- Second Quarter Net Sales Increased
7% Over Prior Year In Constant Currency; Up 4% On A Reported
Basis
- Second Quarter Non-GAAP Earnings Per
Share was $0.68; Second Quarter GAAP Earnings Per Share was
$0.61
- Maintains Consolidated Full Year
2016 Sales Guidance; Raises Operating Income Outlook
Coach, Inc. (NYSE:COH) (SEHK:6388), a leading New York design
house of modern luxury accessories and lifestyle brands, today
reported second quarter results for the period ended December 26,
2015.
Victor Luis, Chief Executive Officer of Coach, Inc., said, “We
are very pleased with our second quarter performance, which was
consistent with our expectations and reflected the most significant
progress to date on our transformation plan despite the difficult
retail environment globally. We drove further sequential
improvement in our North America bricks and mortar business - led,
as expected, by our retail stores, while our outlet store channel
also strengthened against a backdrop of lower tourist traffic and a
highly promotional environment. Our international businesses posted
strong growth on a constant currency basis, highlighted by
double-digit increases in Europe, and Mainland China, as well as
sales gains in Japan. Overall, our results continue to give us
confidence that the cumulative impact of our actions will result in
a return to top line growth this fiscal year and positive North
American comps by our fourth quarter.”
“We were also excited about Stuart Weitzman’s results during the
quarter, which exceeded expectations. Boots in particular sold
well, notably in domestic retail stores, and in spite of the
unseasonably warm weather. This performance clearly reflected the
brand’s strong development of fashionable, trend-right product and
its growing relevance with an increasing number of consumers
globally. Importantly, we are effectively integrating Stuart
Weitzman to Coach, Inc. while continuing to successfully execute
the Coach brand transformation.”
Overview of Second Quarter 2016
Consolidated, Coach, Inc. Results:
- Net sales totaled $1.27 billion
for the second fiscal quarter, compared with $1.22 billion reported
in the same period of the prior year, an increase of 4%. On a
constant currency basis, total sales increased 7% for the
period.
- Gross profit totaled $859
million versus $841 million a year ago on a Non-GAAP basis, while
gross margin was 67.4% versus 69.0%. On a reported basis, Coach,
Inc. gross profit was also $859 million versus $840 million a year
ago, with a gross margin of 67.4% versus 68.9%.
- SG&A expenses of $574
million compared to $542 million in the prior year on a non-GAAP
basis, an increase of 6%. As a percentage of net sales, SG&A
totaled 45.1% on a non-GAAP basis, compared to 44.4% in the
year-ago quarter. On a reported basis, SG&A expenses were $598
million or 47.0% of sales as compared to $565 million or 46.3% on a
reported basis in the year ago period.
- Operating income for the quarter
on a non-GAAP basis totaled $285 million compared to $299 million
in the prior year, while operating margin was 22.4% versus 24.5%.
On a reported basis, operating income was $261 million compared to
$275 million in the prior year, while operating margin was 20.5%
versus 22.6%.
- Net interest expense was $6
million in the quarter as compared to net interest income of $0.4
million in the year ago period.
- Net income for the quarter on a
Non-GAAP basis totaled $188 million, with earnings per diluted
share of $0.68. This included a contribution of $13 million or
$0.05 per share from Stuart Weitzman. This compared to non-GAAP net
income in the second quarter of FY15 of $200 million with earnings
per diluted share of $0.72. On a GAAP basis, net income for the
quarter was $170 million with earnings per diluted share of $0.61
including a contribution of $12 million or $0.04 per share from
Stuart Weitzman. This compared to prior year GAAP net income of
$183 million or $0.66 earnings per diluted share.
Coach Brand Second Quarter of 2016
Results:
- Net sales for the Coach brand
totaled $1.18 billion for the second fiscal quarter, compared with
$1.22 billion reported in the same period of the prior year, a
decrease of 3%. On a constant currency basis, total sales decreased
1% for the period.
