Coach Shares Retreat Despite Strong Q3
NEW YORK – Coach Inc. Tuesday reported growth in third-quarter sales and earnings that outstripped the rate of its expansion for the year to date.
However, its shares fell $3.09, or 5.8%, to close at $50.26 in New York Stock Exchange trading based on a tempered earnings forecast, attributed principally to the firm’s decision to discontinue its corporate accounts business. In a statement, Lew Frankfort, chairman and chief executive officer of the firm, said the decision to exit the segment was made “to curtail product diversion and to ensure that we have control over the locations where Coach product is ultimately sold.”
During the three months ended March 31, the New York-based accessories powerhouse registered net income of $150 million, or $0.40 per diluted share, 37.8% above the $108.8 million, or $0.28, recorded during the third quarter of last year. The discontinued operation contributed $0.01 to EPS in the most recent quarter and $0.02 in the prior year.
Net sales grew 30.3% to $625.3 million from $479.7 million a year ago. Wholesale volume was up 36% to $144 million. Direct-to-consumer sales were up 29% to $374 million, with same-store sales ahead 20%. Retail store comparable-store sales advanced 15.1%, trailing factory store comps, which rose 26.6%.
Gross margin eased slightly to 77.8% of sales in the quarter from 78.4% in the prior-year period.
The company forecast that diluted EPS for continuing operations for the full year of $1.67, below the current consensus of $1.72. Coach estimated that the consensus estimate for the year included $0.10 for discontinued operations. The company also provided fiscal 2008 EPS guidance of at least $2.02. The 2008 figure is $0.07 below analyst consensus, which Coach estimated included an $0.11 contribution from the corporate accounts business.
“We had another terrific quarter where our business grew significantly against a backdrop of sustained, rapid category growth,” Frankfort commented. “Our third-quarter results exceeded our expectations, driven by the overall strength of the brand, great product performance and continued expansion in the North American handbag and small leather goods market.”
He added that full-price same-store sales in the US have increased at a double-digit rate for 20 consecutive quarters. Same-store sales in Japan grew at a low-single digit rate, as anticipated. “We’re pleased with the 15% growth in sales in constant currency in Japan this quarter,” Frankfort said, “as we continue to grow our market share in this market. These results reflect the success of our distribution strategy in Japan, notably the acceleration of retail openings and the expansion of existing shops.”
He described Coach as “enthusiastic” about the upcoming introductions of its Bleecker and Heritage Stripe collections at retail.
For the nine months to date, net income was up 33.6% to $503.1 million, or $1.34 a diluted share, from $376.6 million, or $0.96, in the prior year. Discontinued operations added $0.07 to EPS in both periods. Net sales increased 27.8% to $1.96 billion from $1.53 billion.