Coach FY16 net sales jump 7 percent, gross profit up 5 percent

Coach net sales totalled 1.15 billion dollars for the fourth quarter, an increase of 15 percent on both a reported and constant currency basis. Net sales totalled 4.49 billion dollars for fiscal year 2016, an increase of 7 percent on a reported basis and 9 percent in constant currency from fiscal 2015. Gross profit totalled 3.05 billion dollars on a reported and non-GAAP basis, an increase of 5 percent. For the fourth quarter, gross profit totalled 783 million dollars on both a reported and non-GAAP basis, an increase of 14 percent on a reported basis and 13 percent, on a non-GAAP basis.

Commenting on the development, Victor Luis, CEO of Coach said, “Our strong fourth quarter results – in which we achieved positive North America comparable store sales and drove increases across key financial metrics- capped a year where we returned the Coach brand to growth. I couldn’t be more pleased with our team’s execution of the transformation plan over the last two years, as we tracked to our goals in spite of the significant and unanticipated volatility in tourist spending flows, as well as macroeconomic and promotional headwinds.”

Operating income for the quarter on a reported basis totalled 117 million dollars, an increase of 200 percent, while operating margin was 10.1 percent versus 3.9 percent. On a non-GAAP basis, operating income was 175 million dollars, an increase of 39 percent, while operating margin was 15.1 percent versus 12.6 percent. Net income on a reported basis totalled 82 million dollars, with earnings per diluted share of 0.29 dollar. On a non-GAAP basis, net income totalled 126 million dollars compared to 85 million dollars a year ago, with earnings per diluted share of 0.45 dollar, up 47 percent versus prior year.

Net sales for the Coach brand totalled 1.07 billion dollars, an increase of 11 percent on a reported and constant currency basis. Total North American Coach brand sales increased 9 percent on both a reported and constant currency basis to 606 million dollars including 44 million dollars associated with additional week of sales in this fiscal year. North American direct sales rose 10 percent on a dollar basis and 11 percent on a constant currency basis for the quarter. Total North American comparable store sales increased 2 percent on a 13-week versus 13-week basis.

International Coach brand sales rose 15 percent to 450 million dollars on a reported basis and 13 percent on a constant currency basis. Greater China sales increased 5 percent in dollars on a 13-week basis with double-digit growth and positive comparable store sales on the Mainland offset in part by continued weakness in Hong Kong and Macau. On a constant currency basis, Greater China sales rose 10 percent on a 13-week basis. In Japan, sales rose 7 percent in dollars and declined 5 percent in constant currency. Sales for the remaining directly operated businesses in Asia rose low-single digits in dollars and posted solid growth in constant currency, while Europe remained very strong, growing at a double-digit pace driven by both distribution and comparable store sales increases.

Net sales for the Stuart Weitzman brand totalled 84 million dollars for the fourth fiscal quarter. Gross profit totalled approximately 46 million dollars on both a reported and non-GAAP basis, resulting in a gross margin of 54.8 percent on a reported basis and 55.2 percent on a non-GAAP basis.

Full year result highlights

Net income totalled 461 million dollars on a reported basis, up 14 percent, with earnings per diluted share of 1.65 dollars. This included a contribution of 23 million dollars or 0.08 dollar per share from Stuart Weitzman. On a non-GAAP basis, net income was 552 million dollars, an increase of 4 percent, with earnings per diluted share of 1.98 dollars. This included a contribution of 33 million dollars or 0.12 dollar per share from Stuart Weitzman.

Net sales for the Coach brand totalled 4.15 billion dollars in fiscal year 2016, even with prior year. On a constant currency basis, total sales increased 2 percent. Net sales for the Stuart Weitzman brand totalled 345 million dollars in fiscal 2016.

The company also announced that its Board of Directors declared a quarterly cash dividend of 0.3375 dollar per common share, maintaining an annual rate of 1.35 dollars.

Fiscal year 2017 outlook

The company expects revenues for fiscal 2017 to increase by low-to-mid single digits, including an expected benefit from foreign currency of approximately 100-150 basis points based on current exchange rates. In addition, the company is initiating an operating margin forecast for Coach of between 18.5-19 percent for fiscal 2017. This guidance incorporates the negative impact of both Stuart Weitzman and the strategic decision to elevate the Coach brand’s positioning in the North American wholesale channel, including the closure of about 25 percent of doors and a reduction in markdown allowances. Taken together, the Company is projecting double-digit growth in both net income and earnings per diluted share for the year.

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