as Level 2 measurements within the fair value hierarchy. The interest rate payable on the 2022 and 2027 Senior Notes will be subject to adjustments from time to time if either Moody’s or S&P or a substitute rating agency (as defined in the Prospectus Supplement furnished with the SEC on June 7, 2017) downgrades (or downgrades and subsequently upgrades) the credit rating assigned to the respective Senior Notes of such ~~series is downgraded.~~series.

The Company’s investment portfolio is maintained in accordance with the Company’s investment policy, which defines our investment principles including credit quality standards and limits the credit exposure of any single issuer. The primary objective of our investment activities is the preservation of principal while maximizing interest income and minimizing risk. We do not hold any investments for trading purposes.

ITEM 4. CONTROLS AND PROCEDURES

Based on the evaluation of the Company's disclosure controls and procedures, as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, the Chief Executive Officer of the Company and the Chief Financial Officer of the Company have concluded that the Company's disclosure controls and procedures are effective as of ~~March 28,~~December 26, 2020.

During the first quarter of fiscal 2020, the Company adopted ASU 2016-02. As such, the Company implemented new controls and modifications to existing accounting processes related to lease accounting. These changes include the upgrade to a new lease accounting system and introduction of processes to evaluate and account for lease contracts under the new accounting standard.

During the second quarter of fiscal 2019, the Company completed the first phase of its ERP implementation, SAP’s S4/HANA, migrating the global finance functions for Corporate, Coach and Stuart Weitzman. The finance and supply chain functions were implemented for Kate Spade during the third quarter of fiscal 2019, with the supply chain functions for Coach and Stuart Weitzman implemented during the first quarter of fiscal 2020. As a result of the implementations to date, there were certain changes to processes and procedures, which resulted in changes to the Company’s internal control over financial reporting. The implementation of SAP’s S4/HANA is expected to strengthen the financial controls by automating certain manual processes and standardizing business processes and reporting across the organization. The Company will continue to evaluate and monitor the internal controls over financial reporting during this period of change and will continue to evaluate the operating effectiveness of related key controls. For a discussion of risks related to the implementation of new systems, see Part I, Item 1A, Risk Factors, in the Company's most recent Annual Report on Form 10-K.

Reference should be made to our most recent Annual Report on Form 10-K for additional information regarding discussion of the effectiveness of the Company’s controls and procedures. ~~Other than the ERP system implementation and adoption of the new lease accounting standard noted above, there~~There were no ~~other~~ changes in our internal control over financial reporting during the quarter ended ~~March 28,~~December 26, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various routine legal proceedings as both plaintiff and defendant incident to the ordinary course of its business, including proceedings to protect Tapestry's intellectual property rights, litigation instituted by persons alleged to have been injured by advertising claims or upon premises within the Company’s control, litigation involving contractual disputes and litigation with present or former employees.

Although the Company’s litigation as a defendant is routine and incidental to the conduct of Tapestry’s business, as well as for any business of its size, such litigation can result in large monetary awards, such as when a civil jury is allowed to determine compensatory and/or punitive damages.

The Company believes that the outcome of all such pending routine legal proceedings in the aggregate will not have a material effect on the Company's business or condensed consolidated financial statements.

In addition to such routine legal proceedings, the Company is currently addressing a putative class action complaint filed in the Delaware Court of Chancery on May 7, 2020, naming the former chief executive officer and director of Kate Spade & Company and the other former directors of Kate Spade & Company, which the Company acquired on July 11, 2017 (the “Acquisition”), as defendants, and captioned Butler v. Leavitt, et al., C.A. No. 2020-0343-JTL. The complaint asserts claims on behalf of former Kate Spade & Company shareholders alleging breaches of fiduciary duty in connection with the Acquisition, including with respect to the defendants’ decision to pursue the Acquisition and Kate Spade & Company’s disclosures to stockholders in connection with the Acquisition. Under the terms of the agreement pursuant to which the Company acquired Kate Spade & Company, the Company is required to indemnify the defendants under this claim. The Company vigorously disputes the allegations of the complaint, believes it has strong defenses against the claims and has filed a motion to dismiss the complaint with prejudice. The ultimate outcome of this matter, including the amount or range of possible loss, cannot be predicted or reasonably estimated at this time.

Tapestry has not entered into any transactions that have been identified by the IRS as abusive or that have a significant tax avoidance purpose. Accordingly, we have not been required to pay a penalty to the IRS for failing to make disclosures required with respect to certain transactions that have been identified by the IRS as abusive or that have a significant tax avoidance purpose.



