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Coach, Inc. (NYSE: COH), a leading marketer of modern classic American accessories, today announced a 33% increase in earnings per diluted share for its fourth fiscal quarter ended July 1, 2006. This substantial increase in earnings from the prior year's fourth quarter reflected a 23% growth in net sales, combined with significant operating margin improvement. For the full fiscal year, net sales rose 23% and net income increased 38% versus the prior fiscal year. During the fourth quarter, net sales were $514 million, 23% higher than generated in the prior year's fourth quarter. On a constant-exchange-rate basis, net sales increased 25% in the fourth quarter, excluding the negative currency effects from translating foreign-denominated sales into U.S. dollars. Net income rose 31% to $118 million, or $0.31 per diluted share, compared with $90 million, or $0.23 per share, in the prior year. This was ahead of the analysts' consensus estimate of $0.29 for the quarter. For the fiscal year 2006, net sales were $2.1 billion, up 23% from the $1.7 billion recorded in fiscal year 2005. On a constant-exchange-rate basis, net sales increased 26% for the fiscal year, excluding the negative currency effects from translating foreign-denominated sales into U.S. dollars. Net income rose to $494 million, up 38% from the $359 million earned in the prior year. Diluted earnings per share rose 38% to $1.27, versus $0.92 a year ago, and ahead of analysts' estimates of $1.25. Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said, "I'm extremely pleased with our fiscal fourth quarter and full year results. This quarter's performance demonstrated a continuation of the strength we have seen throughout the year, as our market share continued to grow across all channels and geographies. Our performance also reflects the vibrancy of the premium accessory category, notably in the U.S., where we continue to see double-digit growth." Quarterly operating income totaled $180 million, up 41% from the $128 million reported in the comparable year ago period, while operating margin rose to 35.0%, a 440 basis point improvement from the 30.6% reported for the prior year. During the quarter, gross profit rose 24% to $403 million from $325 million a year ago. Gross margin expanded by 80 basis points from 77.6% to 78.4%, driven by gains from supply chain initiatives and product mix shifts. SG&A expenses as a percentage of net sales declined 370 basis points to 43.3%, compared to the 47.0% reported in the year-ago quarter. For the full year, operating income rose 34% to $765 million, while operating margin rose to 36.2%, a 270 basis point increase from the 33.5% reported for FY05. During the year, gross profit rose 25.0% to $1.6 billion, as compared to $1.3 billion a year ago. Gross margin expanded by 100 basis points from 76.6% to 77.6% while SG&A expenses as a percentage of net sales declined 180 basis points from 43.2% to 41.4%. At the end of the fiscal year, the company had cash and marketable securities of $538 million, as compared with $505 million a year ago. It should be noted that the 2006 fiscal year end cash balance reflects the repurchase of over $600 million of Coach common 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 increased 23% to $419 million from $341 million last year. U.S. comparable store sales for the quarter rose 18.5%, with retail stores up 10.9% and factory store sales up 29.0%. In Japan, sales rose 20% on a constant-currency basis, while dollar sales rose 12% due to a weaker yen. Coach achieved mid-single-digit increases in comparable location sales in Japan for the quarter. For the full year, direct to consumer sales rose 23% to $1.6 billion from $1.3 billion generated in fiscal 2005. Overall, North American comparable store sales for the fiscal year increased 20.7%, with retail stores up 12.3% and factory stores up 31.9%, while comparable locations sales in Japan rose mid-single-digit. For the year, sales in Japan rose 22% on a constant-currency basis, while dollar sales rose 12%, impacted by the exchange rate. -- Indirect sales increased 23% to $96 million in the fourth quarter from the $78 million reported for the prior year. For the year, indirect sales rose 24% to $501 million, up from $403 million recorded for fiscal 2005. Results for both the quarter and fiscal year reflected strong gains in all indirect businesses, including U.S. department stores and International wholesale. Mr. Frankfort added, "The strength of our fourth quarter results was reflected in all of our businesses. Our successful spring and summer offerings drove our performance, as we continued to improve productivity through our well-received product offerings. In April, our Soho Optic Signature fabrication was introduced in a seasonal palette in several strong-selling handbag, accessory and footwear styles. For May, we launched a new summer program, which included soft totes in classic Signature and Optic Signature shoulder totes. And in June we brought in new Signature Patchwork and Tie Dye offerings - both perennial favorites." "In Japan, we were particularly pleased with the outstanding sales and market share growth in FY06, which we achieved despite an absence of growth in the category. Our rapidly expanding sales in Japan reflect the success of our distribution strategy - notably the acceleration of new openings, along with the expansion of highly productive shop-in-shops." During the fourth quarter of fiscal 2006, the company opened 12 U.S. Coach retail stores - including three in new markets for Coach - and three factory stores, while closing one factory location, bringing the total to 218 retail stores and 86 factory stores at July 1, 2006. This was a net increase of 25 Coach retail