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): April 25, 2006
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
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(Address of principal executive offices) (Zip Code)
(212) 594-1850
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(Registrant's telephone number, including area code)
Item 2.02: Results of Operations and Financial Condition.
On April 25, 2006, Coach, Inc. (the "Company") issued a press release (the
"Press Release") in which the Company announced its financial results for its
fiscal quarter ended April 1, 2006. 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
(the "Exchange Act") or otherwise subject to liability under that section, nor
shall it be deemed incorporated by reference in any filing under the Securities
Act of 1933, as amended, or the Exchange Act, except as expressly set forth by
specific reference in such a filing.
The attached press release includes the following Non-GAAP financial
information:
o The Company's net sales have been presented both including and
excluding the effect of currency fluctuation effects from translating
foreign-denominated sales into U.S. dollars for the quarter/nine month
period and compared to the same quarter/nine month period in the prior
fiscal year.
o The Company has also presented its projected percentage increase in
earnings per share for the fourth fiscal quarter both including and
excluding the effect of a non-recurring $7 million tax benefit in the
prior-year period.
o The Company's net income and earnings per share have been presented on
the attached income statement both including and excluding the effect
of stock option expense for the quarter/nine months and compared to
the same periods in the prior fiscal year.
The Company believes that it is appropriate to present this supplemental
information, for the following reasons:
o Presenting the Company's net sales in the attached release without the
impact of currency fluctuations will allow investors to better
understand the Company's operating and financial results and how such
results compare with the Company's prior guidance. In addition, this
presentation will help investors and analysts to understand the
increase in net sales over the prior-year periods on a
constant-currency basis, a valuable measure of relative sales
performance in the Company's markets.
o Presenting the projected percentage increase in earnings per share for
the fourth fiscal quarter excluding the effect of a $7 million tax
benefit in the year ago period will allow investors to better
understand the Company's increased income from operating results
without taking into account a one-time, non-recurring tax benefit that
occurred in the prior year.
o Presenting the Company's net income and earnings per share in the
attached income statement both with and without the impact of stock
option expenses will allow investors to better understand the change
in the Company's financial results from last year to the current year
and the impact from fiscal 2005 (during which the Company did not
expense stock options) to fiscal 2006 of expenses from such
compensation on the Company's earnings and earnings per share.
Item 9.01: Financial Statements and Exhibits.
(c) Exhibits. The following exhibit is being furnished herewith:
99.1 Text of Press Release, dated April 25, 2006
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: April 27, 2006
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 April 25, 2006
Exhibit 99.1
Coach Reports Third Quarter Earnings Growth of over 34%; Ahead of Analysts'
Expectations; Increases FY06 Guidance to $1.25, up 36% from Prior Year, and
Introduces FY07 Guidance of $1.50; Ahead of Consensus for Both Years
NEW YORK--(BUSINESS WIRE)--April 25, 2006--Coach, Inc. (NYSE: COH), a
leading marketer of modern classic American accessories, today announced an
increase of 34% in earnings per diluted share to $0.28 for its third fiscal
quarter ended April 1, 2006, up from $0.21 per diluted share a year ago. These
results were ahead of the analysts' consensus estimate of $0.27 per share.
In the third quarter, net sales were $498 million, 20% higher than the $416
million reported in the same period of the prior year. On a
constant-exchange-rate basis, net sales increased 23% in the third quarter,
excluding the negative currency effects of 3% from translating
foreign-denominated sales into U.S. dollars. Net income rose 35% to $109
million, compared with $81 million in the prior year.
Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said,
"Our excellent third quarter performance reflects the vitality of the Coach
franchise, the year-round appeal of Coach as a gift resource and the continuing
strong growth of the U.S accessory category. Throughout all channels of our
business and across all geographies, consumers enthusiastically embraced our
transitional and spring assortments, driving our top-line results. Our
profitability improvement highlights our ability to achieve further operating
margin expansion as our sales base increases."
Quarterly operating margin rose to 33.2% in the current period, a 140 basis
point improvement from the 31.8% reported for the prior year. During the
quarter, gross profit rose 20% to $390 million from $325 million a year ago.
