Press Release
Press Release
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NEW YORK--(BUSINESS WIRE)--Jan. 24, 2006--Coach, Inc. (NYSE: COH), a leading marketer of modern classic American accessories, today announced an increase of 36% in earnings per diluted share before option expense to $0.47 for its second fiscal quarter ended December 31, 2005, up from $0.34 per diluted share a year ago. Net of option expense of approximately $0.02 in both periods, earnings per share rose 37% to $0.45 from $0.32. These results were ahead of the analysts' consensus estimate of $0.44 per share and the company's guidance of $0.43.
In the second quarter, net sales were $650 million, 22% higher than the $532 million reported in the same period of the prior year. Net income before option expense rose 36% to $183 million, compared with $134 million in the prior year. Including the impact of stock option expense, net income rose 37% to $174 million, or $0.45 per diluted share, compared with $127 million or $0.32 per share in the prior year.
Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said, "Our excellent second quarter performance continues to reflect the strength of the Coach franchise, our position as a gift authority and the vibrancy of the U.S. handbag and accessory category. This strength was evidenced throughout all channels of our business and across all geographies, as consumers enthusiastically embraced our holiday assortment. Our profitability improvement highlights our ability to achieve further gross margin expansion and to leverage our expenses as our sales base increases."
During the quarter, gross profit rose 25% to $505 million from $403 million a year ago. Gross margin expanded by 180 basis points from 75.8% to 77.6%, due to sourcing cost benefits and product mix shifts. SG&A expenses as a percentage of net sales before option expense declined 60 basis points to 33.2%, compared to the 33.8% reported in the year-ago quarter. Including option expense in both periods, SG&A expenses declined 50 basis points to 35.5% of sales from 36% in the prior year's second quarter.
For the six months ended December 31, 2005, net sales were $1.1 billion, up 26% from the $876 million reported in the first six months of fiscal 2005. Net income before option expense rose to $283 million, up 40% from the $202 million reported a year ago. Including option expense in both periods, net income rose 43% to $268 million from $188 million.
Second fiscal quarter sales results in each of Coach's primary channels of distribution grew as follows:
-- Direct-to-consumer sales, which now include Coach Japan,
increased 21% to $504 million from $416 million last year.
U.S. comparable store sales for the quarter rose 19.9%, with
retail stores up 12.8% and factory store sales up 30.2%. On
average, these full price stores are 76% more productive than
they were just four years ago, given the successive
double-digit second quarter same store sales increases since
FY02. The exceptional U.S. factory store performance this
quarter reflects channel strength and the success of an
improved merchandise offering. In Japan, sales rose 20% on a
constant currency basis, while dollar sales rose only 7% due
to a weaker yen. Coach achieved high-single-digit increases in
comparable location sales. Lastly, Coach again generated
excellent sales gains on the Internet during the second
quarter, ahead of overall U.S. Internet sales growth rates.
-- Indirect sales, which now exclude sales at Coach Japan, rose
26% to $146 million from $116 million in the same period last
year. The strength in indirect was broad based, as continued
momentum in U.S. department stores, along with strong
business-to-business sales and international wholesale
shipments contributed to these results.
Mr. Frankfort added, "It's worth mentioning that U.S. full price comparable store sales have increased at a double-digit rate in each of the last 15 consecutive quarters, which clearly demonstrates the sustainability of our growth. Further, in U.S. department stores, POS sales rose over 25% from prior year levels in the quarter. Clearly, Coach's share of the fast-growing U.S. premium handbag and women's accessory market continues to expand across all channels."
"In addition, we're extremely pleased with the 20% growth in sales in constant currency in Japan this quarter, as we continue to rapidly grow our market share in this important market for Coach. These results underscore the success of our distribution strategy in Japan, notably the acceleration of retail openings and the expansion of existing shops."
During the second quarter of fiscal 2006, the company opened four U.S. Coach retail stores and closed one factory store, bringing the total to 203 retail stores and 84 factory stores at December 31, 2005. In addition, three retail stores expanded during the quarter, including the 595 Madison Avenue Coach flagship, which reopened in time for the holiday season. In Japan, Coach opened two new retail locations and expanded two additional locations as well.
Mr. Frankfort continued, "Across all businesses, handbags and women's accessories continued to drive our business results. Our key item strategy was very successful, with the highlighted groups and collections generating over 60% of our holiday sales. Duffles and Gallery Totes were important handbag initiatives during the quarter and were very well received by consumers. In addition, the Soho and Hamptons collections continued to perform well, as did Madison, our evening group. New accessories, including letter charms, iPod covers and cell phone lanyards, were the perfect add-on holiday gifts. We were particularly pleased by the performance of our entry-level handbags - such as the Soho Small Flap - and the pinnacle portion of our offering - such as the Daphne Satchel. This strength, across multiple price points, speaks to the broad appeal of Coach's assortment."
"Coach is enjoying a strong January, driven by the response to our transitional and early spring offerings. These introductions included gallery satchels, offered for the first time in Signature, and lightweight nylon fabriations with accent leather trims, as well as the new, playful "Poppy" collection of totes, demis and updated spring accessories," Mr. Frankfort added. "We're also excited about our fresh interpretation of Soho and a new group of shoulder totes which just arrived in our stores. For March, our Hamptons Weekend collection will include a distinctive patchwork design and a new take on Hamptons Scribble."
