And that’s what’s been driving AUR and our gross margin growth over the last few years. And those are deeply embedded capabilities at Tapestry and that’s how we’re winning. So that’s why we expect to be able to continue to do this. The value that we deliver in the marketplace is incredibly strong. We know our consumers and we can then take those insights and deliver innovation behind it. And then maybe, Scott, over to you.
Scott Roe: Yes, sure. Michael, you’re probably not surprised. We’re not giving any guidance on 2025, right? So I would just repeat a couple of things that I said earlier. First of all, there’s agility in the model, it’s on display. It has been since the Investor Day and our ability to deliver earnings on a lot of different conditions and difficult backdrop. The other thing I’d say is, we continue to invest in the brands, continue to invest in marketing, but we’re also reading and reacting, right? And so I’ll give you an example. We talked about in this last quarter, we have made a decision within our brands to spend more on the top of the funnel and less on the bottom of the funnel. That can hurt sales in the short term. You get bottom of the funnel sales, but from the quality of sales and the acquisition of new customers, which you saw 1.2 million in the quarter, about half of which are millennial and Gen Z.
That really speaks to confidence in the future, and these are some proof points that help us or give us confidence that we can grow both top line and bottom line in the future.
Michael Binetti: Thanks a lot, guys. Appreciate it.
Scott Roe: Yeah. Thank you.
Operator: Our next question is from Oliver Chen of TD Cowen.
Oliver Chen: Hi. Thanks so much. The Coach gross margin continues to really impress. What are your thoughts longer term? And should you invest more just to make sure you’re being proactive about how well you’re doing there? And as you think about pricing, it continues to impress as well, what are you seeing with elasticity? And how are you thinking about like-for-like relative to mix, the Tabby momentum is really impressive. Lastly, about the geographies. Would love your thoughts on the China customer relative to US, China has been fairly mixed with some of the macros and housing and traffic being general concerns. Meanwhile, we’ve seen a linear US customer. Just would love thoughts on that. Thank you.
Joanne Crevoiserat: Todd, do you want to kick us off with the Coach gross margin and your long-term outlook? And then I’ll follow up with the — on the China piece.
Todd Kahn: Perfect. Thanks. Yeah, we feel good Oliver about our gross margin and the sustainability of our growth margin. Now obviously, this was a not quarter. I want to make sure no one expects every quarter to be 77%, but we like the neighborhood, and we’re delivering on an annual basis. And we are investing. I mean, again, when we talk about investing, we’re investing in the quality of our product. We’re investing in marketing. If you think about it, historically, Coach spend 3% on marketing. We’re spending over 8% on marketing today. And as Scott indicated in the last question, we’ve shifted even more recently, how we’re spending that marketing. We’re spending more and more on top of the funnel marketing to tell stories, to create more connection with our consumers.
We’re doing that because we believe in the long-term sustainability and the customer acquisition that, that brings to the brand. In terms of pricing, I mean, we touched on this a little bit, but I feel — and Joanne touched on this, but I think in terms of AUR, at Coach brand specifically, we feel very good about sustaining AUR growth for four reasons. Again, it goes back to innovation and storytelling, something I’ve talked about over and over again. A motion always trumps price. Consumers have hundreds of choices. Every day, we win because we connect with them emotionally. Third, traditional European luxury dominate the category. And when we compare our product with that traditional European luxury, the consumer is seeing the value, and that’s very important.
And lastly, something that Scott always touches on, we’re so disciplined in our inventory. We are — our whole structure, if you think about the last four years, Joanne led this, we reduced our SKU count dramatically, and we leaned in on important family. And that takes a lot of the pressure off that constant churn on fashion. That’s what you’re seeing with Tabby, that’s what you’re seeing with Willow, Rogue Rose, we have families that are sustainable, that are emotional that the consumer connects with. Back to Joanne, on China.
Joanne Crevoiserat: Yes. Thank you. And Oliver, related to the consumer in China, like many others, we’re seeing macro headwinds. There are — there is lots of noise in the numbers. Last year, we’re lapping shifts in the New Year holiday during the quarter, but also importantly, that post-COVID revenge spending. I do think it is important to note that our outlook for the year continues to expect low single-digit growth for the year in China. So the quarterly flow of that has been quite dynamic. But we still expect growth for the year and our view on the long-term opportunity in China has not changed. And our team — we have tremendous teams on the ground. We’ve been in the market, as you know, for two decades, over two decades and our teams are doing an excellent job building our brands and connecting with consumers in this dynamic environment.
I was just in the market two weeks ago. I was meeting with teams and our partners in the region. The teams are showing agility and moving with the consumer as their shopping behaviors and preferences shift. And you saw some of our wholesale outperformance in international was related to how our teams are reading where the consumers are moving, and making sure we’re showing up and our brands are connecting with consumers where they are. We are seeing consumer desire for our brands continue to be strong and purchase intent in our category is still high with consumers. So we continue to invest in the market and brand building activities to support that long-term potential that we see.