Gross margin expanded by 20 basis points from 78.1% to 78.3%, as gains from
product mix shifts and supply chain initiatives more than offset the impact of
channel mix. SG&A expenses as a percentage of net sales declined 110 basis
points to 45.1%, compared to the 46.2% reported in the year-ago quarter.
For the nine months ended April 1, 2006, net sales were $1.6 billion, up
24% from the $1.3 billion reported in the first nine months of fiscal 2005. On a
constant-exchange-rate basis, net sales increased 26%, excluding the negative
currency effects of 2% from translating foreign-denominated sales into U.S.
dollars. Net income rose to $377 million, up 40% from the $269 million reported
a year ago.
Third fiscal quarter sales results in each of Coach's primary channels of
distribution grew as follows:
-- Direct-to-consumer sales increased 22% to $374 million from $307
million last year. U.S. comparable store sales for the quarter rose
21.1%, with retail stores up 11.7% and factory store sales up 34.0%.
The exceptional U.S. factory store performance this quarter continued
to reflect channel strength and the success of an improved merchandise
offering. In Japan, sales rose 23% on a constant-currency basis, while
dollar sales rose only 10% due to a weaker yen. Coach achieved
high-single-digit increases in comparable location sales in Japan.
-- Indirect sales rose 14% to $124 million from $109 million in the same
period last year. Strong international wholesale shipments and
business-to-business sales contributed to these results. In the United
States, comparable department store POS sales rose over 20% from prior
year levels in the quarter.
Mr. Frankfort added, "It's worth noting that U.S. full price comparable
store sales have now increased at a double-digit rate in each of the last 16
consecutive quarters, which demonstrates the consistency and sustainability of
our growth. Clearly, Coach's share of the fast-growing U.S. premium accessories
market continues to expand across all channels."
"In addition, we're extremely pleased with the 23% growth in sales in
constant currency in Japan this quarter, as we continue to grow our market share
rapidly in this important market for Coach. These results reflect the success of
our distribution strategy in Japan, notably the acceleration of retail openings
and the expansion of existing shops."
During the third quarter of fiscal 2006, the company opened three U.S.
retail stores - all in new markets for Coach - and one factory store. The
company also closed one factory store, bringing the total to 206 retail stores
and 84 factory stores at April 1, 2006. In Japan, Coach opened three net new
retail locations and expanded two locations as well.
Mr. Frankfort continued, "Across all businesses, handbags and women's
accessories continued to drive our business results, as the look of our
assortment continues to evolve to reflect changing consumer preferences. Early
in the quarter we saw excellent response to gallery satchels and an updated
Hamptons collection. In February, fresh interpretations of Soho and our Hamptons
Signature Striped carryalls sold exceptionally well, as did the new shoulder
tote, a key item for the season. After Valentine's Day, the Hamptons Weekend
collection, including a new and distinctive patchwork design, became an instant
success. We were also particularly pleased with the performance of our Limited
Edition offerings, including the Hamptons Vintage carryall at $598 and the new
Legacy shoulder tote at $798."
"Our business this April has continued strong. As always, we have a
pipeline of new, innovative and relevant products planned. This month we
successfully launched our Soho Optic Signature assortment in a seasonal palette
in several favorite handbag styles, as well as in footwear, scarves and hats.
Additionally, straw totes and hobos in our important Legacy silhouettes were
introduced. For Mother's Day, we're offering our soft totes in classic Signature
and a new seasonal Signature in gradient hues. Coming in June will be the new
Patchwork and Signature Tie Dye groups, both perennial favorites. Also in the
fourth quarter, we will be adding 12 more retail stores in the U.S., bringing
the total to 25 new retail stores in fiscal 2006."
Mr. Frankfort concluded, "By the end of this fiscal year we will have
opened about 55 new locations globally, bringing our total to about 525. During
fiscal 2007, we are planning to accelerate our new unit openings to at least 85
Coach U.S. stores and international locations globally, bringing our total
number of locations to over 600 by year end. Looking ahead, we have a clearly
articulated roadmap focused on achieving continued rapid growth through our
planning horizon."
