Coach, Inc. (COH), the designer and marketer of fine accessories and gifts, recently posted better-than-expected fourth quarter results on the back of healthy sales registered in North America, China and Japan.
 
The quarterly earnings of 64 cents a share outperformed the Zacks Consensus Estimate of 56 cents, and surged 48.8% from 43 cents delivered in the prior-year quarter buoyed by strong top-line growth and competitive pricing.
 
New York-based company, Coach, said that total net sales for the quarter came in at $950.5 million, up 22.2% from the year-ago quarter, and breezed past the Zacks Consensus Estimate of $886 million.
 
Excluding the extra week in the quarter under review compared to the year-earlier quarter sales would have increased 13%, and earnings per share would have jumped 23%.
 
Direct-to-consumer sales jumped 23% to $842 million driven by a 6.3% 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 6%, excluding foreign currency translation, whereas in terms of dollar, sales climbed 13% adjusted for a stronger yen.
 
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.
 
Indirect sales rose by 15% to $109 million due to increase in international wholesale shipments.
 
Gross profit soared 27.3% to $697 million on the heels of double-digit growth in the top-line, whereas the gross profit margin expanded 290 basis points to 73.3%.
 
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, and plans to open approximately 30 new locations in fiscal 2011.
 
During the quarter, Coach opened five and closed six retail stores, and opened two factory stores in North America, taking the total to net 342 retail stores and net 121 factory stores at the end of the quarter. In Japan, the company opened a second men’s store and a factory store, and closed one shop-in-shop location, bringing the total number of locations to net 167. In China, a net addition of four new locations during the quarter took the total to 41.
 
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 $696.4 million and total long-term debt of $24.2 million with shareholders’ equity of $1,505.3 million.
 
Coach also notified that it bought back approximately 10.9 million shares at a cost of $41.43 per share, aggregating $450 million during the quarter. The company still has nearly $560 million at its disposal under its current share repurchase authorization.
 
Coach’s shares rose 57 cents or 1.5% to $39.00 during pre-market trading.
 
COACH INC (COH): Free Stock Analysis Report
 
Zacks Investment Research