Coach Inc. (COH), the designer and marketer of fine accessories and gifts, recently posted better-than-expected first-quarter 2011 results on the back of healthy sales in North America, China and Japan.
The quarterly earnings of 63 cents a share beat the Zacks Consensus Estimate of 55 cents, and surged 43.2% from 44 cents delivered in the prior-year quarter, buoyed by strong top-line growth and competitive pricing.
The New York-based Coach Inc. said that total net sales for the quarter came in at $911.7 million, up 19.7% from the year-ago quarter, and breezed past the Zacks Consensus Revenue Estimate of $847 million.
Direct-to-consumer sales jumped 19% to $775 million driven by an 8.5% rise in the North American comparable-store sales and strong growth in the China business with a double-digit rate increase in comparable-store sales. In Japan, sales grew 3%, excluding foreign currency translation, whereas in dollar terms, sales climbed 14% adjusted for a stronger yen.
Indirect sales rose by 27% to $136 million due to the increase in U.S. department stores shipments and international wholesale shipments.
The rise in sales was a positive indication for the luxury-goods market, battered by the recent economic downturn. Coach, the maker of handbags, wallets, shoes and other accessories, hinted that its merchandising, marketing and strategic pricing initiatives helped it keep afloat in a difficult consumer environment.
Gross profit soared 22.9% to $676.2 million on the heels of double-digit growth in the top-line, whereas the gross profit margin expanded 190 basis points to 74.2%, reflecting lower sourcing costs. Operating income surged 28% to $285.7 million, whereas operating margin increased 200 basis points to 31.3%.
Management remains confident of sustaining double-digit growth in both top and bottom lines. The company’s long-term growth drivers include expansion of its global distribution model and entry into under-penetrated markets. After North America and Asia, Coach has now extended its global footprint in Western Europe.
The company’s collaboration with Printemps, the French department store group, marks its entry into Europe. Coach also plans to open stores in the U.K., Spain and Portugal in a joint venture with Hackett Limited, the British retailer.
The company is also investing in rapidly growing emerging markets, such as China to increase its brand awareness.
During the quarter, Coach opened 3 retail stores, and opened 7 factory stores in North America, taking the total to net 345 retail stores and net 128 factory stores at the end of the quarter. In Japan, the company opened 2 locations, bringing the total number of locations to 169. In China, an addition of 8 new locations during the quarter took the total to 49.
Coach maintains a healthy balance sheet with a significant cash balance and a negligible debt load. The company also has been proactively managing its cash flows by making prudent capital investments and enhancing shareholder return. The company’s strong liquidity, positions it to drive future growth.
The company ended the quarter with cash, cash equivalents and short-term investments of $712 million and total long-term debt of $24.8 million with shareholders’ equity of $1,582.7 million.
Coach also notified that it bought back approximately 3.6 million shares at a cost of $38.35 per share, aggregating $137 million during the quarter. The company still has nearly $422 million at its disposal under its current share repurchase authorization.
We have a Neutral rating on Coach. However, the stock holds a Zacks #2 Rank, which translates into a short-term Buy recommendation.
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