Coach, Inc. (NYSE: COH), a leading marketer of modern classic
American accessories, today announced a 49% increase in earnings
per diluted share for its fourth fiscal quarter ended July 2, 2005.
This substantial increase in earnings from the prior year's fourth
quarter reflected 24% growth in net sales combined with significant
operating margin improvement. For the full fiscal year, net sales
rose 29% and net income increased 48% versus the prior fiscal year.
The prior year's fourth fiscal quarter included an additional week
and therefore, on a 13-week to 13-week basis, sales rose 31% and
earnings per share rose 58%. Similarly, on a 52-week to 52-week
basis, sales rose 31% for the fiscal year, while earnings per share
rose 49%. In addition, on July 1, 2005 the company completed the
purchase of Sumitomo's 50% interest in Coach Japan, Inc. for
approximately $225 million plus undistributed profits and paid-in
capital of about $75 million. During the fourth quarter, net sales
were $419 million, 24% higher than generated in the prior year's
fourth quarter. Net income rose 49% to $98 million, or $0.25 per
diluted share, compared with $66 million, or $0.17 per share in the
prior year. This was ahead of the analysts' consensus estimate of
$0.24 for the quarter. For the fiscal year 2005, net sales were
$1.7 billion, up 29% from the $1.3 billion recorded in fiscal year
2004. Net income rose to $389 million, up 48% from the $262 million
earned in the prior year. Diluted earnings per share rose 47% to
$1.00, versus $0.68 a year ago, and ahead of analysts' estimates of
$0.98. Earnings per share numbers have been adjusted for the
two-for-one split, which was effected on April 4, 2005. Lew
Frankfort, Chairman and Chief Executive Officer of Coach, Inc.,
said, "Once again, I'm delighted with our fiscal fourth quarter and
full year performance. This quarter's results demonstrated a
continuation of the broad based strength we have seen throughout
the year, as our market share continued to expand across all
channels and geographies. Similarly, fiscal 2005 was another
remarkable year for our company, as we posted excellent financial
metrics throughout our businesses. Our performance reflects the
sustainability of our growth strategies and the distinctiveness of
our accessible luxury proposition, which continues to be embraced
by our loyal consumer base in North America and internationally."
In the fourth quarter, gross margin increased by 90 basis points on
a year-over-year basis from 76.7% to 77.6%, while gross margin for
the year expanded from 74.9% to 76.6%, a 170 basis point increase.
This annual improvement was driven by channel mix, product mix and
sourcing cost initiatives. As expected, SG&A expenses as a
percentage of net sales were level with prior year in the fourth
quarter, at 43.8%. For the full year, SG&A expenses as a
percentage of net sales declined to 40.3% from 41.3% a year ago.
The operating margin in the quarter reached 33.8%, compared with
32.9% in the year-ago fourth quarter. For the full year the
company's operating margin rose to 36.4% from the 33.6% margin
achieved in fiscal year 2004, a 280 basis point improvement. Coach
also noted that the buyout of its joint venture partner in Coach
Japan at fiscal year end allowed the company to capture a foreign
tax benefit for the year. This benefit was recorded in the fourth
quarter and brought the full year to the lower effective
appropriate annual rate. The company also noted that this benefit,
associated with the tax structure in Japan for income earned and
reinvested in-country, will be ongoing. At the end of the fiscal
year the company had cash and marketable securities of $505
million, as compared with $564 million a year ago. It should be
noted that the 2005 fiscal year end cash balance reflects the
buyout of Sumitomo's interest in Coach Japan and the repurchase of
$265 million of Coach stock during the fiscal year. Fourth fiscal
quarter and full year sales grew in each of Coach's primary
channels of distribution as follows: -- Direct to consumer sales,
which consist primarily of sales at Coach stores, rose 26% to $245
million during the fourth quarter from $195 million posted for the
fourth quarter of the prior year. These exceptional results were
driven by both same store sales increases and distribution growth.
