01—Abstract
Summary
Summary of the 10-K filed September 9, 2005. Cited figures are marked; the original filing is the authoritative source.
Coach, Inc. (now Tapestry, Inc.) reported fiscal 2005 (year ended July 2, 2005) net sales of $1,710.4 milliona, up 29.5% from $1,321.1 million in fiscal 2004, and operating income of $621.8 million, up 39.9%.
Net income rose 48.5% to $388.7 millionb, or $1.00 per diluted share. Gross margin expanded to 76.6% from 74.9%, which the company attributed to channel mix, product mix and sourcing cost initiatives. Direct-to-consumer channels represented approximately 55% of total net sales, and indirect channels approximately 45%.
The company expanded its store base, opening 19 North American retail stores and seven factory stores during the year, and ended the year with 193 retail stores and 82 factory stores in North America. On July 1, 2005, Coach completed the purchase of Sumitomo Corporation's 50% interest in Coach Japan, Inc. for $228.4 millionc plus undistributed profits and paid-in capital of $72.9 million, making Coach Japan a wholly owned consolidated subsidiary. Cash and short-term and long-term investments remained substantial, while the company repurchased 11.0 million shares at an average cost of $24.09 and had approximately $250 million remaining under its May 2005 repurchase program.
Coach reported stockholders' equity of $1,032.8 milliond at July 2, 2005, up from $782.3 million a year earlier, and total assets of $1,347.1 million. The company stated that it has never declared or paid cash dividends on its common stock, and its management concluded that internal control over financial reporting was effective as of July 2, 2005.
02—Key points
Key Highlights
- Net sales of $1,710.4 million in fiscal 2005, up 29.5% from $1,321.1 million in fiscal 2004.
- Operating income of $621.8 million, up 39.9%; net income of $388.7 million, up 48.5%, or $1.00 per diluted share.
- Gross margin rose to 76.6% from 74.9%, driven by channel mix, product mix and sourcing cost initiatives.
- Direct-to-consumer channels accounted for approximately 55% of net sales; indirect channels, including Coach Japan and U.S. wholesale, approximately 45%.
- Acquired Sumitomo's 50% interest in Coach Japan, Inc. on July 1, 2005 for $228.4 million plus $72.9 million of undistributed profits and paid-in capital.
- Repurchased 11.0 million shares in fiscal 2005 at an average cost of $24.09; approximately $250 million remained under the May 2005 repurchase program.
- Plans to open approximately 20 to 25 North American retail stores per year over the next four to five years.
03—Questions
Frequently Asked Questions
How did Coach perform financially in fiscal 2005?
Net sales rose 29.5% to $1,710.4 million, operating income increased 39.9% to $621.8 million, and net income grew 48.5% to $388.7 million, or $1.00 per diluted share. Gross margin improved 170 basis points to 76.6%.
What drove the improvement in gross margin?
The company attributed the improvement to a shift in channel mix toward higher-margin channels (about 80 basis points), a shift in product mix toward higher-margin mixed material products and accessories (about 60 basis points), and sourcing cost initiatives (about 30 basis points).
Why did Coach acquire the remaining interest in Coach Japan?
On July 1, 2005, Coach completed the purchase of Sumitomo's 50% interest in Coach Japan, Inc. for $228.4 million plus $72.9 million of undistributed profits and paid-in capital. The filing states that Coach Japan is now a consolidated subsidiary, and the company intends to reinvest its earnings offshore.
Does Coach pay dividends, and how is it returning capital to shareholders?
Coach has never declared or paid cash dividends on its common stock and intends to retain future earnings. It returned capital through share repurchases, buying back 11.0 million shares in fiscal 2005 for a total of $264.9 million in cash, with approximately $250 million remaining under the May 2005 program.
What are the main risks identified in the filing?
Key risks include the company's ability to execute its growth strategies and respond to changing fashion trends, intense competition, sensitivity of discretionary luxury spending to economic downturns, dependence on independent overseas manufacturers and international sales, foreign exchange exposure, and the protection of trademarks against counterfeiting.
04—Continue