	June 29, 2019					June 30, 2019
	As Reported under ASC 840		ASC 842 Adjustments			As Reported under ASC 842
	(millions)
Current Assets:
Prepaid expenses⁽¹⁾	$	99.8	$	(37.8	)	$	62.0
Other current assets⁽¹⁾	91.0		(2.3		)	88.7
Long-term Assets:
Operating lease right-of-use assets⁽¹⁾	—		2,133.7			2,133.7
Intangible assets⁽¹⁾	1,711.9		(58.5		)	1,653.4
Deferred income tax assets⁽³⁾	19.4		1.7			21.1
Other assets⁽¹⁾	134.2		(27.4		)	106.8
Current Liabilities:
Accrued liabilities⁽¹⁾⁽³⁾	673.6		(39.2		)	634.4
Operating lease liabilities⁽²⁾	—		362.3			362.3
Current debt	0.8		(0.8		)	—
Long-term Liabilities:
Long-term debt	1,601.9		(5.3		)	1,596.6
Operating lease liabilities⁽²⁾	—		1,961.6			1,961.6
Deferred income tax liabilities⁽³⁾	234.1		(13.1		)	221.0
Other liabilities⁽¹⁾⁽³⁾	454.0		(207.2		)	246.8
Stockholder's Equity:
Retained earnings (accumulated deficit)⁽³⁾	291.6		(48.9		)	242.7


⁽²⁾	~~Upon adoption, the Company recognized lease liabilities of $2.32 billion on the Condensed Consolidated Balance Sheet, which were recorded with Current and Long-term lease liabilities.~~



	North America		Greater China⁽¹⁾		Other Asia⁽²⁾		Other⁽³⁾		Total
	(millions)
Three Months Ended March 28, 2020
Coach	$	427.6	$	103.7	$	193.8	$	47.4	$	772.5
Kate Spade	181.4		8.9		41.1		18.1		249.5
Stuart Weitzman	28.7		10.6		4.5		6.9		50.7
Total	$	637.7	$	123.2	$	239.4	$	72.4	$	1,072.7

Three Months Ended March 30, 2019
Coach	$	484.0	$	213.7	$	212.8	$	54.5	$	965.0
Kate Spade	205.1		13.6		43.8		18.6		281.1
Stuart Weitzman	45.8		18.0		6.3		15.2		85.3
Total	$	734.9	$	245.3	$	262.9	$	88.3	$	1,331.4

Nine Months Ended March 28, 2020
Coach	$	1,751.3	$	451.0	$	622.0	$	184.0	$	3,008.3
Kate Spade	761.8		34.8		125.2		63.6		985.4
Stuart Weitzman	137.7		62.7		16.4		36.1		252.9
Total	$	2,650.8	$	548.5	$	763.6	$	283.7	$	4,246.6

Nine Months Ended March 30, 2019
Coach	$	1,788.1	$	577.2	$	627.9	$	181.1	$	3,174.3
Kate Spade	812.3		37.4		118.9		66.3		1,034.9
Stuart Weitzman	170.4		57.1		18.5		58.2		304.2
Total	$	2,770.8	$	671.7	$	765.3	$	305.6	$	4,513.4


⁽¹⁾ (1) Greater China includes mainland China, Hong Kong SAR, Macao SAR and Taiwan. (2) Other Asia includes Japan, Australia, New Zealand, South Korea, Thailand and other countries within Asia. (3) Other sales primarily represents sales in Europe, the Middle East and royalties related to licensing.	~~Greater China includes mainland China, Hong Kong SAR, Macao SAR and Taiwan.~~


⁽²⁾	~~Other Asia includes Japan, Australia, New Zealand, South Korea, Thailand and other countries within Asia.~~


⁽³⁾	~~Other sales primarily represents sales in Europe, the Middle East and royalties related to licensing.~~


⁽²⁾	~~During the three and nine months ended March 28, 2020, the Company recognized a $267.0 million non-cash charge related to the impairment of the Stuart Weitzman indefinite-lived brand.~~



	Amortization Expense
	(millions)
Remainder of fiscal 2020	$	1.1
Fiscal 2021	6.5
Fiscal 2022	6.5
Fiscal 2023	6.5
Fiscal 2024	6.5
Fiscal 2025	6.5
Fiscal 2026 and thereafter	37.7
Total	$	71.3



