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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): July 29, 2003
Coach, Inc.
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(Exact name of registrant as specified in its charter)
Maryland 1-16153 52-2242751
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(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
516 West 34th Street, New York, NY 10001
(Address of principal executive offices) (Zip Code)
(212) 594-1850
(Registrant's telephone number, including area code)
Item 7: Exhibits.
(c) The following exhibit is being furnished herewith:
99.1 Text of Press Release, dated July 29, 2003
Item 9: Regulation FD Disclosure; Item 12: Results of Operations and Financial
Condition.
On July 29, 2003, Coach, Inc. (the "Company") issued a press release (the
"Press Release") in which the Company announced its preliminary financial
results for its fiscal quarter and fiscal year ended June 28, 2003. All
information in the press release is being furnished to the Securities and
Exchange Commission and shall not be deemed "filed" for purposes of Section 18
of the Securities Exchange Act of 1934.
This Form 8-K and the Press Release attached hereto as Exhibit 99.1 are
being furnished to the Securities and Exchange Commission under Item 9 of Form
8-K in satisfaction of the public disclosure requirements of Regulation FD. This
Form 8-K and the Press Release, insofar as they disclose historical information
regarding the Company's results of operations or financial condition for the
fiscal quarter and fiscal year ended June 28, 2003, are also being furnished to
the Securities and Exchange Commission under Item 12 of Form 8-K.
The attached press release includes the following Non-GAAP financial
information:
- - During the fiscal year ended June 29, 2002, the Company announced a plan to
cease production at the Lares, Puerto Rico manufacturing plant; please
refer to footnote #8 in the Form 10-K filed for the year ended June 29,
2002, for a description of this restructuring plan.
- - As required by Regulation G, net income is calculated and presented in
accordance with GAAP.
- - Under the heading of "Supplemental Information", the Company has presented
"Net income excluding reorganization costs". As part of this presentation,
the reconciliation from the GAAP results to this alternative measure is
included.
- - This alternative performance measure does not impact the number of
outstanding shares of Common Stock, hence the same number of diluted shares
is used to calculate the "Supplemental diluted net income, excluding
reorganization cost, per share".
The Company believes that it is appropriate to present this supplemental
information, for the following reasons:
- - Over the past several years, the Company has shifted its manufacturing
processes from owned domestic factories to independent manufacturers in
lower cost markets. The closure of the Company's Lares, Puerto Rico
manufacturing plant completed this transition from ownership of
manufacturing facilities to a sourced goods business model. The successful
implementation of this strategy has resulted in significant changes to our
cost structure, resulting in increased flexibility, improved quality and
lower costs. Management feels that it is important for investors to
understand this change in our business in order to understand our cost
structure and the potential impact on future results.
- - The restructuring charge is not part of the Company's normal cost
structure.
- - Presenting the amount of the charge, the impact on net income and the
impact on earnings per share will allow investors to better understand the
Company's financial results and the underlying business trends.
- - As the restructuring charge was incurred in the prior fiscal year, this
presentation will allow investors to better understand the change in the
Company's financial results from last year to the current year.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 29, 2003
COACH, INC.
By: /s/ Carole P. Sadler
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Carole P. Sadler
Senior Vice President, General Counsel
and Secretary
EXHIBIT INDEX
99.1 Text of Press Release, dated July 29, 2003
Exhibit 99.1
Coach Reports Fourth Quarter Earnings Per Share of $0.32;
up 77% and Ahead of Expectations;
Raises Guidance for FY04;
Announces Long-Term Employment Agreements for Three Key Executives
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
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June 28, June 29, June 28, June 29,
2003 2002 2003 2002
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(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
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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
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Operating income 50,807 24,964 243,762 133,635
Interest (income)
expense, net (440) (240) (1,059) 299
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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
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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
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(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
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Total current assets 448,538 287,588
Property and equipment, net 118,547 90,589
Other noncurrent assets 50,567 62,394
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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
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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
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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