Despite sluggish recovery in the economy,
Coach, Inc.
(
COH
), the designer and marketer of fine accessories and gifts,
recently posted better-than-expected third-quarter 2012 results on
the back of healthy sales in North America and China. Strong brand
image, geographical expansion, and new pricing and promotional
policies in North American factory business were also the factor
behind the growth.
The quarterly earnings of 77 cents a share beat the Zacks
Consensus Estimate by a couple of cents, and increased 24% from 62
cents earned in the prior-year quarter buoyed by strong top-line
growth.
The New York based company, Coach, said that net sales for the
quarter came in at $1,109 million, up 16.6% from the year-ago
quarter, and came ahead of the Zacks Consensus Estimate of $1,101
million.
Behind the Headline
Direct-to-consumer sales jumped 18% to $984 million driven by a
6.7% 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 10%, excluding foreign
currency translation, whereas in dollar terms, sales climbed 14%,
when adjusted for a stronger yen. Sales in China surged 60%.
Indirect sales jumped 10% to $125 million during the quarter.
International sales remained robust at POS, 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, 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 sales
growth.
Coach remains optimistic about its dedicated men's stores, and
expects the Men's business to rise two fold to more than $400
million in fiscal 2012 on a global basis. Management aims to
enhance Men's collections in 100 retail stores in North America by
the end of fiscal 2012, up from 42 at the end of the quarter under
review.
Gross profit increased 18% to $818.1 million spurred by top-line
growth, whereas gross profit margin increased 100 basis points to
73.8%. Adjusted operating income rose 21% to $337.5 million,
whereas operating margin expanded 100 basis points to 30.4%.
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 now expects to achieve at least $300 million in sales
in China backed by sustained growth momentum it is currently
witnessing. 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 retail business in July.
Moreover, the company has entered into a deal to take charge of its
Korean retail business in the early part of fiscal 2013.
Store Update
During the quarter, Coach, the maker of handbags, wallets, shoes
and other accessories, opened 1 retail location and closed another,
and opened 5 factory stores, including 2 Men's stores, taking the
total to 350 retail stores and 162 factory stores in North America
at the end of the quarter. In Japan, the company opened 3 stores
and closed 3 locations, keeping the total number of locations at
184. In China, an addition of 5 new locations during the quarter
took the total to 85. As a result of the acquisitions of retail
businesses in Singapore and Taiwan, the company now operates 6 and
26 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 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 $929.7 million and total long-term debt
of $22.6 million with shareholders' equity of $1,938.9 million.
Coach also notified that it bought back approximately 2.33
million shares at a cost of $73.92 per share, aggregating $172
million during the quarter. The company still has approximately
$430 million at its disposal under its share repurchase
authorization. The company's Board of Directors also announced an
increase of 33% in annual dividend to $1.20 per share that will be
paid to shareholders in July 2012.
Currently, we maintain our long-term "Neutral" recommendation on
the stock. However, Coach, which competes with
Polo Ralph Lauren Corporation
(
RL
), holds a Zacks #2 Rank that translates into a short-term "Buy"
rating, and reflects the company's optimistic attitude of
accomplishing double-digit growth in both top and bottom lines
going forward.
COACH INC (
COH
): Free Stock Analysis Report
RALPH LAUREN CP (
RL
): Free Stock Analysis Report
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