Amid a sluggish recovery in the economy,
) recently posted fourth-quarter 2012 results. The quarterly
earnings of 86 cents a share beat the Zacks Consensus Estimate by a
penny, and increased 27% from 68 cents earned in the prior-year
quarter, buoyed by healthy top-line growth on the back of strong
sales in China.
The New York-based Coach said that net sales for the quarter
came in at $1,155.2 million, up 12% from the year-ago quarter, but
below the Zacks Consensus Estimate of $1,197 million.
International sales remained the driver behind the growth during
the quarter. Sales in North America were hurt by cautious consumer
behavior that resulted in lower-than-anticipated growth at the
Behind the Headline
Direct-to-consumer sales jumped 13% to $1.05 billion driven by a
1.7% 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 16%, excluding foreign
currency translation, whereas in dollar terms, sales climbed 18%.
Sales in China surged 60%.
Indirect sales came in at $108 million flat compared with the
prior-year quarter. International sales remained robust at POS
(point of sale), whereas U.S. department stores sales were
moderately lower compared with the prior-year period.
The rise in sales was a positive indication for the luxury-goods
market, which has been battered by the recent economic upheaval.
Coach's sustained focus on store sales productivity, merchandising
and marketing and strategic pricing have helped it remain afloat in
a difficult consumer environment as well as drive comparable-store
The company remains optimistic about its unisex Legacy lifestyle
collection, dedicated men's stores and international growth
opportunities to counter the soft consumer scenario in North
America and sluggish economic environment.
Gross profit rose 13% to $838 million, spurred by top-line
growth, whereas gross profit margin increased 80 basis points to
72.6%. Adjusted operating income rose 19% to $371 million, whereas
operating margin expanded 180 basis points to 32.1%.
Management remains confident of sustaining double-digit growth
in both top and bottom lines in fiscal 2012. The company's
long-term growth drivers include expansion of its global
distribution model and entry into under-penetrated markets. The
company lays more emphasis on globalization and accelerated
international distribution growth.
Management achieved more than $300 million in sales in China
during the year, backed by sustained growth momentum. As a part of
its strategy to directly control certain Asian markets, Coach is
now directly operating domestic retail businesses in Singapore and
Taiwan. The company is also under discussion to acquire its
Malaysian and Korean retail business in the first quarter of
During the quarter, Coach, the maker of handbags, wallets, shoes
and other accessories, opened 4 retail location, and opened 7
factory stores, including 5 Men's stores, taking the total to 354
retail stores and 169 factory stores in North America at the end of
the quarter. In Japan, the company opened 2 Men's retail outlets
and a factory store, bringing the total number of locations at
In China, an addition of 11 new locations during the quarter
took the total to 96. As a result of the acquisitions of retail
businesses in Singapore and Taiwan, the company now operates 7 and
27 locations, respectively.
Other Financial Details
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 returns. 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 $917.2 million and total long-term debt
of $23.4 million with shareholders' equity of $1,992.9 million.
Coach also notified that it bought back approximately 2.5
million shares at a cost of $67.79 per share, aggregating $169
million during the quarter. During fiscal 2012, the company
repurchased approximately 10.7 million shares at a cost of $65.49
per share totaling $700 million. The company still has
approximately $260 million at its disposal under its share
Currently, we maintain our long-term Neutral recommendation on
the stock. However, Coach, which competes with
Ralph Lauren Corporation
), holds a Zacks #3 Rank that translates into a short-term Hold
COACH INC (COH): Free Stock Analysis Report
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