The company now estimates 2006 sales of about $2.1 billion for the full
fiscal year ending July 1, 2006, an increase of about 23% from the prior year,
and earnings per share of $1.25 or up 36% from last year, compared with
analysts' current consensus estimate of $1.24. This reflects sales of at least
$500 million and earnings per share of $0.28 for the fourth quarter, up 22% from
the $0.23 reported for the fourth quarter in fiscal 2005. It should be noted
that last year's fourth quarter included a $7 million tax benefit for FY05, all
recorded in the period. Excluding this benefit from the year-ago quarter,
earnings per share are expected to rise 32%.
For fiscal 2007, Coach projects sales growth of about 19% to about $2.5
billion and earnings per share growth of about 20% to $1.50, compared with the
analysts' current consensus estimate of $1.48.
The company also announced that it repurchased and retired 499,500 shares
of common stock at an average cost of $36.64 during the third fiscal quarter,
bringing the year-to-date total to 3,463,700 shares of common stock repurchased
at an average cost of $32.85. At this time, approximately $136 million remains
available for future repurchases under the company's repurchase program, which
expires in May 2007.
Coach will host a conference call to review these results at 8:30 a.m.
(EDT) today, April 25, 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 for the replay 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 Nine Months Ended April 1, 2006 and April 2, 2005
(in thousands, except per share data)
(unaudited)
QUARTER ENDED NINE MONTHS ENDED
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April 1, April 2, April 1, April 2,
2006 2005 2006 2005
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Net sales $ 497,859 $ 415,939 $1,597,146 $1,291,763
Cost of sales 108,090 91,266 361,340 305,948
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Gross profit 389,769 324,673 1,235,806 985,815
Selling, general and
administrative expenses 224,333 192,337 651,319 541,432
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Operating income 165,436 132,336 584,487 444,383
Interest income, net 10,118 4,945 22,995 10,924
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Income before income
taxes and minority
interest 175,554 137,281 607,482 455,307
Income taxes 66,708 52,168 230,847 173,017
Minority interest, net
of tax - 4,241 - 13,534
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Net income $ 108,846 $ 80,872 $ 376,635 $ 268,756
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Net income per share
Basic $ 0.28 $ 0.21 $ 0.99 $ 0.71
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Diluted $ 0.28 $ 0.21 $ 0.96 $ 0.69
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Shares used in computing
net income per share
Basic 383,739 379,695 381,330 378,885
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Diluted 391,453 391,609 390,637 390,413
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Supplemental information
Net income, as reported $ 108,846 $ 80,872 $ 376,635 $ 268,756
Add back Stock Option
Expense
(after tax) 11,421 8,367 26,819 22,331
Net income, ex Stock
Option Expense $ 120,267 $ 89,239 $ 403,454 $ 291,087
Pro forma as adjusted
basic net income,
ex stock option expense,
per share $ 0.31 $ 0.24 $ 1.06 $ 0.77
Pro forma as adjusted
diluted net income,
ex stock option expense,
per share $ 0.31 $ 0.23 $ 1.03 $ 0.75
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CONDENSED CONSOLIDATED BALANCE SHEETS
At April 1, 2006, July 2, 2005 and April 2, 2005
(in thousands)
(unaudited)
April 1, July 2, April 2,
2006 2005 2005
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ASSETS
Cash, cash equivalents and
short term investments $ 838,357 $ 383,051 $ 495,691
Receivables 110,415 65,399 83,630
Inventories 210,465 184,419 180,814
Other current assets 118,652 76,491 78,315
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Total current assets 1,277,889 709,360 838,450
Property and equipment, net 269,562 203,862 189,775
Long term investments - 122,065 198,591
Other noncurrent assets 326,979 334,870 72,232
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Total assets $ 1,874,430 $ 1,370,157 $ 1,299,048
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 54,841 $ 64,985 $ 49,964
Accrued liabilities 239,300 188,234 170,222
Subsidiary credit facilities 1,836 12,292 21,315
Current portion of long-term
debt 170 150 150
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Total current liabilities 296,147 265,661 241,651
Long-term debt 3,100 3,270 3,270
Other liabilities 60,337 45,306 65,080
Minority interest, net of tax - - 53,732
Stockholders' equity 1,514,846 1,055,920 935,315
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Total liabilities and
stockholders' equity $ 1,874,430 $ 1,370,157 $ 1,299,048
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CONTACT: Coach
Analysts & Media:
Andrea Shaw Resnick, 212-629-2618