Coach, Inc. (COH)
Q4 2009 Earnings Call Transcript
July 28, 2009 8:30 a.m. ET

Executives

Andrea Shaw Resnick - Senior Vice President of Investor Relations and Corporate Communications
Lew Frankfort - Chairman and Chief Executive Officer
Michael F. Devine, III – Chief Financial Officer, Executive Vice President and Chief Accounting Officer
Michael Tucci - President of North American Retail

Analysts

Robert Drbul - Barclays Capital
Kimberly Greenberger – Citigroup
David Schick – Stifel Nicolaus & Co.
Christine Chen - Needham & Company, LLC
Liz Dunn – Thomas Weisel Partners
Dana Telsey - Telsey Advisory Group
Laura Champine – Cowen & Company, LLC
Rick Patel – Bank of America/Merrill Lynch

Presentation

Operator

Good day and welcome to the Coach conference call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would now like to turn the call over to Senior Vice President of Investor Relations and Corporate Communications at Coach, Ms. Andrea Shaw Resnick, you may begin.

Andrea Shaw Resnick

Good morning and thank you for joining us. With me today to discuss our quarterly results are Lew Frankfort, Coach''s Chairman and CEO, and Mike Devine, Coach''s CFO.

Before we begin we must point out that this conference call will involve certain forward-looking statements including projections for our business in the future or current quarters and fiscal years. These statements are based upon a number of continuing assumptions. Future results may differ materially from our current expectations based upon risks and uncertainties such as expected economic trends or our ability to anticipate consumer preferences or control costs.

Please refer to our latest Annual Report on Form 10-K for a complete list of these risk factors. Also, please note that historical growth trends may not be indicative of future growth.

Now let me outline the speakers and topics for this conference call. Lew Frankfort will provide an overall summary of our fourth fiscal quarter and annual 2009 results and will also discuss our strategies going forward. Mike Devine will continue with details on financial and operational results of the quarter and year. Following that we will hold a question-and-answer session where we will be joined by Mike Tucci, President, North American Retail. This Q&A session will end shortly before 9:30 a.m. Lew will then conclude with some brief summary comments.

I''d now like to introduce Lew Frankfort, Coach''s Chairman and CEO.

Lew Frankfort

Thanks, Andrea and welcome everyone. As noted in our release this morning we were once again pleased to generate sales that were essentially even with the prior year, and encouraged by the continued ability of our comparable store sales in North America through the first half of calendar 2009. Though still early days we are also encouraged by the improvement of our July full priced business notably in North America and Japan where we have seen strong consumer response to Poppy and our broadened assortment of handbags in the $200 to $300 range, supported by comprehensive new marketing programs.

Our results for both the year and the quarter demonstrate the resiliency of the Coach model and our commitment to maintaining the integrity of our full price proposition in retail stores even in the face of an extraordinarily challenging environment. This performance also reflects the strength of our franchise and our flexibility in adapting to changing business conditions. This year we have taken the steps necessary to reduce our expense structure while also investing in growth areas such as China in order to position Coach for future profitable growth.

Despite the economic backdrop and future uncertainty we remain confident in Coach’s durability and growth prospects over our planning horizon. Clearly the opportunities both hear at home in North America and abroad notably in emerging markets remain abundant. While I will get into further detail about current conditions and the outlook for the category and our business shortly, I did want to take the time to review our year and quarter first.

Our performance in FY09 was highlighted by an increase of 2% in revenues. It was a year of many milestones including; first the opening of 42 total net new stores in North America, 33 net new retail stores and nine new factory stores. Second, direct-to-consumer sales rose 7% to $2.7 billion with a 5% increase in North American store sales, driven by distribution, while we also experienced rapid growth in China sales.

Third, a solid year for Coach Japan, retail sales there were essentially flat on a constant currency basis while dollar sales rose 11% against very weak category sales for imported bags and accessories. Coach strengthened its number two sales position in this market to about a 14% share this year. Fourth, we successfully completed the phased buyout of our retail businesses in China and saw increasing interest in the brand as the market continued to grow rapidly. And finally, we initiated a quarterly dividend, sending a clear message about our financial strength, cash flow generation, and business outlook.