Coach (COH, Financial) is a global leader in premium bags and accessories. It is a leading New York design house of modern luxury accessories and lifestyle collections. It is in the process of transforming from an international accessories business to a global lifestyle brand, anchored in accessories, presenting a clear and compelling expression of the Coach woman and man across all product categories, store environments and brand imagery. In addition, it is leveraging the global opportunity for Coach by raising brand awareness and building market share in markets where Coach is under-penetrated, most notably in Asia and Europe.
The main point of selling of this brand for decades has been to provide affordable luxury to its customers. Now greatly expanded, Coach continues to maintain the highest standards for materials and workmanship. Coach’s exceptional work force remains committed to carefully upholding the principles of quality and integrity that define the company.
The prominence of this brand can be attributed to original American attitude and design, heritage of fine leather goods and custom fabrics, superior product quality and durability and its commitment to customer service.
Third Quarter results
Sales
Sales during the quarter were $929 million (a decrease of 15% from the prior year period’s $1.10 billion).
Net income
Net income during the quarter stood at $100 million, with earnings per diluted share of $0.36.
Reported net income totalled $88 million, with earnings per diluted share of $0.32 (in comparison to net income of $191 million and earnings per diluted share of $0.68 in the prior year’s third quarter).
Operating Income
On a non-GAAP basis, operating income stood at $146 million (in comparison to $263 million in the prior year period).
Reported operating income totalled $124 million.
Operating Margin
Operating margin during the quarter was 15.8% (which was 23.9% in the prior year period).
The reported operating margin was 13.3%.
GP
Gross profit during the quarter was $665 million (which was $781 million in the prior year quarter).
Reported gross profit was $665 million.
Gross Margin
Gross margin during the quarter was 71.6% (an increase from 71.1% in the prior year).
The reported gross margin was 71.6%.
SG&A Expenses
SG&A expenses as a percentage of net sales totalled at 55.8% on a non-GAAP basis, (in comparison to 47.2% reported in the prior year period).
SG&A expenses, as a percentage of net sales, totalled 58.3% on a reported basis.
Charges
During the third quarter, the company recorded charges of $23 million under its multi-year transformation plan.
First Nine Months
For the nine months ended March 28, 2015, net sales were $3.19 billion, down 13% from the $3.67 billion reported in the first nine months of fiscal 2014. On a constant currency basis, sales declined 11% for the period. Net income totalled $446 million, with earnings per diluted share of $1.61, excluding transformation-related charges and acquisition costs. Reported net income for the nine-month period totalled $391 million, with earnings per diluted share of $1.41. This compared to net income of $706 million and earnings per diluted share of $2.51 reported in the prior year’s first nine months.
During the first nine months of fiscal 2015 the company recorded total transformation-related charges of $80 million increasing SG&A expenses by $75 million in total, cost of sales by $5 million, reducing net income by $53 million after tax or $0.19 per diluted share for the current nine-month period. In addition, the company recorded costs of $4 million associated with the pending acquisition of Stuart Weitzman in the second quarter which impacted net income by $2 million after tax or $0.01 per diluted share.
(Source: Company’s Website)
Segment wise Performance
North America
Sales in North America during the quarter were $493 million (a decrease of 24% from $648 million last year).
North American direct sales declined 23% for the quarter with comparable store sales down 23% including the impact of reduced eOutlet events, which pressured total comparable stores sales by about 11 percentage points.
International Sales
International sales were $428 million (a decrease of 3% from $441 million last year). On a constant currency basis, International sales grew 4%. Sales in China rose 10% on a constant currency basis and 8% in dollars with positive comparable store sales and slower distribution growth. In Japan, sales declined 11% on a constant currency basis, better than expected given last year’s double-digit gain prior to the April 1st tax increase. Dollar sales in Japan were 23% below the prior year, reflecting the weaker yen. Constant currency sales for the remaining directly operated businesses in Asia grew modestly while Europe remained strong, growing at a double digit pace.
Quarterly Dividend
COH recently declared a quarterly cash dividend of $0.3375 per common share. The dividend is payable on June 29, 2015 to shareholders of record as of the close of business on June 5, 2015.
Acquisition of Luxury Designer Footwear Brand Stuart Weitzman
Coach recently completed the acquisition of luxury shoe maker Stuart Weitzman Holdings LLC, at a price of $574 million. Stuart Weitzman boasted of net revenues of $313 million for the twelve months ended December 31, 2014. This acquisition will further accentuate COH’s current global leadership position in premium handbags and accessories, while immediately contributing to the company’s earnings as Coach continues to make meaningful progress against its brand transformation announced earlier this year.
On a Concluding Note
Continued development of new categories has further established the signature style and distinctive identity of the Coach brand. It is constantly focusing on brand transformation opening of modern luxury concept stores globally.
Coach also operates e-commerce websites in the United States, Canada, Japan, and China with informational websites in over 20 other countries. Beyond the company’s direct retail businesses, Coach has built a strong presence globally through Coach boutiques located within select department stores and specialty retailer locations in North America and Europe, as well as through distributor-operated shops in Asia, Latin America, the Middle East, and Australia.
The exhibited strong results and continued to generate in our new and renovated stores globally, most notably in North America. The third quarter results were in consistence with its plan and annual guidance despite the increased negative impact of foreign exchange on our top-line results. It made significant improvements in North America and its international business posted moderate growth on a constant currency basis, highlighted by double-digit increases in Europe and China. I feel the company is showing bullish trend and would recommend this company as a buy.
