Coach, Inc. (NYSE:COH) (SEHK:6388), a leading New York design
house of modern luxury accessories and lifestyle collections, today
announced sales of $1.22 billion for its second fiscal quarter
ended December 27, 2014, compared with $1.42 billion reported in
the same period of the prior year, a decrease of 14%. On a constant
currency basis sales declined 12% for the quarter. Net income for
the period totaled $200 million, with earnings per diluted share of
$0.72, excluding transformation-related charges and acquisition
costs. Reported net income totaled $183 million, with earnings per
diluted share of $0.66. This compared to net income of $297 million
and earnings per diluted share of $1.06 in the prior year’s second
quarter.
Victor Luis, Chief Executive Officer of Coach, Inc., said, “Our
second quarter results were in line with our expectations and our
annual guidance on a constant currency basis, with the further
strengthening of the dollar impacting reported results. We were
pleased with the sequential improvement in our North American
comparable store sales – notably in the bricks and mortar channel -
and the growth of our international businesses. Our brand
transformation plan continued to progress, as we successfully
introduced our first modern luxury concept stores in key markets
globally during the quarter, showcasing Stuart Vevers’s designs and
supported by the evolution of our multi-layered marketing campaign.
Our new store concept resonated across all types of consumers and
distribution channels, including mall and high street locations.
And, as announced, just after the quarter ended, we signed a
definitive agreement to buy luxury designer footwear brand Stuart
Weitzman, which we believe has significant domestic and
international growth potential.”
For the second quarter, on a non-GAAP basis, operating income
totaled $299 million, compared to $436 million reported in the
year-ago period, while operating margin was 24.5% versus 30.7%
reported for the prior year. During the quarter, on a non-GAAP
basis, gross profit was $841 million from $983 million a year ago,
and gross margin was 69.0% versus 69.2% the prior year. SG&A
expenses as a percentage of net sales totaled 44.4% on a non-GAAP
basis, as compared to 38.5% reported in the year-ago quarter.
For the quarter, reported operating income totaled $275 million,
while operating margin was 22.6%. Reported gross profit was $840
million, while gross margin was 68.9%. SG&A expenses, as a
percentage of net sales, totaled 46.3% on a reported basis.
For the six months ended December 27, 2014, net sales were $2.26
billion, down 12% from the $2.57 billion reported in the first six
months of fiscal 2014. On a constant currency basis, sales declined
11% for the period. Net income totaled $346 million, with earnings
per diluted share of $1.25, excluding transformation-related
charges and acquisition costs. Reported net income for the
six-month period totaled $303 million, with earnings per diluted
share of $1.09. This compared to net income of $515 million and
earnings per diluted share of $1.82 reported in the prior year’s
first six months.
During the second quarter of FY15, the company recorded charges
of $20 million under the Company’s multi-year transformation plan.
These charges consisted primarily of accelerated depreciation for
renovations, lease termination costs related to store closures and
organizational efficiency costs. These actions increased the
company’s SG&A expenses by $19 million and cost of sales by $1
million, negatively impacting net income by $14 million after tax
or $0.05 per diluted share in the second quarter. In addition, the
company recorded costs of $4 million associated with the pending
acquisition of Stuart Weitzman which impacted net income by $2
million after tax or $0.01 per diluted share. During the first six
months of fiscal 2015 the company recorded total
transformation-related charges of $57 million and acquisition
related costs of $4 million, increasing SG&A expenses by $56
million in total, cost of sales by $5 million, reducing net income
by $43 million after tax or $0.16 per diluted share for the current
six month period.
Second fiscal quarter sales results in each of Coach’s segments
were as follows:
- Total North American sales decreased
20% to $785 million from $983 million last year, as expected. North
American direct sales declined similarly for the quarter with
comparable store sales down 22% including the impact of reduced
eOutlet events, which pressured total comparable stores sales by
about six points. At POS, sales in North American department stores
declined at a high-teens rate versus prior year, while shipments
into department stores also declined.
- International sales decreased 1% to
$421 million from $425 million last year. On a constant currency
basis, International sales grew 5% as expected. Sales in
China rose 13% on a constant currency basis and 12% in dollars with
positive comparable store sales and slower distribution growth. In
Japan, sales declined 7% on a constant-currency basis, while dollar
sales were 18% below the prior year, reflecting the weaker yen.
Constant currency sales for the remaining directly operated
businesses in Asia grew slightly, while Europe remained strong,
growing at a double digit pace. At POS, sales in
international wholesale locations increased while shipments also
rose.
Victor Luis added, “We’re encouraged by the green shoots we are
seeing in our business, as our brand transformation begins to take
hold across the three brand pillars of product, stores and
marketing. We continue to be focused on the execution of our
strategy with the launch of Stuart Vevers’s spring collection
across all channels, our Fall 2015 New York Fashion Week
presentation next month and the ongoing implementation of our
previously stated fleet optimization plan.”
“We are on track with the strategic agenda outlined in June and
know that our transformation will take time – it is an iterative
process that requires significant investment. As we look over our
planning horizon, we remain confident in our roadmap to
reinvigorate long-term sustainable growth and realize our vision
for global modern luxury.”
