NEW YORK — Coach Inc. sure knows how to deliver the goods.
The accessories powerhouse posted a 48.6 percent jump in fourth-quarter earnings on a 23.8 percent sales gain. And it expects the momentum to continue, projecting first-quarter profits will rise by at least 28 percent and that sales in fiscal 2006 will top $2 billion for the first time.
After five years as a public company, Coach has distribution in key channels and a store base of 275. But management of the handbag and accessories company said it's only partway there.
"Notwithstanding our performance, we believe we are not yet at the halfway point in our organic growth," said Lew Frankfort, Coach's chairman and chief executive officer, in a conference call with Wall Street analysts on Tuesday. "While our results have been dramatic, our U.S. market share in the last few years is up only modestly against extraordinary category growth in bags and accessories. During our planning horizon, we plan to continue to grow the top line by driving double-digit distribution increases and improved productivity with an increasing rate of profitability."
Contributing to Coach's strong fourth-quarter performance was a combination of a 30 percent gain at U.S. department and specialty stores, a 14 percent rise in full-price U.S. comparable-store sales for the year and the opening of 25 new stores. The comp-store gain was driven by an increase in the average transaction and more modest gains in traffic and conversion.
As a result, net income for the three-month period ended July 2 rose to $97.6 million, or 25 cents a diluted share, from $65.7 million, or 17 cents, in the same year-ago quarter, while sales reached $418.7 million from $338.1 million. The prior-year period included an extra week in the quarter. Per-share results have been adjusted to account for the company's 2-for-1 stock split in April.
For the year, income gained 48.5 percent to $388.7 million, or $1 a diluted share, from $261.7 million, or 68 cents, a year ago. Sales increased by 29.5 percent to $1.71 billion from $1.32 billion.
Coach said direct-to-consumer sales in the quarter rose 26 percent to $245 million, driven by comps and distribution growth. Comps rose 22 percent, with sales at retail stores gaining 13.6 percent and factory store sales rising 34.7 percent. Indirect sales rose 21 percent to $174 million, reflecting gains in sales through Coach Japan, U.S. department stores and international wholesale. Sales at Coach Japan rose 20 percent on a constant-currency basis.On July 1, the company said it completed the purchase of Sumitomo's 50 percent interest in Coach Japan Inc. for approximately $225 million, plus undistributed profits and paid-in capital of about $75 million.
The handbag and accessories manufacturer expects first-quarter sales to increase by at least 28 percent to between $440 million and $445 million, and earnings per share at 24 cents, a gain of 40 percent over the same quarter in fiscal 2005. Wall Street's consensus is 23 cents. In addition, Coach raised guidance for fiscal 2006, estimating a 22 percent gain in sales to $2.1 billion. EPS is forecasted to rise to at least $1.24, ahead of the consensus estimate of $1.21 for the year.
"The company is finding little price resistance at higher price points as they are still offering an outstanding value with novelty elements," said Mark Friedman, analyst at Merrill Lynch, in a research note. Friedman said the bestsellers in the quarter include Vintage Signature Tie Dye, Straw Boxy Totes, Optic Signature, Patchwork and Hamptons Weekend.
The analyst described the look for the fall product as "more elevated and sophisticated and innovative while still being Coach." He expects the momentum at Coach to remain strong and for the trend to continue in "fiscal 2006, given the limited competition in affordable luxury."
Neely Tamminga, senior research analyst at Piper Jaffray Co., wrote that "Coach's diversification across product, geography and distribution channels is a positive. There are also abundant growth opportunities in Japan and its other international markets."
"Results continue to be driven by the monthly flow of fresh and relevant product, notably handbags and women's small leather goods," Frankfort said during the call.
The Coach ceo said factory sales have surged in part due to the vitality of the channel. He also said there's a desire by Coach consumers to buy the products at a discount. In other retail channels, Coach products are rarely reduced.
"We know that we can grow this channel rapidly and faster than the market, but in a quality way that provides greater service, operational efficiency and a product offering that our customer loves — all of which sets us up for significant future growth in our factory stores," said Frankfort.He said for fall, the company expects Chelsea to be a key leather group. In addition, Coach is adding a new tweed group, within its Soho assortment, trimmed in velvet and rhinestones. For holiday, the company will offer a group of beaded Gallery totes, and will build upon last year's well-received Quilted Signature group, featuring fur trim for an element of luxury.
