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Coach, Inc. Reports Fiscal 2016 First Quarter Results

The following excerpt is from the company's SEC filing.

First Quarter Net Sales Increased 3% Over Prior Year In Constant Currency; Down 1% On A Reported Basis

First Quarter Non-GAAP Earnings Per Share was $0.41; First Quarter GAAP Earnings Per Share was $0.35

Maintains Full Year 2016 Guidance

NEW YORK--(BUSINESS WIRE)--October 27, 2015--Coach, Inc. (NYSE: COH) (SEHK: 6388), a leading New York design house of modern luxury accessories and lifestyle brands, today reported first quarter results for the period ended September 26, 2015.

Victor Luis, Chief Executive Offic er of Coach, Inc., said, “We are pleased with our first quarter performance, which was consistent with our plan and reflected continued progress on our transformation journey. We drove further sequential improvement in our North America bricks and mortar business - led, as expected, by our retail stores - with this momentum continuing into the second quarter. Our international businesses posted moderate growth on a constant currency basis, highlighted by double-digit increases in Europe and Mainland China, as well as sales gains in Japan. Overall, our results underscore our confidence that the cumulative impact of our actions will result in a return to top line growth in FY16 and positive North American comps by the end of the year.”

“Importantly,

we continued to successfully execute our brand transformation strategies across our three key brand pillars: product, stores and marketing in the quarter. Stuart Vevers’s new product – notably the Ace and Nomad handbags in retail and Blake in outlet – have been very well received by customers across geographies. Our Modern Luxury stores globally and across channels are performing well, and we’re especially pleased with the ongoing positive comps we’re generating in the North American retail stores which have been renovated, as we anniversary the delivery of Stuart’s first collection. And we hosted our first true runway show during New York Fashion Week, receiving great editorial reviews, while kicking off our 75

anniversary year celebrations.”

Overview of First Quarter 2016 Consolidated, Coach, Inc. Results:

Net sales

totaled $1.03 billion for the first fiscal quarter, compared with $1.04 billion reported in the same period of the prior year, a decrease of 1%. On a constant currency basis, total sales increased 3% for the period.

Gross profit

totaled $697 million versus $719 million a year ago on a Non-GAAP basis, while gross margin was 67.7% versus 69.3%. On a reported basis, Coach, Inc. gross profit was also $697 million versus $715 million a year ago, with a gross margin of 67.6% versus 68.9%.

SG&A expenses

of $532 million compared to $503 million in the prior year on a non-GAAP basis, an increase of 6%. As a percentage of net sales, SG&A totaled 51.7% on a non-GAAP basis, compared to 48.4% in the year-ago quarter. On a reported basis, SG&A expenses were $555 million or 53.9% of sales as compared to $536 million or 51.6% on a reported basis in the year ago period.

Operating income

for the quarter on a non-GAAP basis totaled $165 million compared to $217 million in the prior year, while operating margin was 16.0% versus 20.9%. On a reported basis, operating income was $141 million compared to $180 million in the prior year, while operating margin was 13.7% versus 17.3%.

Net interest expense

was $7 million in the quarter as compared to net interest income of $1 million in the year ago period.

Net income

for the quarter on a Non-GAAP basis totaled $113 million, with earnings per diluted share of $0.41. This included a contribution of $11 million or $0.04 per share from Stuart Weitzman. This compared to non-GAAP net income in the first quarter of FY15 of $146 million with earnings per diluted share of $0.53. On a GAAP basis, net income for the quarter was $96 million with earnings per diluted share of $0.35 including a contribution of $5 million or $0.02 per share from Stuart Weitzman. This compared to prior year GAAP net income of $119 million or $0.43 earnings per diluted share.

Coach Brand First Quarter of 2016 Results:

for the Coach brand

totaled $943 million for the first fiscal quarter, compared with $1.04 billion reported in the same period of the prior year, a decrease of 9%. On a constant currency basis, total sales decreased 5% for the period.

First fiscal quarter sales results in each of Coach primary segments were as follows:

Total North American Coach brand sales

decreased 11% on a reported basis for the quarter to $561 million from $634 million last year, and 10% on a constant currency basis, reflecting sequential improvement. North American direct sales declined 12% on a dollar basis and 11% on a constant currency basis for the quarter, with comparable store sales down 9.5% including the impact of the Internet, which pressured total comparable stores sales by about 1.5 percentage points due to the reduction in eOutlet events. As expected, at POS, sales in North American department stores declined at a mid-teens rate versus prior year, while net sales into department stores declined to a lesser degree.

International Coach brand sales

declined 3% to $369 million from $381 million last year. On a constant currency basis, International sales rose 6%.

Total China sales rose 2% in dollars and 3% in constant currency with double-digit growth and positive comparable store sales on the Mainland offset in part by continued weakness in Hong Kong and Macau. In Japan, sales rose 6% on a constant currency basis, consistent with expectations, while dollar sales declined 10%, reflecting the weaker yen. Sales for the remaining directly operated businesses in Asia grew slightly in constant currency while down in dollars, while Europe remained very strong, growing at a double digit pace in both total and comparable store sales. At POS, sales in international wholesale locations decreased due to softness in travel retail, in turn impacted by MERS, while domestic distributor markets showed growth. Net sales into the channel also declined from prior year.

for the Coach brand totaled $647 million on both a non-GAAP and reported basis, while gross margin was 68.6%, pressured by about 60 basis points from currency.

totaled $497 million for the Coach brand on a non-GAAP basis, a decrease of 1%.

As a percentage of net sales, SG&A expenses totaled 52.7% on a non-GAAP basis. On a reported basis, SG&A expenses were...


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