As the company approaches the second year of transformation,
Coach also announced the streamlining and reinforcement of its
North America business unit and global marketing and digital teams
with the promotion of two key executives.
Andre Cohen will become President - North America. Mr. Cohen is
a proven brand leader with extensive experience in managing both
mature and evolving businesses. In this newly expanded role, he
will be responsible for all the functions that drive Coach’s North
American retail business including retail management, merchandising
and planning, marketing and ecommerce. Francine Della Badia, who
previously led North America retail, will leave the company in
February.
Since joining Coach in early 2008, Mr. Cohen has succeeded in
roles of increasing responsibility, including President & CEO,
Coach China and Coach Asia, with an expertise in driving growth,
retail operations and brand development. Prior to Coach, he held
successively senior positions at a number of specialty retail and
luxury brands including Timberland, Swatch Group and LVMH.
David Duplantis, currently Coach’s President, Global Digital and
Customer Experience, will expand his role to include Global
Marketing and Customer Intelligence. This added responsibility will
leverage his extensive Coach global brand experience and North
America acumen, creating a single global center of expertise. Over
nearly 15 years with the company, Mr. Duplantis has thrived in many
leadership roles within merchandising and marketing. His focus
during the last five years has been around global digital,
developing and implementing an omni-channel strategy, for which
Coach has again been recognized by L2, taking the leadership
position in their 2014 Digital IQ Index for Fashion. Stephanie
Stahl, who previously led global marketing and strategy, will
depart from the company in February.
Mr. Luis commented, “Both Fran Della Badia and Stephanie Stahl
have made significant contributions to Coach during their
respective tenures, most recently in the creation and initial
implementation of our brand transformation agenda. Over Fran’s 15
years with the company, she was instrumental in driving growth,
initially as a merchant and most recently leading our North
American retail business. Since joining in 2012, Stephanie has been
influential in creating the strategic brand framework and
developing the global marketing organization to support our global
business and launching our latest lifestyle marketing campaigns. We
have great admiration and respect for their accomplishments and
look forward to building upon the strong foundations already
established.”
“These are important changes within the company. Andre and David
are both seasoned leaders and brand builders with experience across
many aspects of Coach’s global business. They are ready to address
the opportunities ahead with their creativity, tenacity, and
exceptional leadership qualities. Most importantly, they have
consistently delivered results for our brand and company,” Mr. Luis
concluded.
Coach will host a conference call to review second fiscal
quarter results at 8:30 a.m. (ET) today, January 29, 2015.
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,
Global Head of Investor Relations & Corporate Communications. 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 this call
will be available for five business days on the Coach website.
The Company expects to report third quarter financial results on
Tuesday, April 28, 2015. To receive notification of future
announcements, please register at www.coach.com/investors
("Subscribe to E-Mail Alerts").
Coach, established in New York City in 1941, is a leading design
house of modern luxury accessories and lifestyle collections with a
rich heritage of pairing exceptional leathers and materials with
innovative design. 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," "intend," “ahead,” “remain,”
"estimate," “forward,” "on track," “on course,” "are positioned
to," "continue," "project," “potential,” “to buy,” "guidance,"
“target,” "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 and our other filings with the
Securities and Exchange Commission for a complete list of risks and
important factors.
COACH,
INC.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
For the Quarters
and Six Months Ended December 27, 2014 and December 28,
2013
(in millions,
except per share data)
(unaudited)
QUARTER ENDED SIX
MONTHS ENDED
December 27,
December 28,
December 27,
December 28,
2014 2013 2014 2013 Net sales $
1,219.4 $ 1,419.6 $ 2,258.2 $ 2,570.4 Cost of sales
379.4 436.9 702.8 761.1 Gross profit
840.0 982.7 1,555.4 1,809.3 Selling, general and
administrative expenses 564.6 546.7 1,100.2
1,051.7 Operating income 275.4 436.0 455.2 757.6
Interest income, net 0.4 1.9 1.1
3.6 Income before provision for income taxes 275.8 437.9
456.3 761.2 Provision for income taxes 92.3
140.5 153.7 245.9 Net Income $ 183.5 $ 297.4 $
302.6 $ 515.3 Net income per share: Basic $
0.67 $ 1.07 $ 1.10 $ 1.84 Diluted $ 0.66 $ 1.06 $ 1.09 $
1.82 Shares used in computing net income per share:
Basic 275.6 279.1 275.3 280.2
Diluted 276.5 281.5 276.4 283.0
COACH,
INC.
