Byline: Jennifer Weitzman

NEW YORK — Even with an aftertax charge of $2.9 million for closure of manufacturing facilities, Coach Inc.’s third-quarter profits leaped nearly 50 percent as the accessories megabrand’s strong sales momentum continued into the spring.
For the quarter ended March 30, the New York-based firm posted income of $11.8 million, or 26 cents a diluted share, a 47.9 percent increase over the $8 million, or 18 cents, generated in last year’s comparable period. Excluding the charge, income rose 88.5 percent to $14.7 million, or 32 cents, from $7.8 million, or 17 cents, ahead of its own revised expectations, as well as analysts’ consensus estimates. Sales rang in at $161.6 million, a 28.5 percent increase over the prior-year period’s $125.7 million.
In addition, the firm also upped its expectations for the current fourth quarter and full year. It now anticipates fourth-quarter earnings per share of at least 32 cents, ahead of consensus estimates by 2 cents, on flat sales of about $162 million. Full-year EPS is now forecast to be at least $1.90, better than the $1.84 expected by Wall Street, on top of an 18 percent sales increase in sales to $710 million. For fiscal 2003, Coach said it expects EPS of at least $2.20, sales growth of 10 to 15 percent and operating income expansion of at least 25 percent.
Reflecting on the firm’s running success, Lew Frankfort, Coach’s chairman and chief executive officer, said on a morning conference call: “We remain confident the momentum of spring will continue. We have a strong and loyal consumer franchise with a proven formula to sustain growth by driving sales through fashion innovation and product diversity and growing market share in the U.S. through new openings.” With 14 new stores opened this year through the end of March, at least six new units are expected this fiscal year, all of them during the current quarter.
Sales at U.S. Coach stores rose 21.9 percent to $93.9 million, while comps rose 9.6 percent, 9.9 percent at retail stores and 9.2 percent at outlets. Indirect sales increased 39 percent to $67.7 million, driven by strong gains in both U.S. wholesale and international divisions. U.S. department store comps saw double-digit comp increases.
“The strong sales this spring were built upon the success of the holiday, reflecting Coach’s growing recognition as a leading fashion and gift resource,” Frankfort said.
Coach was spun off from Sara Lee Corp. in an initial public offering in Oct. 2000, after Sara Lee opted to exit non-core businesses. It closed at $19.63 on its first day of New York Stock Exchange trading and finished Tuesday’s session at $56.60, up $2.75, or 5.1 percent. The close was 25 cents off a new 52-week high reached earlier in the day.
Jeffrey Edelman, apparel and footwear analyst at UBS Warburg, said in research notes: “Coach has sales momentum, which is impressive in a still sluggish retail environment. This raises our confidence in the company’s ability to continue meeting or exceeding its financial goals.”
Frankfort said sales were boosted by classic and newly updated handbags, including the Hamptons market tote, which was the focus of this spring’s marketing, and key-item accessories. The firm also has registered encouraging results with its women’s footwear, leading to an expansion of the line to 60 doors this fall from its current 23.
Michael Devine, chief financial officer, said the March closure of the Lares, Puerto Rico, manufacturing facility would begin to benefit gross margins with $4 million in savings in 2003 and $5 million in 2004.
For the nine months, income rose 25 percent to $68.5 million, or $1.52 a diluted share, from $54.8 million, or $1.32. Excluding charges, income rose 23.5 percent to $71.4 million from $57.8 million. Sales rose 17 percent to $548 million from $468.2 million.

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