Coach Q4 Earnings Beat Estimate as International Sales Rise - Analyst Blog


Coach, Inc. ( COH ) posted fourth-quarter fiscal 2014 earnings of 59 cents a share that came ahead of the Zacks Consensus Estimate of 54 cents on higher international sales. Moreover, net sales of this New York-based company, which came in at $1,136.2 million also surpassed the Zacks Consensus Estimate of $1,099 million. The better-than-expected results provided an impetus to the stock which jumped roughly 3% during pre-market trading hours.

Coach, Inc - Earnings Surprise | FindTheBest

However, what came as a drawback for this designer and marketer of fine accessories and gifts was that both top and bottom lines fell 7.1% and 33.7%, respectively, from the year-ago quarter. On a constant currency basis, sales decreased 6%. Management held sluggishness in North American women's bag and accessories business responsible for the year-over-year decline. Moreover, increased SG&A expenses also weighed upon the bottom-line performance.

Including one-time items, Coach reported earnings of 27 cents a share, sharply down from 78 cents delivered in the prior-year quarter.

Behind the Headline

Total North American sales fell 16% to $691 million. Direct-to-consumer sales decreased 15%, while comparable-store sales dropped 17%. At POS, North American department stores sales were marginally above the prior-year quarter, whereas shipments into department stores dropped.

International sales rose 7% to $414 million over the year-ago quarter. On a constant currency basis, International sales jumped approximately 9%. China business continued its strong performance as sales surged 20% with a double-digit rate increase in comparable-store sales. Sales in China surpassed $500 million in the fiscal year.

International wholesale shipments fell, whereas sales across POS rose. Sales in Japan fell 6% on a constant currency basis, whereas in dollar terms, sales dropped 10% from the year-ago quarter due to soft yen.

Adjusted gross profit fell 11.6% to $788.6 million, whereas gross profit margin contracted 360 basis points to 69.4%. Adjusted operating income came in at $231.3 million, down 37.6% from the prior-year quarter, while operating margin shriveled 990 basis points to 20.4%.

Store Update

During the quarter, Coach closed 4 stores in North America, thereby taking the count to 539. In Japan, total number of locations decreased to 198 due to the closure of 1 store.

In China, the addition of 6 new locations during the quarter took the total to 153. Across Asia (Other), the company opened 1 location taking the total to 97. Coach also acquired the remainder stake in the company's European joint venture, and opened 1 store resulting in a total count of 27 stores.

Other Financial Details

Coach maintains a healthy balance sheet with a significant cash balance. The company also has been proactively managing its cash flows by making prudent capital investments and enhancing shareholders' return.

The company ended the quarter with cash, cash equivalents and short-term investments of $868.6 million, current debt of $140.5 and shareholders' equity of $2,420.7 million.

During fiscal 2014, the company bought back 10.2 million shares at $51.27 per share, aggregating $525 million. The company still has approximately $835 million remaining at its disposal under its current share buyback program.

The company also declared quarterly cash dividend of 33.75 cents a share to be paid on Sep 29 to shareholders of record as of Sep 9.

Zacks Rank

Currently, Coach holds a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the retail sector include Hanesbrands Inc. ( HBI ) with a Zacks Rank #1 (Strong Buy), as well as Ralph Lauren Corporation ( RL ) and V.F. Corporation ( VFC ) with a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: VFC , COH , RL , HBI

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