Coach Q1 net income increases, net sales up 1 percent

Net sales at Coach, in the first quarter totalled 1.04 billion dollars, an increase of 1 percent on a reported basis and a decrease of 1 percent on a constant currency basis, including approximately 150 basis points of pressure related to the company’s strategic decision to elevate the Coach brand’s positioning in the North American wholesale channel through a reduction in promotional events and door closures.

Commenting on the results, Victor Luis, Chief Executive Officer of Coach, said, “We are pleased with our performance in the quarter, highlighted by continued positive comparable store sales in North America and growth internationally.We implemented the strategic actions necessary to reposition the brand and streamline our distribution in the promotional North American department store channel. Despite this deliberate pullback, we achieved growth across key financials, including sales, gross profit and operating income, as well as double-digit earnings growth.”

Detailed review of the first quarter

Gross profit totalled 715 million dollars on both a reported and non-GAAP basis, an increase of 3 percent on a reported basis and non-GAAP basis. Gross margin for the quarter was 68.9 percent compared to 67.6 percent in the prior year on a reported basis and 67.7 percent on non-GAAP basis.

Operating income for the quarter on a reported basis totalled 166 million dollars, an increase of 17 percent, while operating margin was 16 percent versus 13.7 percent. On a non-GAAP basis, operating income was 177 million dollars, an increase of 7 percent, while operating margin was 17 percent versus 16 percent. Net income on a reported basis totalled 117 million dollars, with earnings per diluted share of 0.42 dollar compared to net income of 96 million dollars with earnings per diluted share of 0.35 dollars in last year’s first quarter. On a non-GAAP basis, net income totalled 126 million dollars compared to 113 million dollars a year ago, with earnings per diluted share of 0.45 dollar, up 10 percent versus prior year.

Result highlights of the Coach brand

Net sales for the Coach brand totalled 950 million dollars, an increase of 1 percent on a reported basis and a decrease of 1% on a constant currency basis. Total North American Coach brand sales decreased 3 percent on both a reported and constant currency basis to 545 million dollars versus 561 million dollars last year. North American direct sales were flat on a dollar basis for the quarter. Total North American bricks and mortar comparable store sales rose approximately 4 percent, while aggregate North American comparable store sales increased approximately 2 percent, including the negative impact of e-commerce driven by a further decline in the company’s eOutlet flash sale business. Sales at North American department stores declined approximately 30 percent on both a POS and net sales basis.

International Coach brand sales rose 7 percent to 395 million dollars on a reported basis from 369 million dollars last year and 3 percent on a constant currency basis. Greater China sales were approximately even with prior year in dollars and increased 5 percent on a constant currency basis driven by double-digit growth and positive comparable store sales on the Mainland offset by continued weakness in Hong Kong and Macau. In Japan, sales rose 11 percent in dollars and decreased 7 percent in constant currency impacted by a decline in Chinese tourist spend. Sales for the remaining directly-operated businesses in Asia rose low-single digits in dollars and constant currency, while Europe remained strong, growing at a double-digit pace.

Gross profit for the Coach brand totalled 664 million dollars, an increase of 3 percent on a reported and non-GAAP basis.

Stuart Weitzman first quarter results

Net sales for the Stuart Weitzman brand totalled 88 million dollars compared to 87 million dollars reported in the same period of the prior year impacted by wholesale shipment timing within the fiscal year. Gross profit for the Stuart Weitzman brand totalled 51 million dollars on a reported basis and 52 million dollars on non-GAAP basis, an increase of 3 percent and 2 percent versus prior year, respectively. Gross margin for the quarter was 58.4 percent compared to 56.8 percent in the prior year on a reported basis. On a non-GAAP basis, gross margin was 58.9 percent compared to 57.8 percent a year ago.

Operating income was 5 million dollars or 5.8 percent of sales as reported compared to 8 million dollars or 8.8 percent of sales in the prior year’s first quarter. On a non-GAAP basis, operating income was 7 million dollars or 7.5 percent of sales versus 15 million dollars or 17.2 percent of sales in the prior year.

Maintains fiscal 2017 outlook

The company is maintaining its fiscal 2017 outlook. The company continues to expect revenues to increase by low-to-mid single digits, including an expected benefit from foreign currency of approximately 100-150 basis points based on current exchange rates. Coach is maintaining its operating margin forecast of between 18.5-19 percent. This guidance incorporates the negative impact of both Stuart Weitzman and the strategic decision to elevate the Coach brand’s positioning in the North American wholesale channel, including a reduction in promotional events and the closure of about 25 percent of doors.

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