stores from the 193 in operation a year ago. Also during the quarter, one retail store location was expanded, bringing the total number of completed retail store expansions this year to seven. In Japan, seven new locations were opened in the fourth quarter and one was closed, bringing the total to 122 at fiscal year end. This was a net increase of 16 locations from the 106 at year-end 2005. In addition, Coach expanded four locations during the fourth quarter, bringing the year end total to nine expansions in Japan. The company also announced that it repurchased and retired 15.6 million shares of common stock at an average cost of $31.20 during the fourth fiscal quarter, bringing the year-to-date total to 19.1 million shares of common stock repurchased at an average cost of $31.50. At this time, approximately $150 million remains available for future repurchases under the company's repurchase program, which expires in June 2007. Mr. Frankfort noted, "During fiscal 2007, Coach will be introducing three new major lifestyle platforms, which we are especially excited about, after a year spent successfully evolving established collections. The first, Signature Stripe, is a new weekend collection centered around a group of reversible totes. This collection was just launched last month and became an instant success. Additional platforms debuting this year will be Legacy this fall, featuring a return to our heritage in rich leathers and iconic hardware, and Ergo, a lightweight, sophisticated group for spring." "While fiscal 2007 has just begun, our strong start bodes well for the year. We're confident that our proven growth strategies, built upon our leadership position, will continue to deliver excellent returns in the seasons ahead and over our planning horizon," Mr. Frankfort concluded. Coach updated guidance for fiscal 2007 and now estimates sales of about $2.5 billion for the year, an increase of about 19%. Operating income is expected to rise over 20% with an operating margin of nearly 37%. Earnings per share are forecasted to rise to at least $1.55, up 22% from last year and ahead of the analysts' consensus of $1.53 for the year. In addition, the company introduced its first fiscal quarter outlook, with sales targeted to be at about $535 million, an increase of at least 19%, and earnings per share projected to be about $0.30, a gain of about 25%. This compares to the consensus earnings estimate of $0.29 for the first quarter. Coach will host a conference call to review these results at 8:30 a.m. (EDT) today, August 1, 2006. 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 Years Ended July 1, 2006 and July 2, 2005 -------------------------------------------------------------- (in thousands, except per share data) ------------------------------------- (unaudited) ----------- QUARTER ENDED YEAR ENDED ----------------------- ----------------------- July 1, July 2, July 1, July 2, 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Net sales $ 514,355 $ 418,660 $2,111,501 $1,710,423 Cost of sales 111,282 93,704 472,622 399,652 ---------- ---------- ---------- ---------- Gross profit 403,073 324,956 1,638,879 1,310,771 Selling, general and administrative expenses 222,956 196,776 874,275 738,208 ---------- ---------- ---------- ---------- Operating income 180,117 128,180 764,604 572,563 Interest income, net 9,628 4,836 32,623 15,760 ---------- ---------- ---------- ---------- Income before income taxes and minority interest 189,745 133,016 797,227 588,323 Income taxes 72,103 43,053 302,950 216,070 Minority interest, net of tax - 107 - 13,641 ---------- ---------- ---------- ---------- Net income $ 117,642 $ 89,856 $ 494,277 $ 358,612 ========== ========== ========== ========== Net income per share Basic $ 0.31 $ 0.24 $ 1.30 $ 0.95 ========== ========== ========== ========== Diluted $ 0.31 $ 0.23 $ 1.27 $ 0.92 ========== ========== ========== ========== Shares used in computing net income per share Basic 376,706 377,632 379,635 378,670 ========== ========== ========== ========== Diluted 384,227 389,130 388,495 390,191 ========== ========== ========== ========== ---------------------------------------------------------------------- Supplemental information Net income, as reported $ 117,642 $ 89,856 $ 494,277 $ 358,612 Add back Stock Option Expense (after tax) 9,443 7,709 36,262 30,040 Net income, ex Stock Option Expense $ 127,085 $ 97,565 $ 530,539 $ 388,652 Pro forma as adjusted basic net income, ex stock option expense, per share $ 0.34 $ 0.26 $ 1.40 $ 1.03 Pro forma as adjusted diluted net income, ex stock option expense, per share $ 0.33 $ 0.25 $ 1.37 $ 1.00 ---------------------------------------------------------------------- COACH, INC. ----------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- At July 1, 2006 and July 2, 2005 -------------------------------- (in thousands) -------------- (unaudited) ----------- July 1, July 2, 2006 2005 ----------- ----------- ASSETS Cash, cash equivalents and short term investments $ 537,565 $ 383,051 Receivables 84,361 65,399 Inventories 233,494 184,419 Other current assets 119,062 76,491 ---------- ---------- Total current assets 974,482 709,360 Property and equipment, net 298,531 203,862 Long term investments - 122,065 Other noncurrent assets 353,507 334,870 ---------- ---------- Total assets $1,626,520 $1,370,157 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 79,819 $ 64,985 Accrued liabilities 261,835 188,234 Subsidiary credit facilities - 12,292 Current portion of long-term debt 170 150 ---------- ---------- Total current liabilities 341,824 265,661 Long-term debt 3,100 3,270 Other liabilities 92,862 45,306 Stockholders' equity 1,188,734 1,055,920 ---------- ---------- Total liabilities and stockholders' equity $1,626,520 $1,370,157 ========== ========== *T