Second fiscal quarter sales results in each of Coach’s primary
segments were as follows:
- Total North American Coach brand
sales decreased 7% on a reported basis for the quarter to $731
million from $785 million last year, and decreased 6% on a constant
currency basis, reflecting continued sequential improvement. North
American direct sales declined 7% on a dollar basis and 6% on a
constant currency basis for the quarter, with comparable store
sales down 4% including the impact of the Internet, which pressured
total comparable stores sales by about 1 percentage point due to
the reduction in eOutlet events. As expected, at POS, sales in
North American department stores declined at a mid-single-digit
rate versus prior year, while net sales into department stores
declined to a similar degree.
- International Coach brand sales
rose 4% to $437 million from $421 million last year. On a constant
currency basis, International sales rose 9%. Total China sales rose
2% in dollars and 5% in constant currency with double-digit growth
and positive comparable store sales on the Mainland offset in part
by continued weakness in Hong Kong and Macau. In Japan, sales rose
2% on a constant currency basis, despite a decrease in square
footage and consistent with expectations, while dollar sales
declined 3%, reflecting the weaker yen. Sales for the remaining
directly operated businesses in Asia grew modestly in constant
currency but declined in dollars, while Europe remained very
strong, growing at a double digit pace in both total and comparable
store sales. At POS, sales in international wholesale locations
increased slightly, driven by strong domestic performance offset in
large part by relatively weak tourist location results. Net sales
into the channel grew significantly from prior year positively
impacted by shipment timing to ensure appropriate inventory
positions for Chinese New Year.
- Gross profit for the Coach brand
totaled $799 million on both a non-GAAP and reported basis, while
gross margin was 67.7%, pressured by about 110 basis points from
currency.
- SG&A expenses totaled $536
million for the Coach brand on a non-GAAP basis, a decrease of 1%.
As a percentage of net sales, SG&A expenses totaled 45.4% on a
non-GAAP basis. On a reported basis, SG&A expenses were $556
million and represented 47.1% of sales.
- Operating income for the Coach
brand on a non-GAAP basis was $263 million, while operating margin
was 22.3%. On a reported basis, operating income was $243 million
for Coach, while operating margin was 20.6%.
Stuart Weitzman Second Quarter of 2016
Results:
- Net sales for the Stuart
Weitzman brand totaled $94 million for the second fiscal
quarter.
- Gross profit for the Stuart
Weitzman brand totaled $61 million on both a non-GAAP and reported
basis, resulting in a gross margin of 64.3%.
- SG&A expenses were $38
million for the Stuart Weitzman brand or 40.8% of sales on a
non-GAAP basis and $42 million representing 44.9% of sales as
reported.
- Operating income for the Stuart
Weitzman brand was $22 million representing an operating margin of
23.6% on a non-GAAP basis, and $18 million or 19.4% as
reported.
During the second quarter of FY16, the company recorded charges
of $14 million under its multi-year transformation plan. These
charges consisted primarily of organizational efficiency costs and
accelerated depreciation for stores renovations. In addition, the
company recorded costs of approximately $10 million associated with
the acquisition of Stuart Weitzman (which primarily includes
charges attributable to integration-related activities, contingent
payments, and the impact of limited life purchase accounting).
These actions taken together increased the company’s SG&A
expenses by about $24 million, negatively impacting net income by
$18 million after tax or about $0.07 per diluted share in the
second quarter.
The Company ended the second quarter of FY16 with inventory of
$438 million including $29 million associated with Stuart Weitzman.
This compared to ending inventory for the Coach brand of $447
million for the second quarter of FY15. Therefore, inventory
declined 2% on a consolidated basis and 9% for the Coach brand.
Mr. Luis added, “We remain focused on creating desire for our
brands and building emotional connections with our customers
globally, at every touch point. This will be demonstrated through
our innovative product offering and runway shows, our bold
marketing campaigns and our elevated in-store experience. As we
move into the Coach brand’s 75th anniversary year in 2016, our
initiatives will celebrate our authentic heritage of craftsmanship,
amplifying our unique brand proposition.”
