Press Release
Press Release
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NEW YORK, Jul 30, 2002 (BUSINESS WIRE) -- Coach, Inc. (NYSE: COH), a leading marketer of modern classic American accessories, today announced an 80% increase in net income for its fourth fiscal quarter ended June 29, 2002.
This substantial increase in net income from the prior year's fourth quarter reflected 30% growth in net sales combined with significant operating margin improvement.
For the fiscal year ended June 29, 2002, net sales rose 20% and net income increased 31% versus the prior fiscal year before the impact of reorganization charges related to the closing of manufacturing facilities in Florida and Puerto Rico in fiscal 2001 and 2002, respectively. Including these costs in both periods, net income rose 34%.
In the fourth quarter, net sales were $171.4 million, 30% higher than generated in the same period of the prior year. Net income rose 80% to $16.6 million, or $0.18 per diluted share, compared with $9.2 million, or $0.10 per share in the prior year. This was ahead of the analysts' consensus estimate of $0.17 for the quarter. Earnings per share numbers have been adjusted for the two-for-one split, which was effected on July 3, 2002. For the fiscal year 2002, net sales were $719.4 million, up 20% from the $600.5 million recorded in fiscal year 2001.
Net income rose to $88.0 million before the impact of reorganization charges, up 31% from the $67.0 million earned in the prior year, also excluding reorganization charges. Including the impact of these charges in both periods, net income was $85.8 million, up 34% from prior-year levels. Diluted earnings per share before the impact of the reorganization charges rose 29% to $0.97, versus $0.75 a year ago.
Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said, "Naturally, I'm extremely pleased with our fiscal fourth quarter and full year 2002 results. Our strong top line growth reflects the rejuvenation of the Coach brand over the last several years. Further, our ability to execute our plans and exceed our financial goals, especially in light of the circumstances of the past year, reinforces the sustainability of our growth strategies and the talent and experience of the Coach management team."
Gross margin in the quarter increased by 400 basis points on a year-over-year basis from 62.6% to 66.6%, while gross margin for the year expanded from 63.6% to 67.2%. This improvement was driven by the consolidation of Coach Japan, Inc. (CJI), channel mix and sourcing cost initiatives.
SG&A expenses as a percentage of net sales rose in the fourth quarter to 52.6% from the 50.9% generated in the year-ago period. For the full year, SG&A expenses as a percentage of net sales rose to 48.1% from 45.9% a year ago. For both periods the increase in this expense ratio was due to Japan joint venture costs, which offset operating leverage achieved elsewhere. As a result, the operating margin in the quarter reached 13.9% compared with 11.7% in the year-ago fourth quarter. For the full year the company's operating margin rose to 19.0% before the impact of reorganization costs from the 17.7% operating margin achieved in fiscal year 2001.
It should be noted that SG&A expenses for both the fourth quarter and fiscal year include a mark-to-market adjustment due to the application of SFAS 133 -"Accounting for Derivative Instruments and Hedging Activities" related to CJI's forward foreign exchange contracts for dollar-denominated inventory purchases. As a result, SG&A expenses were increased $3.8 million in the fourth quarter and $3.3 million for the fiscal year. Excluding the impact of this adjustment, SG&A expenses as a percent of sales would have totaled 50.4% in the quarter and 47.7% for the year. However, as CJI is a joint venture, only half of this after-tax adjustment is reflected in Coach's net income, as the remainder is allocated to our partner through the minority interest account. Therefore, excluding this adjustment, earnings per share for the quarter would have been $0.01 cent higher, or $0.19 per share.
Fourth fiscal quarter and full year sales grew in each of Coach's primary channels of distribution as follows:
- Direct to consumer sales, which consist primarily of sales at
Coach stores, rose 20% to $106.5 million during the fourth
quarter from $88.6 million in the comparable period of the
prior year. These results were generated by new and expanded
stores as well as comparable store sales, which rose 9.5%,
with retail stores up 14.8%, and factory stores up 4.4%. For
the full year, direct to consumer sales rose 14% to $447.1
million from $391.8 million generated in fiscal 2001. Overall,
comparable store sales for the fiscal year increased 3.9%,
with retail stores up 4.3% and factory stores up 3.4%.
