Press Release
Press Release
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NEW YORK--(BUSINESS WIRE)--July 29, 2003--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 28, 2003. This substantial increase in net income from the prior year's fourth quarter reflected 35% growth in net sales combined with significant operating margin improvement.
For the fiscal year ended June 28, 2003, net sales rose 32% and net income increased 67% versus the prior fiscal year before the impact of reorganization charges related to the closing of a manufacturing facility in Puerto Rico in fiscal 2002. Including these costs in the year-ago period, net income rose 71%.
In the fourth quarter, net sales were $231.5 million, 35% higher than generated in the same period of the prior year. Net income rose 80% to $29.9 million, or $0.32 per diluted share, compared with $16.6 million, or $0.18 per share in the prior year. This was ahead of the analysts' consensus estimate of $0.30 for the quarter. For the fiscal year 2003, net sales were $953.2 million, up 32% from the $719.4 million recorded in fiscal year 2002. Net income rose to $146.6 million, up 67% from the $88.0 million earned in the prior year, excluding reorganization charges. Including the impact of these charges in the year-ago period, net income was up 71% from prior-year levels. Diluted earnings per share before the impact of the reorganization charges rose 63% to $1.58, versus $0.97 a year ago.
The company also reported that three key executives: Lew Frankfort, Chairman and CEO, Reed Krakoff, President and Executive Creative Director, and Keith Monda, President and Chief Operating Officer entered into five-year employment agreements. Associated with these agreements was a sign-on bonus expense for Reed Krakoff that impacted both fourth quarter and fiscal year after-tax results by $0.03 per share.
Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said, "Naturally, I'm extremely pleased with our fiscal fourth quarter and full year results. This quarter's performance demonstrated the remarkable momentum that we have seen throughout the year, as our market share continues to expand. Similarly, fiscal 2003 was another successful year for our company, as we generated truly superior results on all metrics. Our performance reflected the increasing vitality of the Coach brand, and the relevance of the product offering across all of our business units."
In the fourth quarter, gross margin increased by 660 basis points on a year-over-year basis from 66.6% to 73.2%, while gross margin for the year expanded from 67.2% to 71.1%, a 390 basis point increase. This improvement was driven by channel mix, product mix and sourcing cost initiatives; as well as by the consolidation of Coach Japan, Inc. (CJI).
SG&A expenses as a percentage of net sales improved in the fourth quarter to 51.3% from the 52.6% generated in the year-ago period. For the full year, SG&A expenses as a percentage of net sales declined to 45.5% from 48.1% a year ago. As a result, the operating margin in the quarter reached 21.9% compared with 13.9% in the year-ago fourth quarter. For the full year the company's operating margin rose to 25.6% from the 19.0% margin achieved in fiscal year 2002. Both prior-year margins are stated before the impact of reorganization costs.
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 31% to $139.9 million during the fourth quarter from $106.5 million in the comparable period of the prior year. These results were largely generated by comparable store sales, which rose 21.6%, with retail stores up 37.1%, and factory stores up 3.6%. For the full year, direct to consumer sales rose 25% to $559.6 million from $447.1 million generated in fiscal 2002. Overall, comparable store sales for the fiscal year increased 15.2%, with retail stores up 24.6% and factory stores up 5.0%.
- Indirect sales increased 41% to $91.6 million in the fourth quarter from $64.9 million in the comparable period of the prior year. For the year, indirect sales rose 45% to $393.7 million, up from $272.3 million recorded for fiscal 2002. Results for both the quarter and fiscal year were primarily driven by very strong gains at CJI. The results in Japan reflected both double-digit gains in comparable location sales and the outstanding performance of new stores.
Mr. Frankfort added, "We saw excellent fourth quarter performance across our distribution channels, continuing the growth we have enjoyed in our full priced businesses. In US retail, our well received spring and summer offerings, both in new and enduring collections, clearly drove top-line results. These introductions included mini-Signature, Soho Twill, as well as new colors in our classic Signature logo. The sporty, casual, Hamptons Weekend collection and our seasonal straw group were also popular choices for Mother's Day. Further, Coach footwear, which was available in many more of our retail stores this spring was particularly well received. All of these offerings and categories have demonstrated that they are platforms for sustainable growth in the seasons ahead."
