Coach Reports Second Quarter Earnings Per Share of $0.69: Up 38% and Ahead of Expectations; Raises Guidance for FY05; Company Declares Two-for-One Stock Split.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Coach, Inc. (NYSE NYSE See: New York Stock Exchange : COH CoH City of Heroes (gaming) CoH Company of Heroes (game) COH City of Hope COH Court of Honor (Boy Scouts of America) COH Controlled Ovarian Hyperstimulation ), a leading marketer of modern classic American accessories, today announced a 38% increase in earnings per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share to $0.69 for its second fiscal quarter ended January 1, 2005. This substantial increase in earnings from the prior year's second quarter reflected a 29% gain in net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight combined with operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: improvement. In the second quarter, net sales were $532 million, 29% higher than the $412 million reported in the same period of the prior year. Net income rose 41% to $134 million, or $0.69 per share, compared with $95 million, or $0.50 per share the prior year. These results were ahead of the analysts' recently revised consensus estimate of $0.68 per share. Coach also announced today that its Board of Directors authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: a two-for-one split of the Company's Common Stock, to be effected in the form of a special dividend of one share of the Company's Common Stock for each share outstanding. Coach currently has approximately 189 million shares of Common Stock outstanding, which will increase to approximately 378 million shares after the stock split. The additional shares issued as a result of the stock split will be distributed on or about April 4, 2005 to stockholders of record on March 21, 2005. Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said, "Our excellent second quarter results continued to reflect Coach's expanding market share driven by our distinctive brand proposition, relevant and innovative product and consumer-centric nature. This strength was evidenced throughout all channels of our business and across all geographies as consumers enthusiastically embraced our holiday assortment assortment /as·sort·ment/ (ah-sort´ment) the random distribution of nonhomologous chromosomes to daughter cells in metaphase of the first meiotic division. as·sort·ment n. . Our profitability improvement highlights our ability to further achieve gross margin expansion and to leverage our expenses as our sales base increases. Also, we're pleased to announce a two-for-one stock split, which will make our shares more accessible to individual investors and increase our market liquidity." During the quarter, gross profit rose 32% to $403 million from $305 million a year ago. Gross margin expanded by 160 basis points from 74.2% to 75.8%, primarily due to shifts in product and channel mix. SG&A expenses as a percentage of net sales declined to 33.8%, a 130 basis point decrease from the 35.1% reported in the year-ago quarter, primarily due to leveraging the higher sales. For the six months ended January 1, 2005, net sales were $876 million, up 31% from the $670 million reported in the first six months of fiscal 2004. Net income rose to $202 million, up 47% from the $138 million reported a year ago. Second fiscal quarter sales results in each of Coach's primary channels of distribution grew as follows: --Direct to consumer sales, which consist primarily of sales at U.S. Coach stores, increased 30% to $307 million from $237 million last year. Comparable store sales for the quarter rose 16.5%, with retail stores up 13.9% and factory store sales up 20.7%. Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the sales also rose sharply, contributing to this segment's growth. --Indirect sales rose 29% to $225 million from $174 million in the same period last year. All indirect businesses, including Coach Japan, U.S. department stores This is a list of department stores. In the case of department store groups the location of the flagship store is given. This list does not include large specialist stores, which sometimes resemble department stores. , and international wholesale contributed to this significant increase. Mr. Frankfort added, "We believe that it's worth mentioning that U.S. full price comparable store sales have increased at a double-digit rate in each of the last twelve consecutive quarters which clearly speaks to the sustainability of our growth. In our indirect segment, sales at Coach Japan grew 40%, or about 35% in yen terms, in the second quarter as we continued to grow market share rapidly. Our growth in Japan was fueled by new flagship and retail store openings, expansions, and by high-single-digit comparable location sales gains. In U.S. department stores, POS (1) See point of sale and packet over SONET. (2) "Parent over shoulder." See digispeak. POS - point of sale sales rose over 30% from prior year levels in the quarter as Coach's share of the fast-growing U.S. premium handbag and women's accessory accessory, in criminal law, a person who, though not present at the commission of a crime, becomes a participator in the crime either before or after the fact of commission. market continues to expand." During the second quarter