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 leveraging the global opportunity for Coach by raising brand awareness and building market share in markets where Coach is underpenetrated, 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.
The company exhibited strong first-quarter results and is poised for a turnaround. It is rolling out new and renovated stores globally, most notably in North America. The quarter results were consistent with its plan and annual guidance. 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. The company continued to successfully execute its brand transformation strategies across the three key brand pillars: product, stores and marketing in the quarter. Its modern luxury stores globally and across channels are performing well. The company is showing bullish trend and would recommend this company as a buy.
First quarter 2016 consolidated results
Net sales during the quarter totaled $1.03 billion ($1.04 billion during the prior year quarter).
Gross profit during the quarter totaled $697 million ($719 million during the prior year quarter).
Gross margin during the quarter was 67.7% (69.3% in the prior year quarter). On a reported basis, Coach's gross profit was also $697 million ($715 million in the prior year quarter).
SG&A expenses were $532 million ($503 million in the prior year quarter). As a percentage of net sales, SG&A totaled 51.7% on a non-GAAP basis (48.4% in the prior year quarter).
On a reported basis, SG&A expenses were $555 million or 53.9% of sales ($536 million or 51.6% on a reported basis during the prior year quarter).
Operating income for the quarter on a non-GAAP basis totaled $165 million ($217 million in the prior year period).
Operating margin was 16.0% (20.9% in the prior year quarter). On a reported basis, operating income was $141 million ($180 million in the prior year quarter).
Net interest expense was $7 million in the quarter ($1 million in the prior year quarter).
Net income for the quarter on a non-GAAP basis totaled at $113 million, with earnings per diluted share of 41 cents. This included a contribution of $11 million or 4 cents per share from Stuart Weitzman. This compared to non-GAAP net income in the first quarter of FY15 of $146 million with earnings per diluted share of 53 cents. On a GAAP basis, net income for the quarter was $96 million with earnings per diluted share of 35 cents including a contribution of $5 million or 2 cents per share from Stuart Weitzman. This compared to prior year GAAP net income of $119 million or 43 cents earnings per diluted share.
Coach brand first-quarter results
Net sales for the Coach brand totaled at $943 million for the first fiscal quarter ($1.04 billion in the prior year quarter). On a constant currency basis, total sales decreased 5% for the period.
Gross profit for the Coach brand totaled $647 million on both a non-GAAP and reported basis.
SG&A expenses totaled $497 million for the Coach brand on a non-GAAP basis, a decrease of 1%. As a percentage of net sales, SG&A expenses totaled 52.7% on a non-GAAP basis. On a reported basis, SG&A expenses were $513 million and represented 54.4% of sales.
Operating income for the Coach brand on a non-GAAP basis was $150 million while operating margin was 15.9%. On a reported basis, operating income was $134 million for Coach, while operating margin was 14.2%.
Segmentwise sales
Total North American Coach brand sales decreased 11% on a reported basis for the quarter to $561 million from $634 million last year and 10% on a constant currency basis, reflecting sequential improvement.
International Coach brand sales declined 3% to $369 million from $381 million last year. On a constant currency basis, international sales rose 6%. Total China sales rose 2% in dollars and 3% in constant currency with double-digit growth.
(Source: Company Website)
Fiscal Year 2016 outlook:
The company expects the following:
- The company is maintaining its FY16 outlook outlined in August. Coach brand revenues for Fiscal 2016 are expected to increase by low-single digits in constant currency on a 52-week basis.
- Gross margin for the Coach brand is still projected to be in the area of 70% on a constant currency basis.
- SG&A expenses for the brand are anticipated to rise at a mid-single-digit rate in constant currency.
- Interest expense is expected to be in the area of $30 million to $35 million for the year.
- Full year Fiscal 2016 tax rate is projected at about 28%.
- The company is forecasting Stuart Weitzman brand sales in the area of $335 million on a reported dollar basis for fiscal 2016, driving Coach's total revenue growth to high-single digits and adding about 9 cents to earnings per diluted share.
Quarterly dividend
Coach announced its board of directors has declared a quarterly cash dividend of 33.75 cents per common share. The dividend is payable on Dec. 28 to shareholders of record as of the close of business on Dec. 4.
Focus
- Brand transformation initiatives
- Cost reduction
- Continual innovation
- It is constantly evolving.
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.
Coach also operates ecommerce websites in the United States, Canada, Japan and China with informational websites in more than 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.
Disclosure: I do not hold any position in the company.
