01—Abstract
Summary
Summary of the 10-K filed September 16, 2004. Cited figures are marked; the original filing is the authoritative source.
Coach, Inc. (now Tapestry, Inc.) reported fiscal 2004, its 53-week year ended July 3, 2004, with net sales of $1,321.1 milliona, up 38.6% from $953.2 million in fiscal 2003.
Operating income rose to $444.5 millionb from $243.8 million, an 82.3% increase, and net income reached $261.7 million, or $1.36 per diluted share, compared with $146.6 million in fiscal 2003. Gross margin expanded to 74.9% from 71.1%, which the company attributed to channel mix, product mix and sourcing cost initiatives. Direct-to-consumer sales represented approximately 55% of net sales and indirect channels approximately 45%, with Coach Japan, Inc. a consolidated joint venture contributing $278.0 million of net sales.
The balance sheet strengthened considerably, with stockholders' equity rising to $782.3 millionc from $426.9 million and cash and cash equivalents of $262.7 million, plus $301.7 million of short- and long-term investments. The company had no borrowings under its $100 million Fleet revolving credit facility at fiscal year-end. Management plans to open approximately 100 North American retail stores over the next four to five years, bringing the base to over 275 stores, and expects to continue driving gross margin improvement.
The company also disclosed a $200 milliond increase to its stock repurchase program in August 2004, bringing the total authorization to $380 million, with approximately $210 million expended as of September 4, 2004. The filing notes risks including dependence on discretionary luxury spending, foreign exchange exposure tied to Coach Japan, reliance on independent manufacturers, and intense competition. It also describes a poison pill rights plan and Maryland anti-takeover provisions, and states that Coach has never paid cash dividends.
02—Key points
Key Highlights
- Net sales of $1,321.1 million in fiscal 2004, up 38.6% from $953.2 million in fiscal 2003
- Operating income of $444.5 million, up 82.3% from $243.8 million; gross margin of 74.9% versus 71.1% a year earlier
- Net income of $261.7 million, or $1.36 per diluted share, compared with $146.6 million, or $0.79 per diluted share, in fiscal 2003
- Indirect channel sales grew 51.0% to $594.6 million, driven by Coach Japan, Inc., where net sales increased $100.4 million
- Net cash from operating activities of $448.6 million, up from $221.6 million in fiscal 2003
- No borrowings outstanding under the $100 million Fleet revolving credit facility at July 3, 2004; cash and equivalents of $262.7 million
- Stock repurchase authorization increased by $200 million in August 2004 to $380 million total, with plans to open about 100 North American retail stores over four to five years
03—Questions
Frequently Asked Questions
How much did Coach's sales and profitability grow in fiscal 2004?
Net sales rose 38.6% to $1,321.1 million, operating income rose 82.3% to $444.5 million, and net income increased to $261.7 million from $146.6 million. Fiscal 2004 was a 53-week year, and the extra week contributed approximately $19.5 million of net sales.
What drove the improvement in gross margin?
Gross margin increased to 74.9% from 71.1%. The filing attributes about 140 basis points to a shift in channel mix toward higher-margin channels, about 120 basis points to product mix including higher-margin mixed-material products and accessories, and about 120 basis points to sourcing cost initiatives.
How is Coach's business divided between direct and indirect channels?
Direct-to-consumer sales were $726.5 million, or 55.0% of net sales, in fiscal 2004, up 29.8%. Indirect sales were $594.6 million, or 45.0% of net sales, up 51.0%, with Coach Japan, Inc. a key driver.
What are Coach's plans for capital returns and expansion?
In August 2004 the board increased the stock repurchase program by $200 million and extended it through August 2006, bringing the authorization to $380 million, with about $210 million expended as of September 4, 2004. The company plans to open about 100 North American retail stores over the next four to five years and at least nine store expansions in fiscal 2005. The company has never declared or paid cash dividends.
What are the main risks identified in the filing?
Key risks include the ability to anticipate fashion trends and manage inventory, intense competition including private label products, sensitivity of discretionary luxury spending to economic downturns, foreign exchange exposure at Coach Japan and in international wholesale, reliance on independent manufacturers in lower-cost countries, and the protection of trademarks against counterfeiting.
04—Continue