of fiscal 2005, the company opened six Coach retail stores, bringing the total to 185 retail stores and 81 factory stores at January 1, 2005. In addition, five retail stores and one factory store were relocated re·lo·cate v. re·lo·cat·ed, re·lo·cat·ing, re·lo·cates v.tr. To move to or establish in a new place: relocated the business. v.intr. and expanded. In Japan, Coach opened four new retail locations including the first Osaka and Sendai flagship stores, and expanded a fifth retail location. Across all businesses, handbags and women's accessories continued to drive our business results. The Legacy Soft Duffle and Gallery Tote groups were key handbag initiatives during the quarter and were instant successes, as was Quilted quilt n. 1. A coverlet or blanket made of two layers of fabric with a layer of cotton, wool, feathers, or down in between, all stitched firmly together, usually in a decorative crisscross design. 2. Signature, while collections such as Soho Leather and Hamptons Leather continued to perform well. New for holiday was Madison, our first evening collection, which was very well received and represents a year-round opportunity for Coach." "Our holiday trends have continued through January with strong response to the transitional and early spring offering including pebbled peb·ble n. 1. A small stone, especially one worn smooth by erosion. 2. a. Clear colorless quartz; rock crystal. b. A lens made of such quartz. 3. leather, in the Hamptons collection, as well as the new, playful play·ful adj. 1. Full of fun and high spirits; frolicsome or sportive: a playful kitten. 2. "Dot" group collection of totes Totes (more fully Totes»ISOTONER) is a corporation that sells umbrellas, gloves, rubber rain boots, and other similar accessories. Its headquarters is in Cincinnati, Ohio. , demis and updated spring accessories," Mr. Frankfort added. "Arriving this week will be a fresh interpretation of Soho in pastel pastel (păstĕl`), artists' medium of chalk and pigment, tempered with weak gum water and usually molded in the form of sticks; also a work done in this medium. Pastel was in use in Italy in the 15th cent. and is doubtless much older. shades and Gallery Totes in the popular Signature pattern. For March, we're introducing a significantly expanded and updated Hamptons Weekend collection that will include hobos, backpacks and satchels, and which has been performing very strongly in pilot. As part of this collection we will be adding Hamptons Scribble scribble - To modify a data structure in a random and unintentionally destructive way. "Bletch! Somebody's disk-compactor program went berserk and scribbled on the i-node table." "It was working fine until one of the allocation routines scribbled on low core. , a chic, whimsical whim·si·cal adj. 1. Determined by, arising from, or marked by whim or caprice. See Synonyms at arbitrary. 2. Erratic in behavior or degree of unpredictability: a whimsical personality. and colorful interpretation of our Signature pattern." "This spring, as planned, we will add up to 9 more retail stores in the U.S., bringing the total to about 20 new retail stores in fiscal 2005. We will also be adding at least two new locations in Japan during the second half, for a full year total of at least ten new locations. New store openings planned in Japan this spring include the recently announced Nagoya flagship, a 7,800 square foot store which will be the first free-standing building, uniquely constructed for, and occupied by Coach, anywhere in the world." "We're extremely pleased with the vibrancy vi·brant adj. 1. a. Pulsing or throbbing with energy or activity: the vibrant streets of a big city. b. of the Coach brand. Our diversified diversified (di·verˑ·s and loyal customer franchise continues to grow while we obtain a larger share of her accessory wardrobe A wardrobe (sometimes called an "armoire") is a cabinet used for storing clothes. The earliest wardrobe was a chest, and it was not until some degree of luxury was attained in regal palaces and the castles of powerful nobles that separate accommodation was provided for the . We're confident that our proven growth strategies will enable us to rapidly build additional market share in the years ahead," Mr. Frankfort concluded. The company now estimates full fiscal year 2005 sales of over $1.66 billion, an increase of at least 26% from prior year, with earnings per share of at least $1.87, and an operating margin of more than 36%, compared with analysts' current consensus estimate of $1.84. This reflects second half sales of at least $790 million, up 21% and earnings per share of at least $0.83, up 30% from the $0.64 reported for the same period in fiscal 2004 and above the analysts' consensus estimate of $0.82. Coach will host a conference call to review these results at 8:30 a.m. (EST EST electroshock therapy. EST abbr. electroshock therapy ) today, January 25, 2005. Interested parties may listen to the webcast by accessing www.coach.com/investors on the Internet or dialing into 1-888-405-2080 and asking for the Coach earnings call led by Andrea Shaw Resnick, VP of Investor Relations Investor relations The process by which the corporation communicates with its investors. . A telephone replay will be available starting at 12:00 noon that day, for a period of five business