Coach, Inc.
(COH), the designer and marketer of fine accessories and gifts, recently posted better-than-expected third-quarter 2010 results, sending the stock up 57 cents or 1.4% to $42.45 in pre-market trading.
Quarterly earnings of 50 cents a share outpaced the Zacks Consensus Estimate of 46 cents, and jumped 31.3% from 38 cents delivered in the prior-year quarter buoyed by strong top-line growth and competitive pricing. The prior-year quarter earnings exclude one-time items.
New York-based Coach said that total net sales climbed 12.3% year on year to $830.7 million.
Direct-to-consumer sales jumped 15% to $726 million driven by a 5.1% rise in the North America comparable-store sales and strong growth in the China business with a double-digit rate increase in comparable-store sales. In Japan, sales fell 1%, excluding foreign currency translation, but in dollar terms, sales climbed 2% when adjusted for a stronger yen.
The rise in sales was a positive indication for the luxury-goods designer, battered by the recent economic downturn. Coach, the maker of handbags, wallets, shoes and other accessories, lowered prices on some of its merchandise, and introduced new styles to improve sales as consumers cut spending.
Indirect sales dropped marginally by 1% to $105 million due to lower shipments to U.S. department stores as the company stringently managed inventories in that channel.
Gross profit soared 17.2% to $615.6 million on the heels of a double-digit growth in the top-line, whereas the gross profit margin expanded 310 basis points to 74.1%, reflecting lower manufacturing expenses.
The company’s long-term growth drivers include expansion of its global distribution model and forays into under-penetrated markets. After North America and Asia, Coach now plans to extend its global footprint in Western Europe.
The company in close collaboration with Printemps, the French department store group, plans to open a minimum of 14 in-store locations in the next three years in France. Coach also plans to open stores in the U.K., Spain, Portugal and Ireland 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 is now targeting sales of $250 million during fiscal 2012, with plans to open its first mainland China outlet in Shanghai this week.
During the quarter, Coach opened two and closed two retail stores, and opened one factory stores in North America, taking the total to a net of 343 retail stores and a net of 119 factory stores at the end of the quarter. In Japan, the company opened three stores, a first men’s store, a factory store and a duty-free wholesale outlet, bringing the total to 166.
The company ended the quarter with cash, cash equivalents and short-term investments of $907.7 million and a total long-term debt of $24.2 million with shareholders’ equity of $1,663.4 million.
Coach has also notified the buying back of approximately 11.3 million shares at a cost of $35.52 per share, aggregating $400 million. The company still has nearly $10 million at its disposal under its previous share repurchase authorization.
The company separately said that it has raised its annual dividend twofold to 60 cents a share to be paid in July 2010, and also announced a new share repurchase authorization of $1 billion, which exhausts by June 30, 2012.
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