Coach, Inc. (NYSE: COH, SEHK: 6388), a leading marketer of
modern classic American accessories, today reported sales of $1.16
billion for its fourth fiscal quarter ended June 30, 2012, compared
with $1.03 billion reported in the same period of the prior year,
an increase of 12%. Net income for the quarter totaled $251
million, with earnings per diluted share of $0.86. This compared to
net income of $202 million and earnings per diluted share of $0.68,
in the prior year’s fourth quarter, increases of 24% and 27%,
respectively.
For the fiscal year, net sales rose 15% to $4.76 billion from
$4.16 billion the prior fiscal year while net income increased 18%
to $1.04 billion from $881 million. In addition, diluted earnings
per share rose 21% to $3.53 from $2.92.
Lew Frankfort, Chairman and Chief Executive Officer of Coach,
Inc., said, “I’m pleased that we were able to once again achieve
strong double-digit sales and earnings gains for our fiscal fourth
quarter and full year. We made significant progress against our key
initiatives – aggressively growing our international business,
becoming a market leader in the Men’s accessories category and
harnessing the power of the digital world. In FY12, we accelerated
the acquisition of key Asian domestic distributors and grew our
distribution rapidly in emerging luxury markets such as China.”
“During the fourth quarter our international sales remained
robust, driven by both distribution and productivity increases. In
North America, however, an increasingly promotional environment led
to lower growth than expected in factory stores. As a result, we
responded by reinstating our prior practice of in-store couponing
in a cross section of factory locations late in the period. It’s
important to note that we have significant pricing flexibility and
a variety of marketing levers available in this channel, which
allow us to balance productivity gains and margin improvement.”
For the quarter, operating income totaled $371 million on a
non-GAAP basis, 19% above the $312 million reported in the year-ago
period, while operating margin was 32.1% versus 30.3%. During the
quarter, gross profit rose 13% to $838 million from $741 million
reported a year ago, while gross margin was 72.6% versus 71.8%.
SG&A expenses, as a percentage of net sales, totaled 40.5%,
compared to the 41.5% reported in the year-ago quarter. During the
quarter, the company recorded certain items including a favorable
tax settlement. As a result, the company made charitable
contributions which precisely offset the benefit of the tax
settlement to net income and earnings per share. Therefore, on a
GAAP basis, operating income for the fourth quarter was $352
million with a 30.4% margin and the SG&A expense ratio was
42.1%.
For the full year, operating income totaled $1.55 billion on a
non-GAAP basis, 17% above the $1.33 billion reported in the year
ago period, also on a non-GAAP basis, while operating margin was
32.6% versus 32.0%. During the year, gross profit rose 15% to $3.47
billion from $3.02 billion a year ago. Gross margin was 72.8%
versus 72.7% a year ago. SG&A expenses, as a percentage of net
sales, totaled 40.2%, compared to the 40.7% reported in fiscal
2011. During both FY12 and FY11 the company recorded certain items
including favorable tax settlements. As a result, and in both
years, it made charitable contributions which precisely offset the
benefit of these tax settlements to net income and earnings per
share. Therefore, on a GAAP basis, operating income for the fiscal
year 2012 was $1.51 billion with a 31.7% margin and the SG&A
expense ratio was 41.0%. This compared to fiscal year 2011
operating income of $1.30 billion on a GAAP basis, with an
operating margin of 31.4% and an SG&A expense ratio of
41.3%.
The company also announced that during the fourth fiscal
quarter, it repurchased and retired about 2.5 million shares of its
common stock at an average cost of $67.79, spending a total of $169
million. For the full year, the company repurchased and retired
about 10.7 million shares at an average cost of $65.49, spending a
total of $700 million. At the end of the period, approximately $260
million remained under the company’s present repurchase
authorization.
Fourth fiscal quarter sales results in each of Coach’s primary
channels of distribution were as follows:
•
Direct-to-consumer sales, which now include Singapore and
Taiwan, increased 13% to $1.05 billion in the fourth quarter from
$924 million last year. North American same store sales for the
quarter rose 1.7% on a comparable basis. China results continued to
be exceptional with overall sales growth of 60% and same store
sales rising at a double-digit rate. Sales at Coach Japan increased
16% versus prior year in constant currency and rose 18% in dollars.
For the full year, direct-to-consumer sales rose 16% to
$4.23 billion from $3.65 billion generated in fiscal 2011. Overall,
North American same store sales for the fiscal year rose 6.6% on a
comparable basis. In China, sales exceeded $300 million and rose
over 60%, driven by both new store openings and double-digit
increases in same store sales. Fiscal 2012 sales at Coach Japan
were up 6% in constant currency and rose 12% in dollars.