“And, as our momentum builds, we are targeting a return to
growth for the Coach brand with continued improvement in comparable
store sales, while Stuart Weitzman also drives top and bottom line
results. We have a clear vision, a well-articulated strategy and a
proven track record of execution. We remain confident that we can
drive sustainable growth and best-in-class profitability for Coach,
Inc., over the long term,” Mr. Luis concluded.
Fiscal Year 2016
Outlook:
The Company is maintaining its Fiscal 2016 constant currency
revenue growth and operating margin guidance for the Coach brand,
while raising its consolidated operating income outlook based on
second quarter results.
Coach brand revenues for Fiscal 2016 are still expected to
increase by low-single digits in constant currency on a 52-week
basis. However, based on current exchange rates, foreign currency
is now expected to negatively impact overall Fiscal 2016 revenue
growth by 225-250 basis points. Coach brand operating margin for
Fiscal 2016 is still estimated to be in the mid-to-high teens with
some shift between the gross margin and expense ratio from previous
annual guidance. To this end, gross margin for the Coach brand is
projected to be in the range of last year’s margin of about 69½% on
a constant currency basis, while negative foreign currency effects
are now projected to impact gross margin by 90-100 basis points.
SG&A expenses for the brand are now anticipated to rise at a
low-single-digit rate in constant currency, while growth is
expected to be roughly flat in dollars. Interest expense is
expected to be in the area of $30-$35 million for the year while
the full year Fiscal 2016 tax rate is projected at about 28%.
This guidance excludes expected transformation-related charges
of around $50 million, as well as Stuart Weitzman acquisition
charges of around $30 million (which primarily includes the impact
of contingent payments, integration-related activities and limited
life purchase accounting) over the course of 2016.
In addition, based on Stuart Weitzman’s sales and margin
outperformance during the holiday quarter, the company is now
forecasting revenue for the brand to be in the area of $340 million
on a reported dollar basis for fiscal 2016, driving Coach, Inc.
total revenue growth to high-single digits on a constant currency
basis and adding about $0.12 to earnings per diluted share,
excluding charges associated with financing, short-term purchase
accounting adjustments and contingent payments, and integration
costs. Overall, the Stuart Weitzman business is now projected to
negatively impact consolidated gross margin and operating margin by
about 70 basis points and approximately 20 basis points,
respectively – an improvement from previous guidance. Therefore,
taken together with its projection for the Coach brand, the Company
is raising its operating income outlook for Coach, Inc. for Fiscal
2016.
The company also notes that fiscal 2016 will include a 53rd week
in its fourth quarter, which is expected to contribute
approximately $75-$80 million in incremental revenue and $0.06 in
earnings per diluted share to Coach, Inc.
Conference Call Details:
Coach will host a conference call to review these results at
8:30 a.m. (ET) today, January 26, 2016. Interested parties may
listen to the webcast by accessing www.coach.com/investors on the
Internet or dialing into 1-888-405-2080 or 1-210-795-9977 and
asking for the Coach earnings call led by Andrea Shaw Resnick,
Global Head of Investor Relations and Corporate Communications. A
telephone replay will be available starting at 12:00 p.m. (ET)
today, for a period of five business days. The number to call is
1-866-352-7723 or 1-203-369-0080. A webcast replay of the earnings
conference call will also be available for five business days on
the Coach website.
The Company expects to report third quarter financial results on
Tuesday, April 26, 2016. To receive notification of future
announcements, please register at www.coach.com/investors
("Subscribe to E-Mail Alerts").
Coach, Inc. is a leading New York design house of modern luxury
accessories and lifestyle brands. The Coach brand was established
in New York City in 1941, and has a rich heritage of pairing
exceptional leathers and materials with innovative design. Coach is
sold worldwide through Coach stores, select department stores and
specialty stores, and through Coach’s website at www.coach.com. In
2015, Coach acquired Stuart Weitzman, a global leader in designer
footwear, sold in more than 70 countries and through its website at
www.stuartweitzman.com. Coach, Inc.’s common stock is traded on the
New York Stock Exchange under the symbol COH and Coach’s Hong Kong
Depositary Receipts are traded on The Stock Exchange of Hong Kong
Limited under the symbol 6388.
