Coach, Inc.(COH), the designer and marketer of fine accessories and gifts, recently posted better-than-expected fourth-quarter 2011 results on the heels of healthy sales in North America and China.
The quarterly earnings of 68 cents a share beat the Zacks Consensus Estimate of 65 cents, and came ahead of 64 cents earned in the prior-year quarter buoyed by strong top-line growth.
The reported quarter includes 13 weeks compared with 14 weeks in the year-ago quarter. Thus on a comparable basis, excluding the 14th week in the prior-year quarter, earnings for the quarter under review rose 22%.
The New York based company, Coach, said that total net sales for the quarter came in at $1,031.7 million, up 8.5% from the year-ago quarter, and outdid the Zacks Consensus Estimate of $1,013 million. On a comparable basis, sales climbed 17%.
Behind the Headline
On a comparable basis direct-to-consumer sales jumped 18% to $919 million driven by a 10.1% 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. North American direct-to-consumer sales jumped 17% during the quarter. In Japan, sales dropped by 7%, excluding foreign currency translation, whereas in dollar terms, sales grew 6%.
On a reported basis, including the extra 14th week in the prior-year period, direct-to-consumer sales rose 9%. Japan, sales fell 13%, excluding foreign currency translation, whereas in dollar terms, sales slipped 2%, when adjusted for a stronger yen.
Indirect sales rose by 12% on a comparable basis and 4% on a reported basis to $113 million, reflecting 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’s sustained focus on store sales productivity, merchandising, marketing and strategic pricing has helped it remain afloat in a difficult consumer environment as well as drive comparable-store sales gain.
Gross profit increased 6.2% to $740.5 million on the heels of growth registered in the top-line. However, gross profit margin contracted 150 basis points but was strong at 71.8%. Operating income jumped 5.1% to $312.1 million, but operating margin shriveled 90 basis points to 30.3%.
Management remains confident of sustaining double-digit growth in both top and bottom lines as it enters fiscal 2012. The company’s long-term growth drivers include expansion of its global distribution model and entry into under-penetrated markets.
Store Update
During the quarter, Coach, the maker of handbags, wallets, shoes and other accessories, opened 3 retails stores and closed 2 retail stores, and opened 9 factory stores in North America, taking the total to 345 retail stores and 143 factory stores at the end of the quarter. In Japan, the company opened 2 stores bringing the total number of locations to 176. In China, an addition of 11 new locations during the quarter took the total to 66.
Other Financial Details
Coach maintains a healthy balance sheet with a significant cash balance and negligible debt load. The company also has been proactively managing its cash flows by making prudent capital investments and enhancing shareholders’ 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 $702 million and total long-term debt of $24.2 million with shareholders’ equity of $1,612.6 million.
Coach also notified that it bought back approximately 6.3 million shares at a cost of $60.08 per share, aggregating $381 million during the quarter. The company still has $962 million at its disposal under its share repurchase authorization.
Currently, we have a long-term Neutral rating on the stock. However, Coach, which competes with Polo Ralph Lauren Corporation(RL), holds a Zacks #2 Rank, which translates into a short-term Buy recommendation.
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