This summary is based on the third quarter fiscal 2008 earnings call conducted by Coach, Inc. (COH) on April 22, 2008.
Management:
Senior Vice President, Investor Relations: Andrea Shaw Resnick
Chairman and Chief Executive Officer: Lew Frankfort
Chief Financial Officer and Executive Vice President: Michael F. Devine
Key Investors Issues
- EPS were 46 cents a share compared to 40 cents a share last year.
- Profit rose to $162.4 million from $150 million a year earlier.
- Sales rose to $744.5 million from $625.3 million.
Third Quarter Highlights
Net sales totaled $745 million versus $625 million a year ago, a gain of 19%.
- Direct-to-consumer sales rose 20% to $578 million from $481 million in the prior year.
- North American same-store sales rose 9%.
- Sales in Japan rose 12% in constant currency and 25% in dollars. Growth in Japan was fueled primarily by distribution through both new stores and expansions as market share further expanded against a continued weak category backdrop.
- Indirect sales increased 15% to $166 million from $144 million in the same period last year.
- POS sales at U.S. department stores grew at 5%, while international POS sales grew by more than 25%.
- The company estimates that the premium U.S. handbag and accessory category grew between 5% and 10%. At the same time, Coach''s bag sales rose 18% across all channels in North America.
- Total revenues in North America were up 15% with directly operated stores generating a 20% gain driven by both distribution and an overall high single-digit comparison.
Earnings per share rose 19% to 46 cents per share as compared to 39 cents per share in the prior year while net income rose to $162 million from $147 million.
- Operating income rose 13% to $257 million versus $227 million in the same period last year.
- Operating margin was 34.5% compared to 36.2% in the year ago quarter.
- The strengthening of the yen impacted all lines of P&L given the consolidation of CJI''s income statement. Adjusting for the currency impact this quarter, the company would have seen a 16% increase in sales 3 points lower than reported - but a 17% increase in operating income, 4 points higher than reported, as operating margin would have been essentially even year to year.
- Gross profit rose 15% to $558 million, up from $486 million a year ago.
- Gross margin was 75% flat versus 77.8% last year, impacted by the unanticipated sharp rise in the yen versus the dollar along with the expected effect of the promotional environment and channel mix. In fact, this dramatic and unanticipated move in the yen reduced gross margin rate by over 190 basis points.
- SG&A expenses as a percentage of sales improved 100 basis points from prior year levels and represented 40.5% of sales versus 41.5% as the company achieves leverage in all three of its spending categories. First, the company saw leverage on what it likes to refer to as semi-fixed corporate functions. Second, CJI provided leverage to both its own P&L and the corporate income statement. Finally, given the high single-digit comparison rate, North American Retail businesses were also able to provide leverage, both to its own business unit P&L and to the consolidated corporate P&L as well.
Inventory levels at quarter end were $320 million, 28% above prior year levels.
Adjusting for the impact of the stronger yen, inventories would have been up 22%. Looking at inventories on a twoyear basis, to smooth last year''s shipment timing-related low levels two-year inventory CAGR in actually 4 points below sales growth. Most importantly, at quarter end inventories were clean, allowing the company to move forward in good shape for spring. It should be noted that this inventory level allows supporting 54 net new U.S. stores, 11 net new locations in Japan, and substantially increasing sales levels.
- Accounts receivable balances rose 19%, in line with sales.
- Cash and short-term investments stood at $616 million as compared with $936 million a year ago despite the repurchase of nearly $1.2 billion worth of stock in the interim 12 months.
- Net cash from operating activities was $85 million compared to $97 million last year, negatively impacted by a $62 million increase in cash tax payments during the quarter versus last year.
- Free cash flow was an inflow of $52 million versus $73 million in the same period last year, also impacted by the large tax payment and Capex spending, primarily for new stores and renovation, which was $33 million versus $25 million in the same quarter a year ago.
- The company repurchased and retired 11.3 million shares of common stock at an average price of $28.85, spending a total of $327 million. At the end of the period, $333 million was available under the company''s current repurchase authorization, which the company put in place in November.
Coach opened five North American retail stores, including one new market for Coach - Macon, Georgia.
