Coach, Inc. (COH) posted fourth-quarter fiscal 2013 earnings of 89 cents a share that came in line with the Zacks Consensus Estimate, and rose 3.5% from 86 cents earned in the prior-year quarter.
On a reported basis, including one-time items, quarterly earnings of this designer and marketer of fine accessories and gifts came in at 78 cents a share down from 86 cents earned in the year-ago quarter. Shares fell 6.1% or $3.50 to $54.35 during pre-market trading hours.
The New York-based Coach said that net sales for the quarter came in at $1,222.7 million, up 6% from the year-ago quarter, buoyed by sturdy performance in international markets, such as China. However, total revenue fell short of the Zacks Consensus Estimate of $1,236 million. On a constant currency basis, sales increased 9%.
Behind the Headline
Total North American sales grew 6% to $825 million. Direct-to-consumer sales increased 5%, while comparable-store sales dropped 1.7%. At POS (point of sale), North American department stores sales remained marginally above compared with prior-year quarter, whereas shipments into department stores also increased.
Coach also announced that the President of North American Segment, Mike Tucci and Jerry Stritzke, President and Chief Operating Officer have decided to leave the company, effective August end.
International sales rose 7% to $386 million. China business sustained its strong performance as sales soared about 35% with a double-digit rate increase in comparable-store sales. International wholesale shipments grew marginally, whereas sales trends across POS also increased. Sales in Japan jumped 4%, on a constant currency basis, whereas in dollar terms, sales tumbled 15% from the year-ago quarter due to softer yen.
The rise in total 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.
Going forward, the company remains optimistic about its unisex Legacy lifestyle collection, dedicated Men's stores and international growth opportunities to counter the soft consumer scenario. Coach attained more than $600 million in sales from its Men’s business and approximately $430 million in sales from China in fiscal 2013, reflecting an increase of about 50% and 40%, respectively.
Adjusted gross profit jumped 6% to $892.2 million, whereas gross profit margin expanded 40 basis points to 73%. Adjusted operating income remained almost flat at $371 million but operating margin contracted 180 basis points to 30.3%.
Store Update
During the quarter, Coach, the maker of handbags, wallets, shoes and other accessories, opened 2 factory stores (including a Men’s store), 3 retail stores and shuttered 4 retail locations, thereby taking the total to 193 factory stores and 351 retail stores in North America. In Japan, the company opened 7 outlets bringing the total number of locations at 191.
In China, addition of 8 new locations during the quarter took the total to 126. As a result of the acquisitions of retail businesses in Singapore, Taiwan, Malaysia and Korea, the company now operates 7, 27, 10 and 48 locations, respectively.
Coach also acquired the remainder stake in the company’s European joint venture, and gained direct control of 18 locations in the U.K., Spain, Ireland, Portugal, France and Germany.
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 $1,134.9 million and total long-term debt of $985,000 with shareholders’ equity of $2,409.2 million.
During fiscal year 2013, the company bought back more than 7 million shares at a cost of $56.61 per share, aggregating $400 million. The company still has approximately $1.4 billion remaining at its disposal under its current share buyback program.
Other Stocks Worth Considering
Currently, Coach holds Zacks Rank #4 (Sell). Other stocks worth considering in the retail sector are G-III Apparel Group, Ltd. (GIII), Michael Kors Holdings Ltd. (KORS) and Hanesbrands Inc. (HBI) all holding a Zacks Rank #2 (Buy). We expect these stocks to continue with their upbeat performances.
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