By  on January 24, 2007

NEW YORK — Coach Inc., which easily beat Wall Street's second-quarter expectations, raised its full-year 2007 guidance Tuesday, and indicated that with a $7 billion playground, the company has plenty of opportunities to grow.

"We have a great franchise, a loyal consumer base and we've developed a business model that allows us to introduce fresh product every month to coincide with the visits from our best customers," Lew Frankfort, chairman and chief executive officer, said in a telephone interview.

The accessible luxury handbag firm's net income for the three months ended Dec. 30 jumped 30.6 percent, to $227.5 million, or 61 cents a diluted share, from $174.2 million, or 45 cents, a year ago. Wall Street had the company pegged to earn 58 cents a share. Sales rose 28.6 percent, to $836.4 million from $650.3 million. Direct to consumer sales rose 34 percent, to $675 million from $504 million. U.S. same-store sales rose 25.7 percent; retail stores gained 20.8 percent and factory store sales surged 33.4 percent.

Sales in Japan rose 17 percent, and online sales increased 46 percent. Indirect sales were up 10 percent, to $161 million from $146 million, driven by gains in U.S. wholesale shipments. The period was the 19th consecutive quarter of double-digit comps in retail stores.

For the nine months, net income rose 31.9 percent, to $353.1 million, or 94 cents a diluted share, from $267.8 million, or 69 cents, a year ago, as sales gained 26.5 percent, to $1.39 billion from $1.1 billion.

Frankfort said the company conducts extensive research of its customers, which gives it insight into what products would work. Frankfort said when the company opened new retail stores, sales at those stores were well ahead of expectations. One-third of Coach's new customers spend at Coach's average handbag prices, one-third are trading down and one-third are trading up.

Given the largely untapped small leather goods and accessories market, Frankfort said on a conference call to Wall Street analysts, "our opportunities, notably in our whole market, are boundless. We expect double-digit category growth in handbags and accessories to continue unabated in North America....We have been significantly understating our addressable market, which we now estimate to be over $7 billion, giving us even more room to grow."

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