NEW YORK — Coach Inc. revealed plans to cut two of its senior management roles as well as 300 other jobs as it pushes toward the goal of a 20 percent operating margin for the Coach brand in fiscal 2017.
The accessories brand said the management shakeup and job cuts would help it become an “agile and scalable business model.” Coach revealed the plan as it reported the company’s first quarterly profit growth in three years, boosted by overseas markets.
The group promoted Andre Cohen to president, North America and global marketing, adding North America Wholesale and global marketing, customer experience and digital to his responsibilities. Todd Kahn has been promoted to president, chief administrative officer and secretary, and will expand his oversight to include information technology, supply chain, global environments and procurement. Diane Mahady has also taken on the role of global head of merchandising for the Coach brand.
The changes mean that Gebhard F. Rainer, president and chief operating officer, and David Duplantis, president, global marketing, digital and consumer experience, are leaving the company.
Coach is also planning other changes under the heading “organizational efficiency,” which translates to the reduction of its global staff, accelerated depreciation mostly with older information systems, replacement of technology infrastructure changes and international supply chain and office location optimization. That’s on top of the company’s transformation plan initiatives noted two years ago that have already been implemented or are underway. In total, the initiatives are expected to enable the group to reach its goal of a 20 percent operating margin for the Coach brand in fiscal year 2017. In the aggregate, the company expects to incur pretax charges of $65 million to $80 million, beginning in the fourth quarter of fiscal 2016 and for the charges to be completed by the end of fiscal 2017.
In total, over 300 positions worldwide are being eliminated, which is about a 10 percent decrease in the global corporate staff or a 2 percent reduction of Coach’s total workforce.
Victor Luis, chief executive officer, said, “These actions will allow us to emerge as a brand-led company with fewer layers, larger spans of responsibility and a consistent global voice across merchandising and marketing.” He said in a telephone interview that the focus in the last few years have been about updating the Coach brand, and that the next stage is about “transforming the organization, moving from an accessory retail model to a global brand retail model.” Whereas before there were merchandising and marketing teams in different pockets of regional growth, Luis said, “The reality is that what resonates globally is not the operational part of retail. What resonates is the consistency of the vision. We are streamlining our teams [because we can] drive consistency and scale and go to market much more quickly with one single vision.”
Luis also said that being leaner will help the company react quicker to opportunities that may come up. The use of cash and the company’s capital allocation strategy involves acquisitions “when it makes sense,” Luis said. While he has said previously that making sense involves where Coach can add value in the supply chain side of the business, this time the ceo detailed the three focus categories for Coach: handbags, footwear and outerwear.
“Outerwear is a category we believe in for the long term,” Luis said. While he said there were no targets in mind, the suggestion is that outerwear is a category where Coach could make an acquisition to grow that business if the right opportunity became available.
As for its third quarter results for the period ended March 26, Coach reported a 27.7 percent increase in net income to $112.5 million, or 40 cents a diluted share, from $88.1 million, or 32 cents, a year ago. On an adjusted basis, net income was $124 million, or 44 cents a diluted share. Net sales rose 11.2 percent to $1.03 billion from $929.3 million. Wall Street analysts were expecting 41 cents on sales of $1.02 billion.
Luis noted that the quarter represented a “return to growth for the Coach brand,” adding that the results were against the backdrop of volatile tourist spending flows and macroeconomic and promotional headwinds.
While retail and outlet stores in North America showed sequential improvement, it was the international businesses that posted strong growth on a constant currency basis, highlighted by double-digit increases in Mainland China and Europe. The company said there were sales gains in Japan as well.
Luis also confirmed, “We are on track to return to positive comps in North America in the fourth quarter and to achieve an inflection in our profitability.”
As for handbags, cross-bodies and smaller bags continue to trend, but “we see some opportunity for the consumer in our larger bags,” a category that Luis said is a plus for the company due to its higher prices.
He also said that the company was “pleased” with the overall contribution of Stuart Weitzman during the quarter, and expects to complete the close of the purchase of the brand’s Canadian distributor in the fourth quarter. Luis said having direct ownership would help the company drive growth in the channel.
Shares of Coach traded up 4.2 percent to close at $41.86 in Big Board trading.