Coach Beats, Ups Dividend - Analyst Blog
24 Abril 2012 - 7:15AM
Zacks
Despite sluggish recovery in the
economy, Coach, Inc. (COH), the designer and
marketer of fine accessories and gifts, recently posted
better-than-expected third-quarter 2012 results on the back of
healthy sales in North America and China. Strong brand image,
geographical expansion, and new pricing and promotional policies in
North American factory business were also the factor behind the
growth.
The quarterly earnings of 77 cents
a share beat the Zacks Consensus Estimate by a couple of cents, and
increased 24% from 62 cents earned in the prior-year quarter buoyed
by strong top-line growth.
The New York based company, Coach,
said that net sales for the quarter came in at $1,109 million, up
16.6% from the year-ago quarter, and came ahead of the Zacks
Consensus Estimate of $1,101 million.
Behind the
Headline
Direct-to-consumer sales jumped 18%
to $984 million driven by a 6.7% rise in the North American
comparable-store sales and strong growth in the China business with
a double-digit rate increase in comparable-store sales. In Japan,
sales grew 10%, excluding foreign currency translation, whereas in
dollar terms, sales climbed 14%, when adjusted for a stronger yen.
Sales in China surged 60%.
Indirect sales jumped 10% to $125
million during the quarter. International sales remained robust at
POS, whereas U.S. department stores sales were moderately lower
compared with the prior-year period.
The rise in sales was a positive
indication for the luxury-goods market, battered by the recent
economic upheaval. Coach’s sustained focus on store sales
productivity, merchandising, and marketing and strategic pricing
have helped it remain afloat in a difficult consumer environment as
well as drive comparable-store sales growth.
Coach remains optimistic about its
dedicated men's stores, and expects the Men’s business to rise two
fold to more than $400 million in fiscal 2012 on a global basis.
Management aims to enhance Men’s collections in 100 retail stores
in North America by the end of fiscal 2012, up from 42 at the end
of the quarter under review.
Gross profit increased 18% to
$818.1 million spurred by top-line growth, whereas gross profit
margin increased 100 basis points to 73.8%. Adjusted operating
income rose 21% to $337.5 million, whereas operating margin
expanded 100 basis points to 30.4%.
Management remains confident of
sustaining double-digit growth in both top and bottom lines in
fiscal 2012. The company’s long-term growth drivers include
expansion of its global distribution model and entry into
under-penetrated markets. The company lays more emphasis on
globalization and accelerated international distribution
growth.
Management now expects to achieve
at least $300 million in sales in China backed by sustained growth
momentum it is currently witnessing. As a part of its strategy to
directly control certain Asian markets, Coach is now directly
operating domestic retail businesses in Singapore and Taiwan. The
company is also under discussion to acquire its Malaysian retail
business in July. Moreover, the company has entered into a deal to
take charge of its Korean retail business in the early part of
fiscal 2013.
Store
Update
During the quarter, Coach, the
maker of handbags, wallets, shoes and other accessories, opened 1
retail location and closed another, and opened 5 factory stores,
including 2 Men’s stores, taking the total to 350 retail stores and
162 factory stores in North America at the end of the quarter. In
Japan, the company opened 3 stores and closed 3 locations, keeping
the total number of locations at 184. In China, an addition of 5
new locations during the quarter took the total to 85. As a result
of the acquisitions of retail businesses in Singapore and Taiwan,
the company now operates 6 and 26 locations, respectively.
Other Financial
Details
Coach maintains a healthy balance
sheet with a significant cash balance and a negligible debt load.
The company also has been proactively managing its cash flows by
making prudent capital investments and enhancing shareholders’
return. The company’s strong liquidity, positions it to drive
future growth.
The company ended the quarter with
cash, cash equivalents and short-term investments of $929.7 million
and total long-term debt of $22.6 million with shareholders’ equity
of $1,938.9 million.
Coach also notified that it bought
back approximately 2.33 million shares at a cost of $73.92 per
share, aggregating $172 million during the quarter. The company
still has approximately $430 million at its disposal under its
share repurchase authorization. The company’s Board of Directors
also announced an increase of 33% in annual dividend to $1.20 per
share that will be paid to shareholders in July 2012.
Currently, we maintain our
long-term “Neutral” recommendation on the stock. However, Coach,
which competes with Polo Ralph Lauren Corporation
(RL), holds a Zacks #2 Rank that translates into a short-term “Buy”
rating, and reflects the company’s optimistic attitude of
accomplishing double-digit growth in both top and bottom lines
going forward.
COACH INC (COH): Free Stock Analysis Report
RALPH LAUREN CP (RL): Free Stock Analysis Report
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