Despite economic woes, Coach, Inc. (COH), the designer and marketer of fine accessories and gifts, recently posted better-than-expected first-quarter 2012 results on the heels of healthy sales in North America and China.
The quarterly earnings of 73 cents a share beat the Zacks Consensus Estimate of 70 cents, and jumped 15.9% from 63 cents earned in the prior-year quarter buoyed by strong top-line growth.
The New York based company, Coach, said that total net sales for the quarter came in at $1,050.4 million, up 15.2% from the year-ago quarter, and ahead of the Zacks Consensus Estimate of $1,023 million.
Behind the Headline
Direct-to-consumer sales jumped 17% to $910 million driven by a 9.2% 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 climbed 1%, excluding foreign currency translation, whereas in dollar terms, sales grew 10%, when adjusted for a stronger yen.
Indirect sales rose 4% to $140 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 have helped it remain afloat in a difficult consumer environment as well as drive comparable-store sales gain. The company continues to open new stores and gain market share in North America as it opens dedicated men's stores.
Gross profit increased 13.1% to $764.7 million on the heels of growth registered in the top line. However, gross profit margin contracted 140 basis points but was strong at 72.8%. Operating income jumped 12.7% to $322 million, but operating margin shriveled 60 basis points to 30.7%.
Management remains confident of sustaining double-digit growth in both top and bottom lines as it enters into 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, especially in Asia.
Store Update
During the quarter, Coach, the maker of handbags, wallets, shoes and other accessories, opened 2 retail locations and closed 2 retail stores, whereas opened 9 factory stores in North America, taking the total to net 345 retail stores and net 152 factory stores at the end of the quarter. In Japan, the company opened net 2 stores bringing the total number of locations to 178. In China, an addition of 5 new locations during the quarter took the total to 71.
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 $848 million and total long-term debt of $24.1 million with shareholders’ equity of $1,816.5 million.
Coach also notified that it bought back approximately 1.1 million shares at a cost of $55.30 per share, aggregating $59 million during the quarter. The company still has $900 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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