- Indirect sales increased 49% to $64.9 million in the fourth quarter from $43.7 million in the comparable period of the prior year. For the year, indirect sales rose 31% to $272.3 million, up from $208.6 million recorded for fiscal 2001. Results for both the quarter and fiscal year were driven by strong gains in both the Japanese and US wholesale businesses, the former as a result of both the consolidation of the joint venture in Japan, and double-digit gains in comparable location sales. In fiscal 2002, international sales accounted for nearly 20% of revenues, up from 14% in the prior year.
Mr. Frankfort added, "We saw excellent fourth quarter performance across our distribution channels, sustaining the momentum we have enjoyed in our full priced businesses. In US retail, our well-received spring and summer offerings and focused gift assortments for the substantial Mother's Day period were critical success factors in driving sales. In our indirect segment, we saw strength continuing to build in US department stores. During the spring season, our market share in handbags increased significantly, with POS sales rising over 50% from prior year levels."
"We were also particularly pleased by the performance of our existing store base this quarter in Japan, which was enhanced by the opening of the Coach Ginza flagship store in late May. In fact, this store contributed over 15% to overall sales in Japan during June, while comparable location sales in the Tokyo area rose significantly over the same month last year. Given the Japanese consumer's attraction to luxury imported accessories and enthusiasm for our new product offering, Coach is well positioned for further market share growth in Japan."
During the fourth quarter of fiscal 2002, the company opened six Coach retail stores and one factory store, bringing the total to 138 retail stores and 74 factory stores at June 29, 2002. This was a net increase of 17 Coach retail stores and 6 Coach factory stores from the 121 and 68, respectively, in operation a year ago. In addition, during the fourth quarter the company completed its retail store renovation program.
Mr. Frankfort continued, "Our fourth quarter and fiscal year 2002 financial results reflect the continued appeal of our broad and modern American classic product offering. During the spring, we introduced several new handbag groups and expanded our assortment in other categories such as shoes and hats. These introductions included Signature, in softer silhouettes, new colors, and a range of new accessories and wearable items. The Hamptons twill market tote and our seasonal straw group were noteworthy favorites for Mother's Day. Further, our Coach footwear was particularly successful this spring, both in Coach stores and in US department stores, reinforcing our decision to roll it out to wider distribution in our own stores for fall. All of these offerings and categories have demonstrated that they are platforms for sustainable growth in the seasons ahead."
"While fiscal 2003 has just begun, our momentum has continued through July, and we're confident that our proven growth strategies will continue to deliver superior returns," Mr. Frankfort concluded.
Coach now estimates sales of $805-$830 million for fiscal 2003, an increase of 12% to 15%. Gross margin is expected to expand by approximately 100 basis points, which reflects the 50 basis point of gross margin improvement previously identified as associated with the closure of the Lares manufacturing facility, augmented by a 50 basis point benefit from channel mix and ongoing efforts to optimize worldwide sourcing. The company anticipates an SG&A expense ratio consistent with fiscal 2002 levels. Operating income is expected to rise about 25% while earnings per share are forecasted at $1.13-$1.15, ahead of previous projections.
First fiscal quarter sales are projected to be at least $180 million, an increase of 19% with earnings per share projected to be at least $0.18.
