Press Release
Press Release
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Increases FY07 Guidance to At Least $1.63; Up 28% from FY06
Business Editors/Retail Writers
NEW YORK--(BUSINESS WIRE)--Oct. 24, 2006--Coach, Inc. (NYSE: COH), a leading marketer of modern classic American accessories, today announced an increase of 40% in earnings per diluted share to $0.34 for its first fiscal quarter ended September 30, 2006, up from $0.24 per diluted share a year ago. This substantial increase in earnings from the prior year's first quarter reflected a 23% gain in net sales combined with operating margin improvement.
In the first quarter, net sales were $554 million compared with the $449 million reported in the same period of the prior year. Net income rose 34% to $126 million, or $0.34 per diluted share, compared with $94 million, or $0.24 per diluted share in the prior year. These results were ahead of the analysts' consensus estimate of $0.31 per share and the company's guidance of $0.30.
Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said, "Our exceptional results this quarter reflect the strength of our franchise and the enthusiastic reception to our product offerings. Further fueling our results has been the continued rapid growth in the U.S. premium handbag market, as consumers continue to trade up within the category. Given the strength of our product pipeline, breadth of our assortment and shoppers' strong interest in accessories for gifts and self-purchase, Coach is clearly well positioned for another excellent holiday season."
Quarterly operating income totaled $198 million, up 36% from the $145 million reported in the comparable year ago period, while operating margin rose to 35.7%, a 340 basis point improvement from the 32.3% reported for the prior year. During the quarter, gross profit rose 24% to $425 million from $341 million a year ago. Gross margin expanded by 70 basis points from 76.0% to 76.7%, driven by gains from product mix shifts and supply chain initiatives. SG&A expenses as a percentage of net sales declined 270 basis points to 41.0%, compared to the 43.7% reported in the year-ago quarter.
First fiscal quarter sales results in each of Coach's primary channels of distribution grew as follows:
-- Direct-to-consumer sales increased 29% to $404 million from
$315 million last year. U.S. comparable store sales for the
quarter rose 21.4%, with retail stores up 16.0% and factory
store sales up 27.1%. In Japan, sales rose 21% on a
constant-currency basis, while dollar sales rose 16% due to a
weaker yen. Comparable location sales in Japan rose at a
mid-single-digit rate for the quarter.
-- Indirect sales increased 11% to $150 million in the first
quarter from the $134 million reported for the prior year.
Coach enjoyed excellent gains at POS for all U.S. indirect
businesses, including department stores and
business-to-business, which were not fully reflected in
reported sales due to timing of shipments.
During the first quarter of fiscal 2007, the company opened 12 retail stores and one net factory store in North America, bringing the total to 230 retail stores and 87 factory stores as of September 30, 2006. In addition, two factory stores were expanded. In Japan, Coach opened eight and expanded two retail locations.
Mr. Frankfort continued, "Our first quarter results were fueled by innovative transitional and new fall product. Each of our monthly introductions was very well received, starting in July with Signature Stripe, our first new major lifestyle collection of the year. This was followed by Chelsea in August, and by a fresh group of Hamptons silhouettes in September. Our excellent performance has continued into October with the successful introduction of Legacy, our second new major lifestyle collection. This collection, which was inspired by Coach's heritage, to celebrate our 65th anniversary, has become an instant success."
"For Holiday, our Legacy collection will remain a key focus. In addition, a range of Patchwork handbags, in best-selling Coach silhouettes, will be interpreted in neutral shades with contrasting accents and trimmed in vintage leather. Our Soho collection will be updated with the launch of Soho Stitched in both leather and Signature, while a fresh group of Duffles will be presented in vintage leather and Signature. Also, the always popular Gallery Totes will be available in a range of fabrications and embellishments. Finally, a broad assortment of gifts under $100, geared to the more price-sensitive consumer, will round out the holiday offering."
"During this quarter, as planned, we will add seven more retail stores in the U.S. before holiday, bringing the fiscal year-to-date total to 19 new retail stores. At the same time in Japan, Coach will open two new retail locations."
The company estimates second fiscal quarter sales of about $785 million, representing a year-over-year increase of about 21% and earnings per diluted share of $0.56, up over 25%, and ahead of the analysts' consensus of $0.55. For the fiscal year 2007 the company expects to generate sales of about $2.55 billion, an increase of 21% from prior year, and earnings per diluted share of at least $1.63, ahead of the analysts' consensus of $1.58, and representing an increase of at least 28%.
The company also announced that during the first fiscal quarter, it repurchased and retired five million shares of its common stock at an average cost of $29.99, completing its existing stock buyback program. Accordingly, the Board of Directors has authorized a new repurchase program, allowing the company to buy back up to an aggregate of $500 million of its common stock through June 2008.
Coach will host a conference call to review first fiscal quarter results at 8:30 a.m. (ET) today, October 24, 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 & 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. A webcast replay of this call will 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, scarves, 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.
COACH, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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For the Quarters Ended September 30, 2006 and October 1, 2005
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(in thousands, except per share data)
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(unaudited)
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QUARTER ENDED
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September 30, October 1,
2006 2005
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Net sales $553,851 $448,951
Cost of sales 129,171 107,590
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Gross profit 424,680 341,361
Selling, general and administrative
expense 227,014 196,252
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Operating income 197,666 145,109
Interest income, net 6,589 5,887
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Income before provision for income taxes 204,255 150,996
Provision for income taxes 78,639 57,381
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Net income $125,616 $93,615
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Net income per share
Basic $0.34 $0.25
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Diluted $0.34 $0.24
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Shares used in computing net income per
share
Basic 368,171 379,551
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Diluted 373,672 389,972
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COACH, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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At September 30, 2006, July 1, 2006 and October 1, 2005
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(in thousands)
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September 30, July 1, October 1,
2006 2006 2005
------------- ------------- -------------
(unaudited) (unaudited)
ASSETS
Cash, cash equivalents and
short-term investments $456,333 $537,565 $447,630
Receivables 118,082 84,361 104,906
Inventories 300,855 233,494 215,251
Other current assets 148,137 119,062 95,761
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Total current assets 1,023,407 974,482 863,548
Property and equipment, net 320,996 298,531 214,170
Long-term investments - - 90,890
Other noncurrent assets 332,097 353,507 333,164
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Total assets $1,676,500 $1,626,520 $1,501,772
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LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $86,173 $79,819 $70,250
Accrued liabilities 301,155 261,835 210,274
Subsidiary credit
facilities 7,380 - 4,867
Current portion of long-
term debt 235 170 170
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Total current liabilities 394,943 341,824 285,561
Long-term debt 2,865 3,100 3,100
Other liabilities 86,580 92,862 46,359
Stockholders' equity 1,192,112 1,188,734 1,166,752
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Total liabilities and
stockholders' equity $1,676,500 $1,626,520 $1,501,772
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CONTACT: Coach Analysts & Media: Andrea Shaw Resnick, 212-629-2618 VP Investor Relations & Corporate Communications SOURCE: Coach, Inc.