NEW YORK — Benefiting from a consumer appetite for luxury goods as well as a strong response to color, Coach posted double-digit sales gains in the third quarter and saw earnings rise 83.1 percent.
In addition, Coach said it expects sales and earnings growth to surge in the fourth quarter as well as for the year and in 2005.
For the three months ended March 27, the New York-based marketer of handbags and other accessories reported earnings of $58.3 million, or 30 cents a diluted share, 3 cents ahead of the recently revised consensus estimates. This compares with $31.9 million, or 17 cents, in the year-ago period. Sales totaled $313.1 million, up 42.1 percent from $220.4 million.
Direct-to-consumer sales, which consist of sales at Coach stores, rose 31.8 percent to $160.3 million from $121.6 million last year. Comparable-store sales rose 20.5 percent, with retail stores up 28.7 percent and factory store sales up 9.3 percent. Indirect sales rose 54.7 percent to $152.8 million from $98.8 million. All of the firm’s direct sales businesses, including Coach Japan, U.S. department stores, international wholesale and special markets, contributed to the increase.
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Speaking of Japan, Coach opened a third Japanese flagship, this one in the Marunouchi district, a redeveloped, chic area in the center of Tokyo, through Coach Japan. The two-level, 5,300-square-foot store will feature a full selection of Coach’s lifestyle accessories. Coach’s other Japanese flagships are in the Ginza and Shibuya areas. The opening is part of a strategy to grow market share in the region.
“For all the 15 quarters since we’ve become a public company, we’ve achieved double-digit sales and earnings growth,” said Lew Frankfort, chairman and chief executive officer, on a conference call. “This consistency of growth speaks to the sustainability of our business model, the clarity of our strategies, our ability to execute efficiently and most importantly, the strength and endurance of the Coach brand.”
At retail, Frankfort said growth reflects market share gains and category growth, as both existing and new customers are shopping for Coach’s monthly new product flow, driving store traffic and higher average transaction size.
“Throughout our business, consumers enthusiastically embraced our transitional and spring offerings across categories and collections,” Frankfort said, adding these included new styles and colors in its Soho and Hampton collections.
For the nine-month period, earnings rose 67.9 percent to $196.1 million, or $1.02 a share, while sales rose 36.2 percent to $983 million.
Neely Tamminga, a research analyst with Piper Jaffray, wrote in a note, that “these financial achievements came against a backdrop of two leading fashion trends: accessories and color — both of which Coach continues to capitalize on going forward.”
Michael Devine, chief financial officer, said he is targeting 2004 earnings of at least $1.32, compared with analysts’ consensus estimate of $1.25, and sales of over $1.3 billion for the fiscal year ending July 3. This includes fourth-quarter earnings of 30 cents, compared with consensus estimates of 26 cents and sales of $330 million, led by gains in retail stores and continued double-digit growth in Japan. For 2005, earnings are expected to grow at least 21 percent to $1.60, compared with a current consensus estimate of $1.51 while sales are expected to grow at least 19 percent to $1.55 billion.
On the conference call, Frankfort was enthusiastic as he described the products currently in the pipeline, which include the relaunched straw basket totes, the optic signature group in pink, blue and green and the turnout satchels and garden totes. Additionally, he said the May launch will include Beach, which features two new silhouettes — the beach bucket bag in two sizes as well as the Soho small hobo and clutch shapes. Coming in June is signature Stripe, a cotton jacquard in both natural and denim colors as well as patchwork styles, which is a combination of this season’s leather, suede and signature colors.