•
Indirect sales were even with prior year on a comparable basis at
$108 million in the fourth quarter driven by international
wholesale shipments while shipments into U.S. department stores
declined. At POS, international sales rose significantly – driven
by both distribution and same location sales gains - while U.S.
department store sales decreased moderately on a year-over-year
basis in the quarter. For the full year, indirect sales rose
4% on a comparable basis to $531 million from $512 million recorded
for fiscal 2011. During the fiscal year, both international sales
at POS and shipments into this channel rose compared to prior year
levels, driven by both distribution and same location sales. U.S.
wholesale shipments and POS sales at U.S. department stores both
declined slightly.
During the fourth quarter of fiscal 2012, the company opened
four net new North American retail stores, while opening seven
factory stores – including five dedicated Men’s stores. This
brought the total to 354 retail stores and 169 factory stores in
North America as of June 30, 2012. In China, 11 net locations were
opened, bringing the total to 96. In Japan, Coach opened two Men’s
retail locations and a factory store. Therefore, at the end of the
quarter there were 187 total locations in Japan. As previously
announced, during FY12 the company acquired the domestic retail
Coach businesses in Singapore and Taiwan. At year-end, as a result
of these acquisitions and two subsequent openings the company
operated seven locations in Singapore and 27 in Taiwan.
Mr. Frankfort continued, “We’re particularly excited about the
just-introduced, dual-gender Legacy lifestyle collection. Inspired
by our heritage, grounded in leather and featuring distinctive
Coach elements, it is our largest product launch in many years. It
is being supported by visual merchandising enhancements in our
stores and a comprehensive marketing plan including digital, print
and outdoor. This iconic collection provides a new foundation for
the brand, targeting multi-generational consumers whom are both
classic and stylish in their preferences.”
“As we look forward to FY13, we are mindful of balancing the
impact of the muted consumer environment in North America and a
softening global macroeconomic outlook with our optimism around the
launch of Legacy, Men’s and the strong international expansion
opportunities for Coach. Additionally, FY13 will be an investment
year, as we amplify our actions to drive long-term growth. Most
significant is our acceleration of the acquisition of the domestic
retail operations of key Asian distributors – including those in
Malaysia and Korea in the first quarter - and the further
development of the infrastructure to support our global growth. In
addition, we’re distorting investments in the digital space to
strengthen our capabilities and deepen our engagement with
consumers. We expect that together these investments will result in
modest deleverage in FY13.”
“Our goals remain unchanged. We’re committed to achieving
double-digit top- and bottom-line growth over our planning horizon.
We have a business model that generates significant cash flow and
we’re in a position to invest in our brand while continuing to
return capital to shareholders,” Mr. Frankfort concluded.
Coach will host a conference call to review these results at
8:30 a.m. (EDT) today, July 31, 2012. Interested parties may listen
to the webcast by accessing www.coach.com/investors on the Internet
or dialing into 1-888-405-2080 or 1-210-795-9977 and asking for the
Coach earnings call led by Andrea Shaw Resnick, SVP 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 or 1-203-369-0080. 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, men’s bags, women’s and men’s small leathergoods, weekend
and travel accessories, footwear, watches, outerwear, scarves,
sunwear, fragrance, jewelry and related accessories. Coach is sold
worldwide through Coach stores, select department stores and
specialty stores, and through Coach’s website at www.coach.com.
Coach’s common stock is traded on the New York Stock Exchange under
the symbol COH and Coach’s Hong Kong Depositary Receipts are traded
on The Stock Exchange of Hong Kong Limited under the symbol
6388.
Neither the Hong Kong Depositary Receipts nor the Hong Kong
Depositary Shares evidenced thereby have been or will be registered
under the U.S. Securities Act of 1933, as amended (the "Securities
Act"), and may not be offered or sold in the United States or to,
or for the account of, a U.S. Person (within the meaning of
Regulation S under the Securities Act), absent registration or an
applicable exemption from the registration requirements. Hedging
transactions involving these securities may not be conducted unless
in compliance with the Securities Act.
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," “confidence,” “trends,” "intend,"
"estimate," "on track," "are positioned to," “on course,”
“opportunity,” "continue," "project," "guidance," “target,”
"forecast,” “achieve,” "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 and its Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 2011 for a complete
list of risk factors.