Returning for the holiday season will be the Madison evening collection. This time, it spans a broader price-point range and will include handbags and accessories such as hats, gloves and scarves, as well as footwear and outerwear. Fabrications for the Madison collection will feature satin, chenille, Lurex and mink.
"We believe that we are well-positioned to capitalize on the myriad of opportunities ahead of us and have the vision, strategies and tactics in place to realize our long-term growth plans," Frankfort said, a mantra he has repeated over the last few quarters.
Frankfort told analysts that a key part of the strategy includes adding 100 stores in North America over a four- to five-year time frame, bringing the full-price store base to 300. The company will open 25 more stores in fiscal year 2006, with its first flagship on Rodeo Drive in Beverly Hills set to open in time for the holidays.
He also said the cash the company generates will be used to reinvest in the business — such as improving infrastructure at corporate headquarters and at the distribution center in Jacksonville, Fla., to operate North America from one distribution center — and buying back stock.
“What he has done at Vuitton is really exceptional,” said @gameofthrones’ actress Gwendoline Christie on @mrkimjones’ final show for @louisvuitton. “He has rebooted luxury in terms of making it commercial, viable and contemporary. And most importantly artistic. He has never compromised his artistic vision for the sake of commodity.” (📷: @zefashioninsider)
After seeing a demand for men’s wear from its customers, British contemporary women’s wear label @ariesarise has added a men’s wear component and will launch a unisex collection with @mrporterlive. The 20-piece collection includes jackets, denim, logo T-shirts and more with deconstructed ‘90s vibes. Set to launch on January 18, you can shop the pieces on Aries’ website and on mrporter.com. #wwdfashion
“And so spending so much time with a character who thinks like that, inevitability you try and analyze yourself and go back and think about your own demons and dark chapters that you had in your life,” says @thedanielbruhl of his role in TNT’s “The Alienist.” The show, set in the Gilded Age of New York, also stars Dakota Fanning and Luke Evans. Head to WWD.com to read about how 39-year-old Brühl prepared for the role and why he thinks the show is so relevant to today #wwdeye ( 📷: @Eriktanner)
Now that Celine Dion’s collection has topped $10 million in sales, the pop superstar, fashion icon and newly-minted industry player is eyeing growth in Asia. Read the full report by @tiffanyap, link in bio. #wwdnews #celinedion
“My personal philosophy to beauty is paying attention to oneself. I love to be outdoors, lots of fresh air, trying to take care of yourself as best you can. I always notice that comes through,” says Felicity Jones, the global face of @shiseido-owned @cledepeaubeauteus, which launches today. Head to WWD.com to read more about the actress’ love for beauty and how she prepared for her new role in “The Basis of Sex,” playing the young Ruth Bader Ginsburg. #wwdbeauty (📷: @dandoperalski)
Among the familiar faces at @off____white’s show was a surprise figure: Japanese artist @takashipom, pictured here on Wednesday morning. Other show-goers included @jerrylorenzo, who spoke about his upcoming project: a @nike collaboration for back to school, with designs inspired by his childhood on the West Coast. Sitting in the front row were Future, Don Crawley, @miguel and more. See the rest of the photos on WWD.com #wwdeye (📷: Stephane Feugere)
According to @laurentsai, former “Terrace House: Aloha State” cast member, she didn’t know she was auditioning for the Japanese version of “Real World.” “I was telling a couple of my friends and someone’s like, ‘That sounds a lot like Terrace House.’ I was like, ’No it can’t be.’” Turns out, it was. But Tsai isn’t just a reality star — she’s an illustrator who has worked with Starbucks Japan and most recently, she’s dipping her toes into the fashion world. Head to WWD.com to read about her time on the show, modeling and her art. #wwdeye (📷: @danieldorsa)
More changes are coming to New York Fashion Week: Beginning with the spring 2019 collection, @alexanderwangny will move his New York show to June from September, adopting a biannual schedule with collections shown in June and December. Additionally, the @cfda is planning for an official summer/winter fashion season taking place as soon as June and December 2018. Read more about the upcoming changes on WWD.com. #wwdnews #wwdfashion (📷: @slovekinpics)