Coach Q4 profit surges 86%
Coach beat the Street on earnings in the fourth quarter even as its sales declined as the company continued to pullback on shipments to department stores.
Net income nearly doubled to $151.7 million, or 53 cents per share, in the quarter ended July 1, amid a 16% decline in selling and general expenses, compared to net income in year-ago period of $82 million. Earnings, adjusted for non-recurring gains, came to 50 cents per share. Analysts had estimated earnings of 49 cents per share.
Net sales declined1.8% to $1.13 billion from $1.15 billion in the year-ago period, missing estimates. (The prior-year period included an extra week of sales.) Total North American Coach brand sales increased 4% over prior year, while North American direct sales rose 5% on a dollar basis and 6% on a constant currency basis for the quarter. Both North American aggregate and bricks-and-mortar same- store sales rose approximately 4%.
Coach noted that, as planned, sales at North American department stores declined approximately 40% at a POS and approximately 20% on a net sales basis as the company has now started to anniversary the pullback in shipments into the channel.
Neil Saunders, managing director of GlobalData Retail, said that Coach's decision to reduce reliance on department stores is justified by the increasing gap between their selling environments and those in Coach's own stores.
"Over the past half year, Coach has put considerable effort into store displays and collections and, in our opinion, these now look very compelling and engaging," he said. "Indeed, we believe that window displays and the general selling environment have been elevated a long way from the rather clinical atmosphere of older Coach stores, and are now more inspirational and engaging. In contrast, most department stores continue to go downhill rapidly and are becoming increasingly unsuited to selling premium products." (For more, click here).
For the full year, Coach's net income totaled $591 million on a reported basis, with earnings per diluted share of $2.09. This compared to reported net income in the prior year of $461 million with earnings per diluted share of $1.65 in the prior year.
“Our strong fourth quarter results – in which we achieved mid-single-digit North America comparable store sales for the Coach brand and drove solid growth at Stuart Weitzman – capped an excellent FY17 performance for the company," said Coach CEO Victor Luis." For the year, we posted a double-digit increase in net income as we continued to make progress on our brand and company transformation plan. We generated positive Coach brand North American comps in each quarter, while driving solid international Coach brand sales gains, notably in Europe and Mainland China."
Luis said the company took a major step in its corporate transformation with the acquisition of Kate Spade & Company, which closed in July and made Coach the first New York-based house of modern luxury lifestyle brands.
"Kate Spade brings a new, unique brand attitude and an additional consumer segment to the Coach, Inc. portfolio and we expect that this acquisition will enhance our position in the attractive and growing $80 billion global premium handbag and accessories, footwear and outerwear market," he stated.
"Today, after the successful integration of Stuart Weitzman and the acquisition of Kate Spade, we are at an exciting and pivotal moment in our journey," Luis said. "In an unpredictable environment, we are evolving to drive our long-term success by reinventing ourselves, moving from a single-brand, specialty retailer, to a true house of emotional, desirable brands built on our unique values."