Scott Roe: Yes, maybe just a quick build, Mark. a lot of times a question that we get is, where do you see the evidence of the platforms that you’ve built your data and analytics capabilities? Where’s the evidence in the P&L? I would say in two areas. Number one, the ability to understand the trends in our business and the fact that we’re a data business and we use that data has helped us moderate our spending and that’s why you’re going to see leverage in light of a lighter demand environment in the second half. And then secondly, we don’t guess on those decisions that Joanne just mentioned. We’re very thoughtful in looking at the returns as we make these investments. We don’t just say we’re going to invest more in our brands.
We’re looking at those returns. We’re leaning in where they work. We’re leaning back where they don’t. And that discipline is helping us to, I think, have a high-quality P&L in a very tough environment right now. And the last proof point is our inventory, right? That down 17%. Mostly that’s in transit, but the combination of strong gross margins and really well-positioned inventory, I think, is just testing the insights that we’re getting into the business and the discipline that you see.
Operator: Our next question is from Brook Roche with Goldman Sachs.
Brook Roche: Good morning, and thank you for taking our question. Can you elaborate on what you’re seeing with consumer engagement in North America by brand across outlet versus full line and also household income cohort? What changes have you seen in the consumer environment that are developing differently than your prior outlook? And are you seeing any signs of increased price sensitivity among consumers in North America?
Joanne Crevoiserat: That’s a great question, Brook. North America is, we’re operating in a more challenging environment. Having said that, our first quarter results were flattish to last year, which was a meaningful sequential improvement from the fourth quarter. And it was in line with our expectations as we came into the quarter. But to your question, the aspirational consumer, that lower income cohort, I would say this is across channels. We’re not seeing major distinction between our channels. Across channels, the aspirational consumer is under more pressure on a relative basis. They’re being more choiceful. But again, that hasn’t materially changed from Q4. As a business, we’re focused on the controllables. We’re focused, as we just talked about, on brand building, delivering product excellence.
To Lorraine’s question, when we deliver innovation in newness, we see the consumer respond. And we’re focused on strong execution. So we’re delivering that newness. We’re delivering that innovation across our brands. You saw it with the Coach Shine campaign and the Coachtopia rollout, the icons at Kate that we’re rolling out, and even the launch of sneakers at Stuart Weitzman, really responding with innovation to what we’re hearing and seeing from the consumer. And we’re managing the business in a healthy way. We’ll continue to expand AUR and gross margin. I’m sorry, go ahead, Todd.
Todd Kahn: Oh, no, sorry. I just quickly add, Brook, I mean, globally, we, our direct business was up. North America was up. And we feel good because, again, it goes back to the emotion and the connection we’re making with the consumer. And by way of example, even in a value channel, we’re introducing more Tabby bags directly at full price because it’s just a point of distribution. And we’re seeing that in North America resonate, and we’re going to roll that out over time to more and more doors. So it’s very interesting. We’re finding sometimes even the young cohort might come into the Coach brand buying a wristlet. That might be the first thing they buy. They might even buy it at one of our value channels. Then they end up buying a Tabby bag.
So this concept of one Coach, of this desirability that we’re creating, that people are coming in into an outlet store with its image of the Coach Tabby bag and wanting that, that to me creates so much more desire across all value channels and full price channels.
Brook Roche: Great, thank you. And if I could just ask one quick follow-up. I’m curious what you think the health of the industry looks like in North America between wholesale and DTC. I understood that you currently don’t have much wholesale exposure, but the pre-portfolio does. And I’m curious what your thoughts are about the ongoing run rate momentum of those two channels as you look ahead.
Joanne Crevoiserat: Well, we have seen, I think in North America in the market, generally more pressure in the wholesale channel over the last year. That’s not something new. To your point, our business is roughly 90% direct. And we like that direct relationship that we have with the consumer. It allows us to understand and see trends faster as they’re happening. There is a reason to have wholesale. I think they’re wholesale and we appreciate the partners that we have in the wholesale market that provide exposure of the brand to a broader base of consumers. But again, we like the direct relationship that we have with our consumers. We worked to build our platform to be able to reach consumers if their shopping habits evolve and our focus is really following the consumer. And I would say we see an opportunity to build the direct business with the Capri brands. That’s something that our platform will provide and we see runway ahead.
Todd Kahn: The one thing I will add, again, as Joanne said, we love our direct business. We love our hotel partners that we’re in. I’m looking forward to the opportunities that may come to enhance the hotel in a selective way when we have the leverage of multiple brands. So I think that’s going to be a benefit to the consumer and a benefit to our hotel partners.
Operator: And we’ll take our final question from Oliver Chen with TD Cowen.
Oliver Chen: Hi, thank you very much. A lot of premium luxury brands are not on Amazon. Just what was your philosophy for that? And Amazon can also often employ variable pricing and thinks about brands differently. Also, the sales decline in Digital, just what’s underpinning that? We’ve seen tougher performance marketing online. And then lastly, on thinking about the second request, diversion ratios, suitability, as well as the outlet channel, those may be topics in focus. Any thoughts on catalysts around the second would be helpful as well. Thank you.
Todd Kahn: I guess you have a question for every one of us.
Joanne Crevoiserat: Yes, go ahead, Todd. I’ll let you kick it off.
Todd Kahn: I’ll do the Amazon one. Thank you.
Joanne Crevoiserat: Yes, I’ll pick up Digital, yes.
Todd Kahn: Okay, thank you. Oliver, it’s interesting. We did a lot of due diligence on Amazon and we talk a lot at the Coach brand about being consumer obsessed. And through that due diligence and through this trial that we’ve launched with Amazon. We recognize, particularly with a young consumer, that the journey, the discovery, the particularly of fashion brands in our category, starts at Amazon. And we’ve been on Amazon. And one of the things that I love with this trial that we’re working with Amazon is, we opened up a beautiful brand enhancing shop on Amazon. We’re learning, we’re using their technology. Their 3D technology alone is fascinating in terms of showing the functionality and the desirability of our product. They’ve been a very good partner.
It’s a hostile relationship. And to date, we’ve seen no cannibalization. So again, when you put things through a consumer lens and say, how does the consumer see a brand? How do you create desirability? How do you create accessibility? This looks like a pretty great start for us, and we’re happy with the performance we’ve seen.