Coach will host a conference call to review these results at 8:30 a.m. (EDT) today, July 30, 2002. Interested parties may listen to the webcast by accessing www.coach.com/investors on the Internet or dialing into 1-888-455-0032 and asking for the Coach earnings call led by Andrea Shaw Resnick, DVP 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 1-888-568-0647. 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, luggage and travel accessories, footwear, watches, outerwear, jewelry, furniture and related accessories. Coach is sold worldwide through Coach stores, select department stores and specialty stores, through the Coach catalogue 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.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Thirteen and Fifty-Two Weeks Ended June 29, 2002
and June 30, 2001
(in thousands, except per share data)
(unaudited)
THIRTEEN WEEKS ENDED FIFTY-TWO WEEKS ENDED
---------------------- -----------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net sales $ 171,381 $ 132,254 $ 719,404 $ 600,491
Cost of sales 57,315 49,525 236,043 218,507
---------- ---------- ---------- ----------
Gross profit 114,066 82,729 483,361 381,984
Selling, general
and administrative
expenses 90,199 67,289 346,355 275,727
Reorganization costs (1,094) (18) 3,373 4,569
---------- ---------- ---------- ----------
Operating income 24,961 15,458 133,633 101,688
Interest (income)/
expense, net (241) 316 298 2,258
---------- ---------- ---------- ----------
Income before income
taxes and
minority interest 25,202 15,142 133,335 99,430
Provision for
income taxes 8,936 5,900 47,324 35,400
Minority Interest,
net of tax (1,039) - 184 -
---------- ---------- ---------- ----------
Net income $ 17,305 $ 9,242 $ 85,827 $ 64,030
========== ========== ========== ==========
Basic net income
per share $ 0.19 $ 0.11 $ 0.97 $ 0.78
========== ========== ========== ==========
Shares used in computing
basic net income
per share (1) 88,950 87,210 88,048 81,860(2)
========== ========== ========== ==========
Diluted net income
per share $ 0.19 $ 0.10 $ 0.94 $ 0.76
========== ========== ========== ==========
Shares used in computing
diluted net income
per share (1) 92,426 91,272 90,952 84,311(2)
========== ========== ========== ==========
(1) - Reflects the impact of the two-for-one split effected on July 3,
2002.
(2) - Represents weighted average of outstanding shares before and
after the public offering.
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Supplemental information
Net income,
as reported $17,305 $ 9,242 $ 85,827 $ 64,030
Add back reorganization
costs (net of tax) (705) (40) 2,176 2,942
Net income, excluding
reorganization
costs $16,600 $ 9,202 $ 88,003 $ 66,972
Supplemental diluted net
income, excluding
reorganization cost,
per share $ 0.18 $ 0.10 $ 0.97 $ 0.75
Shares used in computing
supplemental diluted
net income, excluding
reorganization costs,
per share 92,426 91,272 90,952 89,534(3)
(3) - Number of shares outstanding after the public offering are
assumed to be outstanding for all periods presented.
----------------------------------------------------------------------
COACH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
At June 29, 2002 and June 30, 2001
(in thousands)
June 29, June 30,
2002 2001
------------------ --------------
ASSETS
Cash $ 93,962 $ 3,691
Receivables 30,925 20,608
Inventories 136,404 105,162
Other current assets 26,297 22,106
------------------ --------------
Total current assets 287,588 151,567
Property, net 90,589 72,388
Trademarks and other assets 62,394 34,756
------------------ --------------
Total assets $ 440,571 $ 258,711
================== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 25,819 $ 14,313
Accrued liabilities 99,365 82,390
U.S. revolving credit facility - 7,700
Subsidiary credit facilities 34,169 -
Long-term debt due within 1 year 75 45
----------------- --------------
Total current liabilities 159,428 104,448
Long-term debt 3,615 3,690
Other liabilities 2,625 2,259
Minority interest 14,547 -
Common stockholders' equity 260,356 148,314
----------------- --------------
Total liabilities
and stockholders' equity $ 440,571 $ 258,711
================= ==============
CONTACT:
Coach, New York
Analysts & Media:
Andrea Shaw Resnick, 212/629-2618
or
Burson Marsteller, New York
Media:
Courtney Manning, 212/614-5201
Peter Judice, 212/614-4506