COACH,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
For the Quarters
and Years Ended June 30, 2012 and July 2, 2011
(in thousands,
except per share data)
(unaudited)
QUARTER ENDED YEAR ENDED June 30,
July 2, June 30, July 2, 2012
2011 2012 2011 Net sales $ 1,155,191 $
1,031,675 $ 4,763,180 $ 4,158,507 Cost of sales
317,044 291,136 1,297,102
1,134,966 Gross profit 838,147 740,539 3,466,078
3,023,541 Selling, general and administrative expenses
486,517 428,447 1,954,089
1,718,617 Operating income 351,630 312,092
1,511,989 1,304,924 Interest income, net 365 261 720 1,031
Other expense (1,886 ) (1,668 ) (7,046
) (4,736 ) Income before provision for income taxes
350,109 310,685 1,505,663 1,301,219 Provision for income
taxes 98,679 108,204 466,753
420,419 Net Income $ 251,430 $
202,481 $ 1,038,910 $ 880,800
Net income per share Basic $ 0.88 $ 0.70 $
3.60 $ 2.99 Diluted $ 0.86 $ 0.68
$ 3.53 $ 2.92 Shares used in
computing net income per share Basic 286,311
291,163 288,284 294,877
Diluted 291,778 298,722
294,129 301,558
COACH,
INC.
GAAP TO NON-GAAP
RECONCILIATION
For the Quarters
Ended June 30, 2012 and July 2, 2011
(in thousands,
except per share data)
(unaudited)
QUARTER ENDED June 30, 2012 July 2,
2011 GAAP Basis Tax Charitable Non-GAAP
Basis GAAP Basis (As Reported) Adjustment
Contribution (Excluding Items) (As Reported)
Selling, general and administrative expenses $ 486,517 $ - $
18,939 $ 467,578 $ 428,447 Operating income $ 351,630 $ - $
(18,939 ) $ 370,569 $ 312,092 Income before provision for
income taxes $ 350,109 $ - $ (18,939 ) $ 369,048 $ 310,685
Provision for income taxes $ 98,679 $ (11,553 ) $ (7,386 ) $
117,618 $ 108,204 Net income $ 251,430 $ 11,553 $ (11,553 )
$ 251,430 $ 202,481 Diluted Net income per share $ 0.86 $
0.04 $ (0.04 ) $ 0.86 $ 0.68
COACH,
INC.
GAAP TO NON-GAAP
RECONCILIATION
For the Years
Ended June 30, 2012 and July 2, 2011
(in thousands,
except per share data)
(unaudited)
YEARS ENDED June 30,
2012 July 2, 2011 GAAP Basis Tax
Charitable Non-GAAP Basis Non-GAAP Basis
(As Reported) Adjustment Contribution
(Excluding Items) (Excluding Items) Selling,
general and
administrative expenses
$ 1,954,089 $ - $ 39,209 $ 1,914,880 $ 1,692,939 Operating
income $ 1,511,989 $ - $ (39,209 ) $ 1,551,198 $ 1,330,602
Income before provision for income taxes $ 1,505,663 $ - $ (39,209
) $ 1,544,872 $ 1,326,897 Provision for income taxes $
466,753 $ (23,917 ) $ (15,292 ) $ 505,962 $ 446,097 Net
income $ 1,038,910 $ 23,917 $ (23,917 ) $ 1,038,910 $ 880,800
Diluted Net income per share $ 3.53 $ 0.08 $ (0.08 ) $ 3.53
$ 2.92
YEAR ENDED July 2, 2011 GAAP
Basis Tax Japan Charitable Non-GAAP
Basis (As Reported) Adjustment Donation
Contribution (Excluding Items) Selling,
general and administrative expenses $ 1,718,617 $ - $ 4,809 $
20,869 $ 1,692,939 Operating income $ 1,304,924 $ - $ (4,809
) $ (20,869 ) $ 1,330,602 Income before provision for income
taxes $ 1,301,219 $ - $ (4,809 ) $ (20,869 ) $ 1,326,897
Provision for income taxes $ 420,419 $ (15,517 ) $ (2,022 ) $
(8,139 ) $ 446,097 Net income $ 880,800 $ 15,517 $ (2,787 )
$ (12,730 ) $ 880,800 Diluted Net income per share $ 2.92 $
0.05 $ (0.01 ) $ (0.04 ) $ 2.92
COACH,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
At June 30, 2012
and July 2, 2011
(in
thousands)
(unaudited)
June 30, July 2, 2012 2011
ASSETS Cash, cash equivalents and short term
investments $ 917,215 $ 702,038 Receivables 174,462 142,898
Inventories 504,490 421,831 Other current assets 208,361
185,621 Total current assets 1,804,528 1,452,388
Property and equipment, net 644,449 582,348 Other noncurrent
assets 655,344 600,380 Total assets $
3,104,321 $ 2,635,116
LIABILITIES AND STOCKHOLDERS'
EQUITY Accounts payable $ 155,387 $ 118,612 Accrued
liabilities 540,398 473,610 Current portion of long-term debt
22,375 795 Total current liabilities 718,160
593,017 Long-term debt 985 23,360 Other liabilities 392,245
406,170 Stockholders' equity 1,992,931
1,612,569 Total liabilities and stockholders' equity $
3,104,321 $ 2,635,116
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