This summary is based on the second quarter fiscal 2007 earnings call conducted by Coach Inc. (COH) on January 23, 2008.
Management:
Chairman and CEO: Lew Frankfort
President, North American Retail: Michael Tucci
CFO, EVP: Michael Devine
SVP, IR: Andrea S Resnick
Key Investor Issues:
- Quarter earnings increased 21% to 69 cents from 57 cents last year.
- Second quarter net sales were $978 million compared with $806 million a year ago.
- Coach projects 22% increase for 2008 earnings to $2.06.
Half-Year Highlights:
- Net sales were up 24% from a year ago to $1.7 billion.
- Net income firmed to $407 million, up 23% from $330 million a year ago.
- Earnings per share gained 24% to $1.09 from 88 cents.
Full-Year Highlights:
- Full year sales increased 27% from a year ago to $2.9 billion.
- Earnings per share rose 33% to $1.90.
Second-Quarter Highlights:
- Net income was up 18% to $252 million from $214 million last year.
- Operating income rose from $341 million to $403 million.
- Gross profit rose 19% from a year ago to % $737 million.
- The Company expects 17% revenue gain for the remaining part of the year helped by distribution growth and productivity gains.
During the quarter, gross margin was 75.4% versus 77.1% a year ago.
This was a result of the promotional environment in North America as well as currency fluctuations.
Higher net income levels in the quarter pushed free cash flows from $307 million for the year-ago quarter to the current $345 million.
Direct-to-consumer sales firmed 18% from $675 million in the previous year and indirect sales rose 37% to $179 million from last year’s $130 million.
Total revenues grew by 20% in the North American businesses.
This is despite the store sales being impacted by weak mall traffic and unexpected decline in transaction size caused by macro issues which had a bearing on many consumers shifting to lower point items. However, conversion – a reflection of product appeal and success of service initiatives - was very strong hence offsetting much of the weaknesses.
North America retail stores posted 11% gain despite the 1% same-store sales decline. The region still represents largest opportunity for the company.
The management reported that the company will grow North American market share through new usage occasions and emphasizing on brand awareness. The company targets opening 40 new retail stores in the fiscal year 2008 supported by past trends of new retail store volumes continuing to surpass initial projections.
Traffic and conversion were according to expectations while the average ticket recorded a modest decline a sign that some of the consumers traded down to lower price point items.
Operating income for the quarter increased 18% to $403 million from $341 million in the same period last year.