"This spring, as planned, Coach will add about 15 more retail stores in the U.S., bringing the total to around 25 new retail stores in fiscal 2006. We will also be adding at least six new locations in Japan during the second half, for a full year total of at least 12 net new shops. New store openings planned in Japan this spring include the Kobe flagship, a 6,200 square foot store.
"We're extremely pleased with the vibrancy of the Coach brand. The consistency of our growth across geographies, channels and different consumer segments over multiple years illustrates the enormous opportunity still available to us. Our diversified and loyal customer franchise continues to grow while we obtain a larger share of her increasing accessory wardrobe. We're confident that our proven strategies will enable us to gain additional market share in the years ahead," Mr. Frankfort concluded.
The company provided guidance for the second half of the fiscal year, projecting sales of about $1 billion, and earnings per diluted share before option expense of at least $0.60, up at least 25%. Including about $0.06 of option expense, earnings per share are estimated to be at least $0.54, up 23% from the comparable year-ago results of $0.44, and ahead of the analysts' consensus of $0.52. For the fiscal year 2006, the company expects to generate sales of about $2.1 billion, an increase of 23% from prior year, and earnings per diluted share before option expense of at least $1.33, representing an increase of at least 33%. Including about $0.10 of option expense, the company is projecting earnings per share of at least $1.23, up 34% from the $0.92 reported on the same basis for FY05 and the analysts' consensus of $1.20.
The company also announced that it repurchased and retired 2,043,000 shares of common stock at an average cost of $32.07 during the second fiscal quarter, bringing the year-to-date total to 2,964,200 shares of common stock repurchased at an average cost of $32.22. At this time, approximately $154 million remains available for future repurchases under the existing program, which expires in May, 2007.
Coach will host a conference call to review these results at 8:30 a.m. (EST) today, January 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.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Quarters and Six Months Ended December 31, 2005 and
January 1, 2005
(in thousands, except per share data)
(unaudited)
QUARTER ENDED SIX MONTHS ENDED
----------------------- -----------------------
December 31, January 1, December 31, January 1,
2005 2005 2005 2005
----------- ---------- ----------- --------
Net sales $ 650,336 $ 531,759 $ 1,099,287 $875,824
Cost of sales 145,660 128,791 253,250 214,682
----------- ---------- ----------- --------
Gross profit 504,676 402,968 846,037 661,142
Selling, general and
administrative expenses 230,734 191,478 426,986 349,095
----------- ---------- ----------- --------
Operating income 273,942 211,490 419,051 312,047
Interest income, net 6,990 3,469 12,877 5,979
----------- ---------- ----------- --------
Income before income taxes
and minority interest 280,932 214,959 431,928 318,026
Income taxes 106,758 81,684 164,139 120,849
Minority interest, net
of tax - 6,372 - 9,293
----------- ---------- ----------- --------
Net income $ 174,174 $ 126,903 $ 267,789 $187,884
=========== ========== =========== ========
Net income per share
Basic $ 0.46 $ 0.33 $ 0.70 $ 0.50
=========== ========== =========== ========
Diluted $ 0.45 $ 0.32 $ 0.69 $ 0.48
=========== ========== =========== ========
Shares used in computing
net income per share
Basic 380,837 379,354 380,144 378,866
=========== ========== =========== ========
Diluted 390,620 390,513 390,247 390,201
=========== ========== =========== ========
Supplemental information
Net income,
as reported $ 174,174 $ 126,903 $ 267,789 $187,884
Add back Stock Option
Expense (after tax) 8,807 7,220 15,398 13,964
Net income, ex Stock
Option Expense $ 182,981 $ 134,123 $ 283,187 $201,848
Pro forma as adjusted
basic net income, ex
stock option expense,
per share $ 0.48 $ 0.35 $ 0.74 $ 0.53
Pro forma as adjusted
diluted net income, ex
stock option expense,
per share $ 0.47 $ 0.34 $ 0.73 $ 0.52
COACH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
At December 31, 2005, July 2, 2005 and January 1, 2005
(in thousands)
(unaudited)
December 31, July 2, January 1,
2005 2005 2005
------------------------------------
ASSETS
Cash, cash equivalents and short
term investments $ 746,012 $ 383,051 $ 526,629
Receivables 123,045 65,399 121,749
Inventories 205,042 184,419 190,856
Other current assets 106,883 76,491 71,644
----------- ---------- ----------
Total current assets 1,180,982 709,360 910,878
Property and equipment, net 229,614 203,862 186,750
Long term investments 25,546 122,065 275,039
Other noncurrent assets 323,021 334,870 66,851
----------- ---------- ----------
Total assets $ 1,759,163 $1,370,157 $1,439,518
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 87,732 $ 64,985 $ 68,489
Accrued liabilities 246,514 188,234 203,101
Subsidiary credit facilities 13,237 12,292 50,461
Current portion of long-term debt 170 150 150
----------- ---------- ----------
Total current liabilities 347,653 265,661 322,201
Long-term debt 3,100 3,270 3,270
Other liabilities 48,434 45,306 59,801
Minority interest, net of tax - - 49,491
Stockholders' equity 1,359,976 1,055,920 1,004,755
----------- ---------- ----------
Total liabilities and
stockholders' equity $ 1,759,163 $1,370,157 $1,439,518
=========== ========== ==========
CONTACT: Coach Analysts & Media: Andrea Shaw Resnick, 212-629-2618 SOURCE: Coach, Inc.