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.
@margotrobbie steps out onto the red carpet wearing @miumiu. The actress is nominated for “Outstanding Performance by a Female Actor in a Leading Role” in “I, Tonya” at the #SagAwards. (📷: Stewart Cook) #wwdfashion
For @massimogiorgetti of @msgm, the Nineties are his favorite decade. “They had a huge impact on my personal growth. What I like of the Nineties is that they are not so precise in terms of style as other decades…there was actually a bit of everything,” he said. As seen on MSGM’s Spring 2018 show: tie-dye and a bit of grunge, two styles that are synonymous with the decade #wwdfashion #wwddecades (📷: @kukukuba)
Breaking News: @hedislimane joins @celine as its new artistic, creative and image director. One of fashion’s preeminent image-makers and trendsetters, Slimane is to join the LVMH brand on Feb. 1 and unveil his first fashion proposition for men and women next September during Paris Fashion Week. It marks a major homecoming for Slimane, who cemented his reputation – and influenced men’s tailoring for more than a decade – as the designer of Dior Homme between 2000 and 2007. He went on to reinvent and ignite the house of Yves Saint Laurent, which he rechristened Saint Laurent, between 2012 and 2016 – all the while maintaining a close relationship with the Arnault family, which controls LVMH and Dior. Read the full exclusive story on WWD.com. Link in bio. #wwdnews #wwdfashion
“Personally I believe the Eighties have been the richest and more vivacious period for international fashion,” Giorgio Armani said when asked what his favorite decade of fashion is. It was a moment of disruption and experimentation and only thinking back to the first years of that decade is always an emotion for me, for what they have meant to me and my work.” The influence is clear in @giorgioarmani spring 2018 collection, pictured here, which was full of bright colors and unexpected prints. Read more about which decades designers loved most on WWD.com #wwdfashion #wwddecades (📷: @aitorrosasphoto)
For Lady Gaga’s only Italian show on her “Joanne World Tour,” the singer wore a range of @versace_official outfits. The standout piece: this custom-made bodysuit inspired by the brand’s spring 2018 collection. #wwdfashion (RG: @ladygaga)
@_camillaruth_ is expanding on the wellness-craze concept with @westbourne – a new NYC restaurant that’s both a healthy-minded café as well as a business that gives back to the community. Marcus works with the Robin Hood foundation to give back to The Door, a non-profit providing youth development services, and also hires employees through The Door. Read our full interview with Marcus on giving back through food on WWD.com. #wwdeye (📷: @lexieblacklock)