Coach, Inc., a leading New York design house of modern luxury accessories, announced sales of $1.42 billion for its second fiscal quarter ended December 28, 2013, compared with $1.50 billion reported in the same period of the prior year, a decrease of 6%.
On a constant currency basis sales declined 3% for the quarter. Net income for the period totaled $297 million, with earnings per diluted share of $1.06. This compared to net income of $353 million and earnings per diluted share of $1.23 in the prior year’s second quarter.
For the second fiscal quarter, operating income totaled $436 million, compared to $527 million reported in the prior year, while the operating margin was 30.7% versus 35.0%. During the quarter, gross profit totaled $983 million compared to $1.09 billion a year ago. Gross margin was 69.2% versus 72.2% reported in the prior year. SG&A expenses as a percentage of net sales was 38.5%, compared to the 37.2% reported in the year-ago quarter.
The company also announced that during the second fiscal quarter, it repurchased and retired about 3.3 million shares of its common stock at an average cost of $52.99, spending a total of $175 million and taking the year-to-date total to $350 million. At the end of the period, approximately $1.0 billion remained under the company’s current repurchase authorization.
For the six months ended December 28, 2013, net sales were $2.57 billion, down 4% from the $2.67 billion reported in the first six months of fiscal 2013. On a constant currency basis, sales declined 1% for the period. Net income totaled $515 million compared to $574 million reported a year ago, while earnings per diluted share were $1.82 versus $2.00.
Second fiscal quarter sales results in each of Coach’s segments were as follows:
Total North American sales decreased 9% to $983 million from $1.08 billion last year. North American direct sales declined 8% for the quarter with comparable store sales down 13.6%. At POS, sales in North American department stores were slightly below prior year while shipments into this channel declined as planned.
International sales increased 2% to $425 million from $418 million last year. On a constant currency basis, International sales grew about 11%. As noted, sales in China rose about 25% and the business is on track to meet annual guidance of $530 million.
"In Japan, sales declined 2% on a constant-currency basis, while dollar sales were 21% below the prior year, reflecting the weaker yen. Shipments into international wholesale accounts increased significantly, as expected, due to timing of a Chinese holiday while underlying POS sales trends increased slightly.
Mr. Luis added, “We have taken the initial steps in Coach’s transformation across all aspects of the consumer experience - product, stores and marketing. Notable was the success of the Borough bag - a prelude to a comprehensive re-platforming of our women’s product assortment across bags, accessories and lifestyle categories coming this fall."
"We also introduced a new, dual gender lifestyle store concept in two key locations, which will serve to inform our continuing evolution of global store environments. And, in marketing, we expanded our initiatives, leveraging key style influencers in our ongoing campaign.”
“We’re particularly excited to announce that next month we will participate in our first New York Fashion Week, unveiling the inaugural collection from Stuart Vevers, whose designs will be available in-store this fall. We view this as an important milestone in our brand transformation, driving fashion credibility and relevance.
“We remain confident in our brand vision, our leadership team and our ability to execute the strategy underway. We look forward to sharing our strategic plan to drive brand vibrancy and long-term value creation during our analyst day in early June,” Mr. Luis concluded.
Victor Luis, Chief Executive Officer of Coach, Inc., said, “During the holiday quarter, total sales fell slightly in constant currency as weakness in our North American women’s bag and accessories business offset strong growth in Men’s, footwear, and robust results in emerging Asian markets and Europe.
"We continued to be disappointed by our performance in North America, which was impacted by substantially lower traffic in our stores and by our decision to limit access to our e-factory flash sales site. At the same time, China results remained resilient with total sales growing about 25% and comparable store sales rising at a double digit rate. Importantly, we continued to advance our transformation initiatives and position Coach to launch Executive Creative Director Stuart Vevers’s first collection in September.”