Neither the Hong Kong Depositary Receipts nor the Hong Kong
Depositary Shares evidenced thereby have been or will be registered
under the U.S. Securities Act of 1933, as amended (the "Securities
Act"), and may not be offered or sold in the United States or to,
or for the account of, a U.S. Person (within the meaning of
Regulation S under the Securities Act), absent registration or an
applicable exemption from the registration requirements. Hedging
transactions involving these securities may not be conducted unless
in compliance with the Securities Act.
This information to be made available in this presentation may
contain forward-looking statements based on management's current
expectations. Forward-looking statements include, but are not
limited to, the statements under “Fiscal Year 2016 Outlook,” as
well as statements that can be identified by the use of
forward-looking terminology such as "may," "will," “can,” "should,"
"expect," "intend," "estimate," "continue," "project," "guidance,"
"forecast," "anticipated," “moving,” “leveraging,” “targeting,” or
comparable terms. Future results may differ materially from
management's current expectations, based upon a number of important
factors, including risks and uncertainties such as expected
economic trends, the ability to anticipate consumer preferences,
the ability to control costs and successfully execute our
transformation initiatives and growth strategies and our ability to
achieve intended benefits, cost savings and synergies from
acquisitions, etc. Please refer to Coach Inc.’s latest Annual
Report on Form 10-K and its other filings with the Securities and
Exchange Commission for a complete list of risks and important
factors.
COACH,
INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOMEFor
the Quarters and Six Months Ended December 26, 2015 and December
27, 2014(in millions, except per share data)
(unaudited) QUARTER ENDED SIX
MONTHS ENDED December 26, December 27,
December 26, December 27, 2015 2014
2015 2014 Net sales $ 1,273.8 $ 1,219.4 $
2,304.1 $ 2,258.2 Cost of sales 414.7 379.4
748.5 702.8 Gross profit 859.1 840.0 1,555.6
1,555.4 Selling, general and administrative expenses
598.1 564.6 1,153.2 1,100.2 Operating
income 261.0 275.4 402.4 455.2 Interest (expense) income,
net (6.3) 0.4 (13.0) 1.1 Income
before provision for income taxes 254.7 275.8 389.4 456.3
Provision for income taxes 84.6 92.3 122.9
153.7 Net Income $ 170.1 $ 183.5 $ 266.5 $ 302.6
Net income per share: Basic $ 0.61 $ 0.67 $
0.96 $ 1.10 Diluted $ 0.61 $ 0.66 $ 0.96 $ 1.09
Shares used in computing net income per share: Basic
277.6 275.6 277.3 275.3 Diluted
278.4 276.5 278.3 276.4
COACH,
INC.GAAP TO NON-GAAP RECONCILIATIONFor the Quarters
Ended December 26, 2015 and December 27, 2014(in millions,
except per share data)(unaudited)
December 26, 2015 GAAP Basis
Transformation and Acquisition-Related
Acquisition-Related Non-GAAP Basis (As
Reported) Other Actions (1) Costs
(2) Purchase Accounting (3) (Excluding
Items) Gross profit $ 859.1 $ - $ - $ - $ 859.1
Selling, general and administrative expenses $ 598.1 $ 13.9 $ 8.5 $
1.6 $ 574.1 Operating income $ 261.0 $ (13.9) $ (8.5) $
(1.6) $ 285.0 Income before provision for income taxes $
254.7 $ (13.9) $ (8.5) $ (1.6) $ 278.7 Provision for income
taxes $ 84.6 $ (1.9) $ (2.6) $ (1.2) $ 90.3 Net income $
170.1 $ (12.0) $ (5.9) $ (0.4) $ 188.4 Diluted net income
per share $ 0.61 $ (0.04) $ (0.02) $ (0.01) $ 0.68
December
27, 2014 GAAP Basis Transformation and
Acquisition-Related Acquisition-Related Non-GAAP
Basis (As Reported) Other Actions (1)
Costs (2) Purchase Accounting (3)
(Excluding Items) Gross profit $ 840.0 $ (1.0) $ - $
