Coach details cost saving initiatives

21 Apr '09

6 min read

Gross margin was 71.0% versus 75.0% a year ago, impacted as expected by deeper factory store promotions, channel mix and our sharper pricing initiative in full price. SG&A expenses as a percentage of net sales, excluding one-time items, increased to 44.1%, compared to the 40.5% reported in the year-ago quarter. Including the impact of the one-time items, operating income totaled $185 million, the operating margin was 25.1% and the SG&A expense ratio was 45.9%.

Third fiscal quarter sales in each of Coach's primary channels of distribution were as follows:
• Direct-to-consumer sales rose 9% to $634 million in the third quarter from $582 million last year. North American comparable store sales for the quarter declined 4.2%. In Japan, sales rose 1% on a constant-currency basis, while dollar sales rose 14%, reflecting the stronger yen year-over-year. China sales remained robust, as retail sales continued to comp at a double-digit rate.
• Indirect sales decreased 35% to $106 million in the third quarter from the $162 million reported for the prior year. This decline was primarily due to reduced shipments into U.S. department stores. The company continues to tightly manage inventories in that channel given lower demand. International sales at retail rose during the period, notably in locations focused on the domestic consumer, driven by distribution.

During the third quarter of fiscal 2009, the company opened two retail stores and closed two others, while opening three factory stores in North America, bringing the total to 324 retail stores and 109 factory stores as of March 28, 2009. In addition, one retail store and one factory store were expanded. In Japan, Coach opened one factory store, bringing the total number of locations in Japan to 161 at the end of the quarter.

“Our roadmap for long-term growth is intact. We remain committed to balancing our growth strategies with the appropriate level of caution around spending, given the environment. At the same time, we will continue to implement our distribution plans to capture the emerging market opportunity with a particular focus on China, where our brand is taking hold and the category is developing rapidly. To this end, we have just completed the acquisition of all Mainland China retail locations, taking control of our destiny in the region.

“In summary, Coach is financially solid and well positioned to manage through this economic downturn. We have a strong balance sheet, significant cash position, and, despite current lower overall consumer spending, we continue to grow our leading market share in the U.S. handbag and accessory category,” Mr. Frankfort concluded.

For the nine months ended March 28, 2009, net sales were $2.453 billion, up 2% from the $2.399 billion reported in the first nine months of fiscal 2008. Excluding one-time items, net income totaled $486 million, down 15% from the $570 million reported a year ago, while earnings per share declined 5% to $1.49 from $1.56. Including the impact of one-time items, net income for the nine months totaled $478 million and earnings per share were $1.46.

The company also announced that during the third fiscal quarter, it repurchased and retired 3.6 million shares of its common stock at an average cost of $13.98, spending a total of $50 million. At the end of the period, $710 million was available under the company's repurchase authorization.

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