GAAP TO NON-GAAP
RECONCILIATION
For the Quarters
Ended December 27, 2014 and December 28, 2013
(in millions,
except per share data)
(unaudited)
December 27,
2014 GAAP Basis
Transformation and
Acquisition-Related
Non-GAAP Basis
(As Reported)
Other Related Actions
(1)
Costs (2)
(Excluding Items)
Gross profit $ 840.0 $ (1.0 ) $ - $ 841.0 Selling,
general and administrative expenses $ 564.6 $ 19.1 $ 3.5 $ 542.0
Operating income $ 275.4 $ (20.1 ) $ (3.5 ) $ 299.0
Income before provision for income taxes $ 275.8 $ (20.1 ) $ (3.5 )
$ 299.4 Provision for income taxes $ 92.3 $ (5.7 ) $ (1.2 )
$ 99.2 Net income $ 183.5 $ (14.4 ) $ (2.3 ) $ 200.2
Diluted net income per share $ 0.66 $ (0.05 ) $ (0.01 ) $ 0.72
December
28, 2013 GAAP Basis
Transformation and
Acquisition-Related
Non-GAAP Basis
(As Reported)
Other Related Actions
Costs
(Excluding Items)
Gross profit $ 982.7 $ - $ - $ 982.7 Selling, general
and administrative expenses $ 546.7 $ - $ - $ 546.7
Operating income $ 436.0 $ - $ - $ 436.0 Income before
provision for income taxes $ 437.9 $ - $ - $ 437.9 Provision
for income taxes $ 140.5 $ - $ - $ 140.5 Net income $ 297.4
$ - $ - $ 297.4 Diluted net income per share $ 1.06 $ - $ -
$ 1.06 (1) Charges related to accelerated
depreciation and lease termination charges as a result of store
updates and closures, organizational efficiency charges, and
charges related to the destruction of inventory. (2)
Represents consulting and legal related to the acquisition of
Stuart Weitzman Holdings LLC.
COACH,
INC.
GAAP TO NON-GAAP
RECONCILIATION
For the Six
Months Ended December 27, 2014 and December 28, 2013
(in millions,
except per share data)
(unaudited)
December 27, 2014 GAAP Basis
Transformation and
Acquisition-Related
Non-GAAP Basis
(As Reported)
Other Related Actions
(1)
Costs (2)
(Excluding Items)
Gross profit $ 1,555.4 $ (5.0 ) $ - $ 1,560.4
Selling, general and administrative expenses $ 1,100.2 $ 52.2 $ 3.5
$ 1,044.5 Operating income $ 455.2 $ (57.2 ) $ (3.5 ) $
515.9 Income before provision for income taxes $ 456.3 $
(57.2 ) $ (3.5 ) $ 517.0 Provision for income taxes $ 153.7
$ (16.1 ) $ (1.2 ) $ 171.0 Net income $ 302.6 $ (41.1 ) $
(2.3 ) $ 346.0 Diluted net income per share $ 1.09 $ (0.15 )
$ (0.01 ) $ 1.25
December 28, 2013 GAAP Basis Transformation
and Acquisition-Related Non-GAAP Basis (As
Reported) Other Related Actions Costs
(Excluding Items) Gross profit $ 1,809.3 $ - $ - $
1,809.3 Selling, general and administrative expenses $
1,051.7 $ - $ - $ 1,051.7 Operating income $ 757.6 $ - $ - $
757.6 Income before provision for income taxes $ 761.2 $ - $
- $ 761.2 Provision for income taxes $ 245.9 $ - $ - $ 245.9
Net income $ 515.3 $ - $ - $ 515.3 Diluted net income
per share $ 1.82 $ - $ - $ 1.82 (1) Charges related
to accelerated depreciation and lease termination charges as a
result of store updates and closures, organizational efficiency
charges, and charges related to the destruction of inventory.
(2) Represents consulting and legal costs related to the
acquisition of Stuart Weitzman Holdings LLC.
COACH,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
At December 27,
2014, June 28, 2014 and December 28, 2013
(in
millions)
(unaudited)
December 27, June 28,
December 28, 2014 2014 2013
ASSETS Cash, cash equivalents and short-term
investments $ 1,064.9 $ 868.6 $ 798.8 Receivables 228.5 198.6 228.6
Inventories 447.2 526.2 553.0 Other current assets 206.8
261.8 207.3 Total current assets 1,947.4
1,855.2 1,787.7 Property and equipment, net 684.0 713.9
748.3 Other noncurrent assets 985.8 1,094.0
1,007.8 Total assets $ 3,617.2 $ 3,663.1 $ 3,543.8
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable
$ 160.5 $ 153.9 $ 135.1 Accrued liabilities 534.9 518.7 567.3
Current debt 20.0 140.5 0.5 Total
current liabilities 715.4 813.1 702.9 Other liabilities
383.8 429.4 410.2 Stockholders' equity 2,518.0
2,420.6 2,430.7 Total liabilities and stockholders'
equity $ 3,617.2 $ 3,663.1 $ 3,543.8
COACH,
INC.
Store
Count
At September 27,
2014 and December 27, 2014
(unaudited)
As of Net Openings/ As of
Directly-Operated Store Count:
September 27, 2014
(Closures) December 27,
2014 North America 540 (8) 532 Japan 199 1
200 China (PRC, Hong Kong & Macau) 155 6 161 Asia
- Other 97 0 97 Europe 28 3 31
CoachAnalysts & Media:Andrea Shaw Resnick,
212-629-2618Global Head Investor Relations & Corporate
CommunicationsorChristina Colone, 212-946-7252Director, Investor
Relations
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