During the fourth quarter of fiscal 2003, the company opened six Coach retail stores and one factory store, bringing the total to 156 retail stores and 76 factory stores at June 28, 2003. This was a net increase of 18 Coach retail stores and two Coach factory stores from 138 and 74, respectively, in operation a year ago.
"More broadly, the strength of our fourth quarter and fiscal 2003 performance is the result of continued market share gains, reflecting Coach's ability to continue to deliver fresh, relevant and distinctive products which are warmly embraced by our consumers. We have created a business model based on key differentiating elements that set our company apart from the competitive landscape. We're confident that our proven growth strategies, which build upon this model, will allow us to continue to deliver superior results over the planning horizon," Mr. Frankfort concluded.
The company also reported that July results have remained strong, auguring well for first quarter performance. First fiscal quarter sales are projected to be at least $230 million, an increase of at least 19% with earnings per share projected to be at least $0.33.
In addition, Coach raised guidance for fiscal 2004 and now estimates sales of at least $1.1 billion for the year, an increase of at least 16%. Operating margin is expected to expand by at least 100 basis points, driven by gross margin while the company anticipates an SG&A expense ratio consistent with fiscal 2003 levels. Operating income is expected to rise at least 24% while earnings per share are forecasted to rise to at least $1.92, ahead of previous projections.
Coach will host a conference call to review these results at 8:30 a.m. (EDT) today, July 29, 2003. 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, 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 1-800-937-6972.
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, jewelry, sunwear, 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
Quarter Ended Twelve Months Ended
------------------------- -------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
-------- -------- -------- --------
(unaudited) (unaudited)
(amounts in thousands, except per share data)
Net sales $231,516 $171,380 $953,226 $719,403
Cost of sales 61,960 57,313 275,797 236,041
-------- -------- -------- --------
Gross profit 169,556 114,067 677,429 483,362
Selling, general and
administrative
expenses 118,749 90,197 433,667 346,354
Reorganization costs - (1,094) - 3,373
-------- -------- -------- --------
Operating income 50,807 24,964 243,762 133,635
Interest (income)
expense, net (440) (240) (1,059) 299
-------- -------- -------- --------
Income before
provision for income
taxes and minority
interest 51,247 25,204 244,821 133,336
Provision for income
taxes 18,961 8,937 90,585 47,325
Minority interest, net
of tax 2,422 (1,039) 7,608 184
-------- -------- -------- --------
Net income $ 29,864 $ 17,306 $146,628 $ 85,827
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Net income per share
Basic $ 0.33 $ 0.19 $ 1.63 $ 0.97
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Diluted $ 0.32 $ 0.19 $ 1.58 $ 0.94
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Shares used in
computing net
income per share
Basic 90,936 88,950 89,779 88,048
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Diluted 94,274 92,426 92,921 90,952
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Supplemental Information
Net income, as
reported $ 29,864 $ 17,306 $146,628 $ 85,827
Add back:
reorganization costs
(net of tax) - (706) - 2,176
Net income, excluding
reorganization costs $ 29,864 $ 16,600 $146,628 $ 88,003
Supplemental diluted
net income, excluding
reorganization
costs, per share $ 0.32 $ 0.18 $ 1.58 $ 0.97
Shares used in
computing
supplemental diluted
net income, excluding
reorganization costs,
per share 94,274 92,426 92,921 90,952
COACH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 28, June 29,
2003 2002
-------- --------
(amounts in thousands)
ASSETS
Cash and cash equivalents $229,176 $ 93,962
Trade accounts receivable, net 35,470 30,925
Inventories 143,807 136,404
Other current assets 40,085 26,297
-------- --------
Total current assets 448,538 287,588
Property and equipment, net 118,547 90,589
Other noncurrent assets 50,567 62,394
-------- --------
Total assets $617,652 $440,571
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 26,637 $ 25,819
Accrued liabilities 108,273 99,365
U.S. revolving credit facility - -
Subsidiary revolving credit facility 26,471 34,169
Current portion of long-term debt 80 75
-------- --------
Total current liabilities 161,461 159,428
Long-term debt 3,535 3,615
Other liabilities 3,572 2,625
Minority interest 22,155 14,547
Stockholders' equity 426,929 260,356
-------- --------
Total liabilities and stockholders' equity $617,652 $440,571
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CONTACT:
Coach
Analysts:
Investor Relations:
Andrea Shaw Resnick
212-629-2618
Burson-Marsteller
Media:
Jennifer Stalzer
cell 646-824-9508 or 212-614-4619