- $ 841.0 Selling, general and administrative expenses $
564.6 $ 19.1 $ 3.5 $ - $ 542.0 Operating income $ 275.4 $
(20.1) $ (3.5) $ - $ 299.0 Income before provision for
income taxes $ 275.8 $ (20.1) $ (3.5) $ - $ 299.4 Provision
for income taxes $ 92.3 $ (5.7) $ (1.2) $ - $ 99.2 Net
income $ 183.5 $ (14.4) $ (2.3) $ - $ 200.2 Diluted net
income per share $ 0.66 $ (0.05) $ (0.01) $ - $ 0.72 (1)
Amounts as of December 26, 2015 reflect Coach brand charges
primarily related to organizational efficiency costs and
accelerated depreciation as a result of store renovations. Amounts
as of December 27, 2014 related to Coach brand accelerated
depreciation and lease termination charges as a result of store
updates and closures, organizational efficiency charges and charges
related to the destruction of inventory. (2) Primarily
represents costs attributable to integration-related activities,
contingent payments and other consulting and legal costs related to
the acquisition of Stuart Weitzman Holdings LLC. $6.2 million of
these SG&A expenses were recorded within the Coach brand,
resulting in a $6.2 million decrease in operating income. $2.3
million of these SG&A expenses were recorded within the Stuart
Weitzman segment, resulting in a $2.3 million decrease in operating
income. (3) Represents limited life purchase accounting
impacts associated with Stuart Weitzman Holdings LLC, primarily due
to the amortization of the fair value of the order backlog asset,
recorded within the Stuart Weitzman segment.
COACH,
INC.GAAP TO NON-GAAP RECONCILIATIONFor the Six Months
Ended December 26, 2015 and December 27, 2014(in millions,
except per share data)(unaudited)
December 26, 2015 GAAP Basis
Transformation and Acquisition-Related
Acquisition-Related Non-GAAP Basis (As
Reported) Other Actions (1) Costs
(2) Purchase Accounting (3) (Excluding
Items) Gross profit $ 1,555.6 $ - $ - $ (0.9) $ 1,556.5
Selling, general and administrative expenses $ 1,153.2 $
26.5 $ 14.4 $ 5.8 $ 1,106.5 Operating income $ 402.4 $
(26.5) $ (14.4) $ (6.7) $ 450.0 Income before provision for
income taxes $ 389.4 $ (26.5) $ (14.4) $ (6.7) $ 437.0
Provision for income taxes $ 122.9 $ (6.0) $ (4.5) $ (2.1) $ 135.5
Net income $ 266.5 $ (20.5) $ (9.9) $ (4.6) $ 301.5
Diluted net income per share $ 0.96 $ (0.07) $ (0.03) $ (0.02) $
1.08
December 27, 2014 GAAP Basis Transformation
and Acquisition-Related Acquisition-Related
Non-GAAP Basis (As Reported) Other Actions
(1) Costs Purchase Accounting (3)
(Excluding Items) Gross profit $ 1,555.4 $ (5.0) $ -
$ - $ 1,560.4 Selling, general and administrative expenses $
1,100.2 $ 52.2 $ 3.5 $ - $ 1,044.5 Operating income $ 455.2
$ (57.2) $ (3.5) $ - $ 515.9 Income before provision for
income taxes $ 456.3 $ (57.2) $ (3.5) $ - $ 517.0 Provision
for income taxes $ 153.7 $ (16.1) $ (1.2) $ - $ 171.0 Net
income $ 302.6 $ (41.1) $ (2.3) $ - $ 346.0 Diluted net
income per share $ 1.09 $ (0.15) $ (0.01) $ - $ 1.25 (1)
Amounts as of December 26, 2015 reflect Coach brand charges
primarily related to organizational efficiency costs and
accelerated depreciation as a result of store renovations. Amounts
as of December 27, 2014 related to Coach brand accelerated
depreciation and lease termination charges as a result of store
updates and closures, organizational efficiency charges and charges
related to the destruction of inventory. (2) Primarily
represents costs attributable to contingent payments,
integration-related activities and other consulting and legal costs
related to the acquisition of Stuart Weitzman Holdings LLC. $9.8
million of these SG&A expenses were recorded within the Coach
brand, resulting in a $9.8 million decrease in operating income.
