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Coach Q4 earnings rise but net sales decline

By Prachi Singh

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Business

Fourth quarter net sales at Coach totalled 1.13 billion dollars compared to 1.15 billion dollars in the prior year. Net income on a reported basis was152 million dollars, with earnings per diluted share of 0.53 dollar compared to 82 million dollars with earnings per diluted share of 0.29 dollar in the last year’s fourth quarter.

Victor Luis, CEO of Coach, Inc., said in a media statement, “Our strong fourth quarter results – in which we achieved mid-single-digit North America comparable store sales for the Coach brand and drove solid growth at Stuart Weitzman - capped an excellent FY17 performance for the company. For the year, we posted a double-digit increase in net income as we continued to make progress on our brand and company transformation plan. We also took a major step in our corporate transformation with the acquisition of Kate Spade & Company, which closed in July, becoming the first New York-based house of modern luxury lifestyle brands.

Coach strategic plan impacts Q4 net sales

Excluding the additional week included in fiscal 2016 results, net sales increased 6 percent on a reported and 7 percent on a constant currency basis. The company said that as planned, its strategic decision to elevate the Coach brand’s positioning in the North American wholesale channel through a reduction in promotional events and door closures negatively impacted sales growth by approximately 60 basis points in the quarter.

Gross profit totalled 755 million dollars on a reported basis, while gross margin for the quarter was 66.5 percent on a reported basis compared to 67.8 percent in the prior year. On a non-GAAP basis, gross profit totalled 757 million dollars, while gross margin was 66.8 percent as compared to 67.8 percent in the prior year.

Operating income for the quarter on a reported basis totalled 193 million dollars, while operating margin was 17percent versus 10.1percent in the prior year. On a non-GAAP basis, operating income was 180 million dollars, while operating margin was 15.8 percent, including approximately 180 basis points versus 15.1 percent in last year’s fourth quarter.

On a non-GAAP basis, net income for the quarter totalled 142 million dollars, with earnings per diluted share of 0.50 dollar compared to 126 million dollars with earnings per diluted share of 0.45 dollar, including 0.07 dollar associated with the additional week, last year.

Coach brand Q4 net sales down 5 percent

Net sales for the Coach brand totalled 1.05 billion dollars for the fourth quarter compared to 1.07 billion dollars in the prior year. Excluding the additional week included in fiscal 2016 results, the company said, net sales increased 5 percent on a reported basis and 7 percent on a constant currency basis.

Total North American Coach brand sales were 586 million dollars versus 606 million dollars last year, including 44 million dollars associated with additional week of sales in the prior fiscal year. On a 13-week versus 13-week basis, total North American Coach brand sales increased 4 percent over prior year, while North American direct sales rose 5 percent on a dollar basis and 6 percent on a constant currency basis for the quarter. Both North American aggregate and bricks and mortar comparable store sales rose approximately 4 percent. Coach said, as planned, sales at North American department stores declined approximately 40 percent at a POS and approximately 20 percent on a net sales basis as the company has now started to anniversary the pullback in shipments into the channel.

International Coach brand sales were 442 million dollars as compared to 450 million dollars last year, including approximately 32 million dollars associated with additional week of sales in the prior fiscal year. On a 13-week versus 13-week basis, total sales increased 6 percent in dollars and 9percent on a constant currency basis. Greater China sales increased 3 percent versus prior year in dollars and 7percent in constant currency on a 13-week basis, driven by double-digit growth and positive comparable store sales on the Mainland, offset, in part, by softness in Hong Kong and Macau.

In Japan, on a 13-week basis, sales declined 3percent in dollars and approximately 1percent in constant currency. Sales for the remaining directly operated businesses in Asia, the company added, decreased mid-single digits in dollars and declined similarly in constant currency on a 13-week basis, due primarily to weakness in Korea where macroeconomic and geopolitical headwinds continued to pressure spending from domestic consumers and tourists.

Europe performed well on a 13-week versus 13-week basis, driven by double-digit growth in the directly operated channels and benefiting from the planned shift in wholesale shipment timing as previously announced. As expected, international wholesale increased on a net sales basis due to shipment timing, while POS sales declined as weaker tourist location results offset domestic growth.

Gross profit for the Coach brand totalled 705 million dollars on both a reported and non-GAAP basis. Gross margin for the quarter was 67.4 percent, including approximately 20 basis points of pressure from currency, as compared to 68.8percent in the prior year period on both a reported and non-GAAP basis reflecting, in part, the anticipated negative impact of channel mix.

Stuart Weitzman Q4 net sales up 15 percent

Net sales for the Stuart Weitzman brand totalled 88 million dollars for the fourth quarter compared to 84 million dollars reported in the same period of the prior year. Excluding the additional week included in fiscal 2016 results, net sales increased 15 percent on a reported basis and 16 percent on a constant currency basis.

Gross profit for the Stuart Weitzman brand totalled 49 million dollars on a reported basis, while gross margin for the quarter was 56.2 percent as compared to 54.8percent in the prior year. On a non-GAAP basis, gross profit totalled 52 million dollars, while gross margin was 58.9 percent as compared to 55.2percent in the prior year period.

Full year net income rises to 591 mn dollars

Net sales totalled 4.49 billion dollars for fiscal year 2017 as compared to 4.49 billion dollars in the prior year. Excluding the additional week included in fiscal 2016 results, net sales increased 2percent on both a reported and constant currency basis.

As planned, the company said, its strategic decision to elevate the Coach brand’s positioning in the North American wholesale channel through a reduction in promotional events and door closures negatively impacted sales growth by approximately 150 basis points in fiscal 2017. Gross profit totalled 3.08 billion dollars on a reported basis, while gross margin for the year was 68.6percent as compared to 67.9percent in the prior year. On a non-GAAP basis, gross profit also totalled 3.08 billion dollars, while gross margin was 68.7percent compared to 68 percent in the prior year.

Net income was 591 million dollars on a reported basis, with earnings per diluted share of 2.09 dollars compared to reported net income in the prior year of 461 million dollars with earnings per diluted share of 1.65 dollars. On a non-GAAP basis, net income was 609 million dollars with earnings per diluted share of 2.15 dollars compared to 552 million dollars a year ago with earnings per diluted share of 1.98 dollars, including 0.07 dolla associated with the additional week.

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.

Coach expects 30 percent rise in FY18 revenue

The company expects revenues for fiscal 2018 to increase about 30 percent versus fiscal 2017, to 5.8 to 5.9 billion dollars, with low-single digit organic growth and the acquisition of Kate Spade adding over 1.2 billion dollars in revenue.

In addition, the company is projecting operating income growth of 22 percent to 25 percent driven by mid-single digit organic growth, the acquisition of Kate Spade, and estimated synergies of 30-35 million dollars. Taken together, the Kate Spade business and resulting synergies are expected to contribute approximately 130-140 million dollars to operating income.

Overall, the company is projecting earnings per diluted share in the range of 2.35 dollars-2.40 dollars, an increase of about 10 percent to 12 percent for the year, including low-to-mid- single digit accretion from the acquisition of Kate Spade, consistent with the previously communicated forecast.

Picture:Coach website

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