While Coach Inc.'s first-quarter results showed an acceleration of the company's performance in its U.S. full-price business, top-line growth in Japan was robust as the handbag and accessories' maker continued to gain market share.
The company said net income for the three months ended Sept. 30 rose 34.2 percent to $125.6 million, or 34 cents a diluted share, from $93.6 million, or 24 cents, in the same year-ago quarter. The analyst consensus estimate had Coach pegged to earn 31 cents. Sales rose 23.4 percent to $553.9 million from $449 million.
"Clearly there were two drivers of Coach's growth. First, the continued entry of new consumers to the franchise, many of whom are trading up to the Coach brand, and second, existing consumers with whom Coach is gaining a greater share of their growing accessory wardrobe," said Lew Frankfort, chairman and chief executive officer, during a conference call to Wall Street analysts.
Wall Street applauded Coach's results by driving shares up. Trading volume Tuesday was heavy at 14 million shares, which is more than 4 times the stock's average of 3.2 million shares. During intraday trading, the stock hit a 52-week high of $39.40, before closing at $39.21, up 7.93 percent.
On the conference call, Frankfort said direct-to-consumer sales rose 29 percent to $404 million from $315 million last year. On a same-store basis, comps for U.S. stores rose 21.4 percent, with retail stores up 16 percent and factory stores up 27.1 percent. In Japan, sales rose 21 percent in constant currency, or 16 percent in dollars, driven by new stores, midsingle-digit retail comps and market expansions. Indirect sales rose 11 percent to $150 million from $134 million.
The ceo said the company has been emphasizing new "usage occasions" for its products such as weekend, through Signature Stripe and the more sophisticated Legacy to heighten Coach's cachet with its top-tier customers. The company plans to drive growth in Japan via the opening of new retail locations, hoping eventually to have at least 180 Coach stores in Japan and a market share of 15 percent in a few years from last year's 9 percent.
Elsewhere overseas, the company during the quarter opened five new Coach stores, including its first each in Shenzhen, China and the United Arab Emirates. Frankfort said the company plans to open at least 10 locations in the major cities on the Mainland of China during the next two years, while also expanding its retail store base in Hong Kong.Mike Tucci, president of North American Retail Division, told analysts that the company has 10 key item concepts for holiday. This includes satchels in a range of sizes and fabrications ranging from $328 to $698.
The company provided second-quarter guidance of 56 cents, one cent above consensus estimate of 55 cents, and projected that it will have full-year earnings per share of $1.63 for fiscal 2007, compared with the consensus estimate of $1.58.
Jennifer Black, of Jennifer Black & Associates, wrote in a research note, "We remain extremely positive on this company. We feel Coach is particularly well positioned heading into the all important holiday season as well as the balance of 2007."
Black went on to say that she continues to "find the company's product fantastic, and believes consumers will continue to be compelled to purchase Coach as evidenced by sales of their $10,000 crocodile purses."
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