Oliver Chen: Very encouraging. Thanks. Best regards.
Joanne Crevoiserat: Thank you.
Operator: Our next question is from Mark Altschwager of Baird.
Mark Altschwager: Good morning. Thanks for taking the question. So Coach continues to demonstrate its ability to drive stable results despite the choppier macro. So the tools and playbook really seem to be working. So what do you think is holding back Kate at this stage? Is there a wholesale story going on there? And do you think that the success at Coach and the success you’re having with younger customers is having an impact on Kate at this point? Thank you.
Joanne Crevoiserat: No, our opportunities with Kate, and I appreciate the question, Mark. At Kate, we are focused on building a stronger brand and a bigger brand. We see tremendous potential in the future for Kate. And we’re doing both building the profitability of the brand as well as establishing a stronger brand with our consumers. So in the quarter, you saw us expand gross margin, operating margin and profit versus last year. It exceeded our expectations. So the discipline management of the business remains intact. We’re executing with discipline, and that is embedded in our ways of working going forward. So we’re focused on increasing the profitability of the brand and from that base, also an opportunity to grow the top line.
And in that, we see an opportunity to increase the — or improve the execution in three areas, and we’ve talked about this. One is strengthening the core handbag foundation. Coach has 80 years of archives that we’re pulling from and really driving. Kate is building those core handbag ideas and the delivering of innovation, you’ve heard that as a theme at Tapestry, where we’re really winning and where we see the customer respond is when we’re delivering newness and innovation in our assortments. And that’s what we’re focused on delivering. And we’re increasing that newness and innovation at Kate, where we’re delivering that. It’s working. And that newness and innovation will grow, as we’ve mentioned, into fiscal 2025. We’re also focused on the omnichannel experience.
We launched outlet.com. We have more omnichannel customers, but that seamless experience and driving more emotional marketing. We’re talking about shifting our investments into top of funnel. So all the things that Todd just talked about at Coach are things we’re applying to Kate. Kate in earlier innings. And we continue to have confidence in the runway that we see ahead for the brand. We’re being disciplined about our execution and building the profitability while we continue to execute on the things that will drive and help us achieve that long-term brand ambition.
Mark Altschwager: Thank you. And maybe one more quick one for Scott on fiscal 2025. The agility in the model came up a couple of times today. Is sales growth needed to hit the earnings goals? Just trying to better understand the range of scenarios you’re contemplating there? Thanks again.
Scott Roe: Yes. So again, I’m not going to get into that level of specificity, but let me be clear, we expect to grow, right? We’ve got the building blocks in place. We’re acquiring consumers that we believe have a strong lifetime value. We’re putting the investments in marketing and behind the business, and we’ve got an innovation pipeline. So we’ll come back and give you more soon, but we do expect to grow. That sai, dwe demonstrated this year that even on no growth essentially flat business, we can and have the levers to deliver profitability. So a combination of both those things that give me a lot of confidence. Think about what this model does as it’s been remade and the efficiency that we’ve been talking about as we achieve the growth that we expect to in the future. And this becomes a profit and a cash machine on an even higher level than the commitments that we’ve made publicly.
Operator: [Operator Instructions] We’ll move next to Rick Patel of Raymond James.
Rick Patel: Thank you. Good morning. Really good control of SG&A. Can you talk about which levers you pulled in the quarter to pare back the growth there and touch on how we should think about OpEx going forward in terms of areas where you see opportunity for better control versus areas you need to make more investments in?
Scott Roe: Maybe I’ll start. Listen, we continue — the model really hasn’t changed. We continue to invest in our people — in our people, capability and in marketing. And those are the areas that you see that we invested in the quarter. And we’re finding levered really throughout the rest of the P&L, I’d remind you about two-thirds of our rents now have a variable component. And again, we’re spending about 9% in terms of marketing. So that’s — that really isn’t a change and we’ve been pretty consistent in the way we’re looking at that from a go forward standpoint.
Rick Patel: Thanks very much.
Operator: Thank you. This does conclude our question-and-answer session. I’d be happy to return the call to Joanne for concluding remarks.
Joanne Crevoiserat: Well, thank you. And thank you for joining us and for your interest in our story, and thank you to our incredible teams around the world who continue to drive our results against the dynamic backdrop. Our disciplined approach to brand building and our commitment to operational excellence were once again on display in the third quarter. We’re delivering innovation for consumers and driving profit and earnings growth. I’m confident in our future and the significant opportunity to drive sustainable growth and shareholder returns. Thanks, again, and have a great day.
Operator: This concludes Tapestry’s earnings conference call. We thank you for your participation.
