Press Release
Press Release
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NEW YORK--(BUSINESS WIRE)--Oct. 26, 2004--Coach, Inc. (NYSE: COH), a leading marketer of modern classic American accessories, today announced an increase of nearly 60% in earnings per diluted share to $0.35 for its first fiscal quarter ended October 2, 2004, up from $0.22 per diluted share a year ago. This substantial increase in earnings from the prior year's first quarter reflected a 33% gain in net sales combined with operating margin improvement.
In the first quarter, net sales were $344 million, 33% higher than the $258 million reported in the same period of the prior year. Net income rose 60% to $68 million, or $0.35 per diluted share, compared with $42 million, or $0.22 per diluted share in the prior year. These results were ahead of the analysts' recently revised consensus estimate of $0.33 per share.
Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said, "Our exceptional results continue to be driven by both the vitality of the Coach brand and the enthusiastic consumer response to our product offerings across all major business units. We're confident that the strength of the Coach brand and our distinctive proposition, combined with our well-defined roadmap for growth, will enable Coach to continue to deliver excellent financial results over our planning horizon."
During the quarter, gross profit rose 37% to $258 million from $188 million a year ago. Gross margin expanded by 230 basis points from 72.7% to 75.0% driven by channel mix, product mix and sourcing cost initiatives. SG&A expenses as a percentage of net sales declined 240 basis points to 42.6%, compared to the 45.0% 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, which consist primarily of sales at U.S. Coach stores, rose 30% to $175 million from $134 million in the comparable period of the prior year. Comparable store sales for the quarter rose 15.1%, with retail stores up 16.8% and factory stores up 13.5%. It's worth noting that U.S. retail stores are about 80% more productive than they were just three years ago, given the successive first quarter comparable store sales increases of 21%, 29% and 17%, since FY03.
- Indirect sales increased 36% to $169 million from $124 million in the same period last year. Results were driven primarily by strong gains in international sales both in Japan and other international markets; while US department store sales were also robust. Sales in Japan increased by 30% in constant currency, fueled by new store openings, expansions and mid-single-digit sales gains in comparable retail locations.
During the first quarter of fiscal 2005, the company opened five retail stores and five factory stores, bringing the total to 179 retail stores and 81 factory stores as of October 2, 2004. In addition, one retail store was relocated and expanded. In Japan, Coach opened four and expanded six retail locations, including establishing a flagship store in the city of Sapporo.
Mr. Frankfort continued, "Our first quarter results were fueled by innovative transitional and fall introductions. Each of our monthly introductions was very well received, starting with new Vintage Signature and updated Soho offerings in July, the launch of the Chelsea group in August, and a fresh series of Hamptons styles in September. The success of our tiered merchandising strategy was also evidenced during the quarter, as new, more sophisticated silhouettes and limited edition styles sold extremely well at higher price points. For the holiday quarter, we introduced the Legacy Soft Duffle and Gallery tote groups earlier this month, which are enjoying broad consumer acceptance. All of these factors, in combination with the momentum which has continued into October throughout our major businesses, reinforce our confidence that we will have another very strong holiday season."
"During this quarter, as planned, we will add at least six more retail stores in the U.S. before holiday, bringing the year-to-date total to 11 new retail stores, as well as completing five expansions. At the same time in Japan, Coach will open four new retail locations, including our first flagships in the cities of Osaka and Sendai, consistent with our strategy to emphasize underpenetrated markets."
The company now estimates second fiscal quarter sales of at least $505 million, representing a year-over-year increase of at least 23%, and earnings per diluted share of at least $0.64, up at least 28%. For the fiscal year 2005 the company expects to generate sales of over $1.6 billion, an increase of at least 21% from prior year, and earnings per diluted share of at least $1.78, an increase of at least 31%.
Coach will host a conference call to review these results at 8:00 a.m. (ET) today, October 26, 2004. 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 1-888-282-0028. 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, 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 October 2, 2004 and September 27, 2003
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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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October September
2, 2004 27, 2003
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Net sales $344,065 $258,375
Cost of sales 85,891 70,466
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Gross profit 258,174 187,909
Selling, general and administrative expense 146,739 116,284
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Operating income 111,435 71,625
Interest income, net (2,510) (405)
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Income before income taxes and minority interest 113,945 72,030
Income taxes 43,299 27,008
Minority interest, net of tax 2,921 2,693
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Net income $67,725 $42,329
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Net income per share
Basic $0.36 $0.23
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Diluted $0.35 $0.22
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Shares used in computing net income per share
Basic 188,991 183,588
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Diluted 194,746 190,959
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COACH, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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At October 2, 2004, July 3, 2004 and September 27, 2003
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(in thousands)
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October July September
2, 2004 3, 2004 27, 2003
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(unaudited) (unaudited)
ASSETS
Cash, cash equivalents and short-
term investments $ 441,888 $ 434,443 $ 255,357
Receivables 85,607 55,724 59,859
Inventories 204,479 161,913 176,794
Other current assets 63,890 53,536 37,431
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Total current assets 795,864 705,616 529,441
Property and equipment, net 152,830 148,524 125,119
Long-term investments 107,547 130,000 -
Other noncurrent assets 46,449 44,518 49,930
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Total assets $1,102,690 $1,028,658 $ 704,490
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LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable $ 60,469 $ 44,771 $ 41,537
Accrued liabilities 161,272 135,353 108,240
Subsidiary credit facilities 23,099 1,699 28,233
Current portion of long-term debt 150 115 115
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Total current liabilities 244,990 181,938 178,125
Long-term debt 3,270 3,420 3,420
Other liabilities 21,240 20,816 5,027
Minority interest, net of tax 43,119 40,198 24,849
Stockholders' equity 790,071 782,286 493,069
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Total liabilities and stockholders'
equity $1,102,690 $1,028,658 $ 704,490
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CONTACT:
Coach
Andrea Shaw Resnick
212-629-2618