Comparable store sales rose 22.0%, with retail stores up 13.6%, and
factory stores up 34.7%. For the full year, direct to consumer
sales rose 29% to $935 million from $726 million generated in
fiscal 2004. Overall, comparable store sales for the fiscal year
increased 18.2%, with retail stores up 14.1% and factory stores up
23.9%. -- Indirect sales increased 21% to $174 million in the
fourth quarter from the $144 million reported for the prior year.
For the year, indirect sales rose 30% to $775 million, up from $595
million recorded for fiscal 2004. Results for both the quarter and
fiscal year reflected strong gains in all indirect businesses,
including Coach Japan, U.S. department stores and International
wholesale. For the fourth quarter Coach Japan sales rose 20% in
constant currency, while for the full year, sales increased 30%. On
a comparable 13- and 52-week basis, yen sales in Japan rose 28% and
32%, in the quarter and for the year, respectively. As expected,
comparable location sales in Japan rose at a mid-single-digit rate
for the quarter and for the year. Mr. Frankfort added, "The
strength of our fourth quarter results was reflected in all of our
businesses. Our successful fresh and fun offerings drove our
performance as we continued to improve productivity through monthly
product flow and innovation. Introductions this spring included
Vintage Signature Tie Dye and Straw Boxy Totes. Optic Signature was
offered for the first time in sophisticated Soho silhouettes in new
colors. We also introduced an expanded shoulder tote group and a
fresh interpretation of the ever popular Signature Patchwork.
Lastly, Hamptons Weekend, in its third successful year, was updated
and expanded with new colors and silhouettes, including Signature
Scribble." "In addition, our surging factory store business
reflects a combination of a strengthened merchandising offering,
Coach's unique positioning and the overall vitality of the premier
centers in this channel." "In Japan, we were particularly pleased
with the outstanding sales and market share growth in FY05, which
we achieved despite a lackluster environment. Our rapidly expanding
sales in Japan truly reflect the success of our distribution
strategy - notably the acceleration of flagship openings, along
with the expansion of highly productive shop-in-shops." During the
fourth quarter of fiscal 2005, the company opened seven Coach
retail stores and two factory stores, while closing one factory
location, bringing the total to 193 retail stores and 82 factory
stores at July 2, 2005. This was a net increase of 19 Coach retail
stores from the 174 in operation a year ago. Also during the
quarter, the Ala Moana retail store in Hawaii was expanded,
bringing the total number of completed retail store expansions this
year to seven. Coach Japan opened two new locations, and closed
two, bringing the total to 106 at fiscal year end. This was a net
increase of four locations from the 102 at year-end 2004. In
addition, we expanded two locations during the fourth quarter,
bringing the year end total to 14 expansions in Japan. "While
fiscal 2006 has just begun, our momentum continued through July.
We're confident that our proven growth strategies built upon our
strong business and brand equities, will continue to deliver
excellent returns in the seasons ahead and over our planning
horizon," Mr. Frankfort concluded. The company introduced its first
fiscal quarter outlook with sales targeted to be at $440-$445
million, an increase of at least 28%, and earnings per share
projected to be at least $0.24, a gain of at least 40%. This
compares to the consensus earnings estimate of $0.23 for first
quarter. In addition, Coach raised guidance for fiscal 2006 and now
estimates sales of nearly $2.1 billion for the year, an increase of
about 22%. Operating income is expected to rise at least 25% to an
operating margin of over 37%. Earnings per share are forecasted to
rise to at least $1.24, ahead of the analysts' consensus of $1.21
for the year. This guidance excludes the earnings impact from the
implementation of accounting for share-based payments (Statement of
Financial Accounting Standards No. 123R), which is currently
required in the first quarter of fiscal year 2006. Coach will host
a conference call to review these results at 8:30 a.m. (EDT) today,
August 2, 2005. Interested parties may listen to the webcast by
accessing www.coach.com/investors on the Internet or dialing into
1-888-405-2080 and asking for the Coach earnings call led by Andrea
Shaw Resnick, VP of Investor Relations. A telephone replay will be
available starting at 12:00 noon today, for a period of five
business days. The number to call is 1-866-352-7723. A webcast
replay of the earnings conference call will also be available for
five business days on the Coach website. Coach, with headquarters
in New York, is a leading American marketer of fine accessories and
gifts for women and men, including handbags, women's and men's
small leathergoods, business cases, weekend and travel accessories,
footwear, watches, outerwear, sunwear, and related accessories.