days. The number to call is 1-888-282-0028. A webcast replay of the earnings conference call will also be available for five business days on the Coach website. Coach, with headquarters in New York, is a leading American marketer of fine accessories and gifts for women and men, including handbags, women's and men's small leathergoods, business cases, weekend and travel accessories, footwear Footwear consists of garments worn on the feet. It is worn for a variety of reasons, including protection against the environment, hygiene and adornment. Usually, socks and other hosiery are worn between the feet and the footwear, except for sandals and flip flops (thongs). , watches, outerwear, jewelry jewelry, personal adornments worn for ornament or utility, to show rank or wealth, or to follow superstitious custom or fashion. The most universal forms of jewelry are the necklace, bracelet, ring, pin, and earring. , sunwear and related accessories. Coach is sold worldwide through Coach stores, select department stores and specialty stores Noun 1. specialty store - a store that sells only one kind of merchandise shop, store - a mercantile establishment for the retail sale of goods or services; "he bought it at a shop on Cape Cod" , through the Coach catalog catalog, descriptive list, on cards or in a book, of the contents of a library. Assurbanipal's library at Nineveh was cataloged on shelves of slate. The first known subject catalog was compiled by Callimachus at the Alexandrian Library in the 3d cent. B.C. in the U.S. by calling 1-800-223-8647 and through Coach's website at www.coach.com. Coach's shares are traded on The New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. under the symbol COH. This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. based on management's current expectations. These statements can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "intend," "estimate," "are positioned to," "continue," "project," "guidance," "forecast," "anticipated," or comparable terms. Future results may differ materially from management's current expectations, based upon risks and uncertainties such as expected economic trends, the ability to anticipate consumer preferences, the ability to control costs, etc. Please refer to Coach's latest Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for a complete list of risk factors.
COACH, INC.
-----------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------
For the Quarters and Six Months Ended
January 1, 2005 and December 27, 2003
-------------------------------------
(in thousands, except per share data)
-------------------------------------
(unaudited)
-----------
QUARTER ENDED SIX MONTHS ENDED
------------------- -------------------
January December January December
1, 27, 1, 27,
2005 2003 2005 2003
-------- -------- -------- --------
Net sales $531,759 $411,513 $875,824 $669,888
Cost of sales 128,791 106,370 214,682 176,836
-------- -------- -------- --------
Gross profit 402,968 305,143 661,142 493,052
Selling, general and
administrative expenses 179,833 144,439 326,572 260,723
-------- -------- -------- --------
Operating income 223,135 160,704 334,570 232,329
Interest income, net 3,469 466 5,979 871
-------- -------- -------- --------
Income before income taxes
and minority interest 226,604 161,170 340,549 233,200
Income taxes 86,109 60,445 129,408 87,453
Minority interest, net of tax 6,372 5,287 9,293 7,980
-------- -------- -------- --------
Net income $134,123 $ 95,438 $201,848 $137,767
======== ======== ======== ========
Net income per share
Basic $ 0.71 $ 0.52 $ 1.07 $ 0.75
======== ======== ======== ========
Diluted $ 0.69 $ 0.50 $ 1.03 $ 0.72
======== ======== ======== ========
Shares used in computing
net income per share
Basic 189,677 185,231 189,433 184,418
======== ======== ======== ========
Diluted 195,257 191,985 195,100 191,480
======== ======== ======== ========
COACH, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
At January 1, 2005, July 3, 2004 and December 27, 2003
------------------------------------------------------
(in thousands)
--------------
January July December
1, 3, 27,
2005 2004 2003
---------- ---------- ----------
(unaudited) (unaudited)
ASSETS
Cash, cash equivalents and short
term investments $ 526,629 $ 434,443 $ 372,775
Receivables 121,749 55,724 94,452
Inventories 190,856 161,913 157,226
Other current assets 71,644 53,536 51,548
---------- ---------- ----------
Total current assets 910,878 705,616 676,001
Property and equipment, net 171,959 148,524 132,353
Long term investments 275,039 130,000 -
Other noncurrent assets 49,260 44,518 52,928
---------- ---------- ----------
Total assets $1,407,136 $1,028,658 $ 861,282
========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable $ 68,489 $ 44,771 $ 55,176
Accrued liabilities 218,883 135,353 143,061
Subsidiary credit facilities 50,461 1,699 34,432
Current portion of long-term debt 150 115 115
---------- ---------- ----------
Total current liabilities 337,983 181,938 232,784
Long-term debt 3,270 3,420 3,420
Other liabilities 28,930 20,816 5,274
Minority interest, net of tax 49,491 40,198 30,135
Stockholders' equity 987,462 782,286 589,669
---------- ---------- ----------
Total liabilities and stockholders'
equity $1,407,136 $1,028,658 $ 861,282
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