$4.6 million of these SG&A expenses were recorded within the
Stuart Weitzman segment, resulting in a $4.6 million decrease in
operating income. (3) Represents limited life purchase
accounting impacts associated with Stuart Weitzman Holdings LLC,
primarily due to the amortization of the fair value of the order
backlog asset and inventory step-up, all recorded within the Stuart
Weitzman segment.
The Company reports information in accordance with U.S.
Generally Accepted Accounting Principles ("GAAP"). The Company's
management does not, nor does it suggest that investors should,
consider non-GAAP financial measures in isolation from, or as a
substitute for, financial information prepared in accordance with
GAAP. The financial information presented above, as well as gross
margin, SG&A expense ratio, and operating margin, have been
presented both including and excluding the effect of certain items
related to our Transformation Plan and acquisition charges for
Coach, Inc., as well as the Coach brand, which includes the
Company’s North America and International segments, as well as
Other and Corporate Unallocated results, and the Stuart Weitzman
brand, which includes the Company’s Stuart Weitzman
segment. Presenting the above financial information and
certain metrics both including and excluding the impact of certain
items will help investors and analysts to understand the
year-over-year impact of these items on ongoing operations.
Percentage increases/decreases in net sales and direct sales for
the Company’s North America segment and net sales for the Company,
the Coach brand, the Company’s International segments, Coach China,
Coach Japan and the Company’s remaining directly operated
businesses in Asia have been presented both including and excluding
currency fluctuation effects from translating foreign-denominated
sales into U.S. dollars and compared to the same periods in the
prior quarter and fiscal year. Guidance for certain financial
information for the fiscal year ending July 2, 2016 has also been
presented on a constant currency basis. Presenting these metrics on
a constant currency basis will help investors and analysts to
understand the effect of significant year-over-year foreign
currency exchange rate fluctuations on these performance measures
and provide a framework to assess how business is performing and
expected to perform excluding these effects.
COACH,
INC.CONDENSED CONSOLIDATED BALANCE SHEETSAt December
26, 2015, June 27, 2015 and December 27, 2014(in
millions)(unaudited)
December 26, June 27, December 27,
2015 2015 2014 ASSETS Cash, cash
equivalents and short-term investments $ 1,337.1 $ 1,525.8 $
1,064.9 Receivables 303.6 219.5 228.5 Inventories 438.5 485.1 447.2
Other current assets 222.4 276.1 206.8
Total current assets 2,301.6 2,506.5 1,947.4 Property and
equipment, net 784.4 732.6 684.0 Other noncurrent assets
1,517.7 1,427.8 985.8 Total assets $ 4,603.7 $
4,666.9 $ 3,617.2
LIABILITIES AND STOCKHOLDERS'
EQUITY Accounts payable $ 147.7 $ 222.8 $ 160.5 Accrued
liabilities 541.3 600.6 534.9 Current debt 15.0 11.3
20.0 Total current liabilities 704.0 834.7 715.4
Long-term debt 872.0 879.1 - Other liabilities 460.4 463.2
383.8 Stockholders' equity 2,567.3 2,489.9
2,518.0 Total liabilities and stockholders' equity $
4,603.7 $ 4,666.9 $ 3,617.2
COACH,
INC.Store CountAt September 26, 2015 and December 26,
2015(unaudited)
As of As of
Directly-Operated
Store Count:
September 26,
2015
Openings
(Closures)
December 26,
2015
Coach
North America 462 1 (3) 460 Japan 197 0 (2) 195
Greater China (PRC, Hong Kong & Macau) 176 6 (1) 181
Asia - Other 103 2 (2) 103 Europe 35 1 (1) 35
Stuart
Weitzman
Global 56 4 0 60
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160126005505/en/
CoachAnalysts & Media:Andrea Shaw Resnick,
212-629-2618Global Head of Investor Relations and Corporate
CommunicationsorChristina Colone, 212-946-7252Director, Investor
Relations
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