Coach is sold worldwide through Coach stores, select department
stores and specialty stores, through the Coach catalog in the U.S.
by calling 1-800-223-8647 and through Coach's website at
www.coach.com. Coach's shares are traded on The New York Stock
Exchange under the symbol COH. This press release contains
forward-looking statements based on management's current
expectations. These statements can be identified by the use of
forward-looking terminology such as "may," "will," "should,"
"expect," "intend," "estimate," "are positioned to," "continue,"
"project," "guidance," "forecast," "anticipated," or comparable
terms. Future results may differ materially from management's
current expectations, based upon risks and uncertainties such as
expected economic trends, the ability to anticipate consumer
preferences, the ability to control costs, etc. Please refer to
Coach's latest Annual Report on Form 10-K for a complete list of
risk factors. -0- *T COACH, INC. ----------- CONDENSED CONSOLIDATED
STATEMENTS OF INCOME -------------------------------------------
For the Quarters and Twelve Months Ended July 2, 2005 and July 3,
2004
----------------------------------------------------------------------
(in thousands, except per share data)
------------------------------------- QUARTER ENDED (1) TWELVE
MONTHS ENDED (1) ----------------------- -----------------------
July 2, July 3, July 2, July 3, 2005 2004 2005 2004 -----------
----------- ----------- ----------- (unaudited) Net sales $ 418,660
$ 338,145 $1,710,423 $1,321,106 Cost of sales 93,704 78,632 399,652
331,024 ---------- ---------- ---------- ---------- Gross profit
324,956 259,513 1,310,771 990,082 Selling, general and
administrative expenses 183,547 148,246 688,961 545,617 ----------
---------- ---------- ---------- Operating income 141,409 111,267
621,810 444,465 Interest income, net 4,836 1,553 15,760 3,192
---------- ---------- ---------- ---------- Income before income
taxes and minority interest 146,245 112,820 637,570 447,657 Income
taxes 48,573 42,299 235,277 167,866 Minority interest, net of tax
107 4,851 13,641 18,043 ---------- ---------- ---------- ----------
Net income $ 97,565 $ 65,670 $ 388,652 $ 261,748 ==========
========== ========== ========== Net income per share Basic $ 0.26
$ 0.17 $ 1.03 $ 0.70 ========== ========== ========== ==========
Diluted $ 0.25 $ 0.17 $ 1.00 $ 0.68 ========== ==========
========== ========== Shares used in computing net income per share
Basic 377,632 377,035 378,670 372,120 ========== ==========
========== ========== Diluted 389,130 389,411 390,191 385,558
========== ========== ========== ========== (1) Includes 53rd week
in fiscal year 2004 COACH, INC. ----------- CONDENSED CONSOLIDATED
BALANCE SHEETS ------------------------------------- At July 2,
2005 and July 3, 2004 -------------------------------- (in
thousands) -------------- July 2, July 3, 2005 2004 ----------
---------- ASSETS Cash, cash equivalents and short term investments
$ 383,051 $ 434,443 Receivables 64,190 55,724 Inventories 184,419
161,913 Other current assets 80,096 53,536 ---------- ----------
Total current assets 711,756 705,616 Property and equipment, net
207,204 164,291 Long term investments 122,065 130,000 Other
noncurrent assets 306,379 44,518 ---------- ---------- Total assets
$1,347,404 $1,044,425 ========== ========== LIABILITIES AND
STOCKHOLDERS' EQUITY Accounts payable $ 64,985 $ 44,771 Accrued
liabilities 190,749 116,368 Subsidiary credit facilities 12,292
1,699 Current portion of long-term debt 150 115 ----------
---------- Total current liabilities 268,176 162,953 Long-term debt
3,270 3,420 Other liabilities 43,182 55,568 Minority interest, net
of tax - 40,198 Stockholders' equity 1,032,776 782,286 ----------
---------- Total liabilities and stockholders' equity $1,347,404
$1,044,425 ========== ========== *T
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