Balance at March 30, 2019	290.1		$	2.9		$	3,278.6		$	340.2		$	(90.5	)	$	3,531.2


	Shares of Common Stock		Common Stock			Additional Paid-in- Capital			Retained Earnings / (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
	(millions, except per share data)
Balance at June 29, 2019	286.8		$	2.9		$	3,302.1		$	291.6		$	(83.2	)	$	3,513.4
Net income (loss)	—		—			—			20.0			—			20.0
Other comprehensive income (loss)	—		—			—			—			(12.8		)	(12.8		)
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	1.0		—			(14.5		)	—			—			(14.5		)
Share-based compensation	—		—			26.8			—			—			26.8
Repurchase of common stock	(11.9	)	(0.1		)	—			(299.9		)	—			(300.0		)
Dividends declared ($0.3375 per share)	—		—			—			(97.1		)	—			(97.1		)
Cumulative adjustment from adoption of new accounting standard	—		—			—			(48.9		)	—			(48.9		)
Balance at September 28, 2019	275.9		$	2.8		$	3,314.4		$	(134.3	)	$	(96.0	)	$	3,086.9
Net income (loss)	—		—			—			298.8			—			298.8
Other comprehensive income (loss)	—		—			—			—			11.0			11.0
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	0.1		—			2.1			—			—			2.1
Share-based compensation	—		—			16.8			—			—			16.8
Dividends declared ($0.3375 per share)	—		—			—			(93.2		)	—			(93.2		)
Balance at December 28, 2019	276.0		$	2.8		$	3,333.3		$	71.3		$	(85.0	)	$	3,322.4
Net income (loss)	—		—			—			(677.1		)	—			(677.1		)
Other comprehensive income (loss)	—		—			—			—			(11.7		)	(11.7		)
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes	0.1		—			(0.5		)	—			—			(0.5		)
Share-based compensation	—		—			13.2			—			—			13.2
Dividends declared ($0.3375 per share)	—		—			—			(93.2		)	—			(93.2		)
Balance at March 28, 2020	276.1		$	2.8		$	3,346.0		$	(699.0	)	$	(96.7	)	$	2,553.1


⁽²⁾	Other represents the accumulated loss on the Company's minimum pension liability adjustment. The balance at March 30, 2019 is net of tax of $(0.6) million. There was 0 remaining balance at March 28, 2020.


⁽¹⁾	~~Interest on lease liabilities is recorded within Interest expense, net on the Company's Condensed Consolidated Statement of Operations.~~



	June 29, 2019
	(millions)
2020	$	399.0
2021	341.5
2022	308.2
2023	270.4
2024	226.5
Subsequent to 2024	1,065.7
Total minimum future rental payments	$	2,611.3



	Three Months Ended
	March 28, 2020					March 30, 2019					Variance
	(millions, except per share data)
	Amount			% of net sales		Amount			% of net sales		Amount			%
Net sales	$	1,072.7		100.0	%	$	1,331.4		100.0	%	$	(258.7	)	(19.4	)%
Gross profit	616.2			57.4		915.9			68.8		(299.7		)	(32.7	)
SG&A expenses	1,301.7			NM		806.1			60.6		495.6			61.5
Operating income (loss)	(685.5		)	(63.9	)	109.8			8.2		(795.3		)	NM
Interest expense, net	13.5			1.3		10.6			0.8		2.9			26.6
Other expense (income)	6.0			0.6		4.0			0.3		2.0			51.7
Provision for income taxes	(27.9		)	(2.6	)	(22.2		)	(1.7	)	(5.7		)	(25.2	)
Net income (loss)	(677.1		)	(63.1	)	117.4			8.8		(794.5		)	NM
Net income (loss) per share:
Basic	$	(2.45	)			$	0.40				$	(2.85	)	NM
Diluted	$	(2.45	)			$	0.40				$	(2.85	)	NM



	Sources of Liquidity		Outstanding Indebtedness		Total Available Liquidity⁽¹⁾
	(millions)
Cash and cash equivalents⁽¹⁾	$	742.6	$	—	$	742.6
Short-term investments⁽¹⁾	155.6		—		155.6
Revolving Credit Facility⁽²⁾	900.0		—		900.0
3.000% Senior Notes due 2022⁽³⁾	400.0		400.0		—
4.250% Senior Notes due 2025⁽³⁾	600.0		600.0		—
4.125% Senior Notes due 2027⁽³⁾	600.0		600.0		—
Total	$	3,398.2	$	1,600.0	$	1,798.2


~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~


~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~



			TAPESTRY, INC.
			(Registrant)

			By:			/s/ ~~Brian Satenstein~~Manesh B. Dadlani
			Name:			~~Brian Satenstein~~Manesh B. Dadlani
			Title:			Corporate Controller
						(Principal Accounting Officer)