01—Abstract
Summary
Summary of the 10-K filed August 25, 2006. Cited figures are marked; the original filing is the authoritative source.
Coach, Inc. reported a strong fiscal 2006 (year ended July 1, 2006).
Net sales rose 23.4% to $2.11 billiona from $1.71 billion, and net income rose 37.8% to $494.3 million, or $1.27 per diluted share, compared with $358.6 million, or $0.92 per share, a year earlier. Gross margin improved to 77.6% from 76.6%, and operating income increased 33.5% to $764.6 million. The Direct-to-Consumer segment, which includes North American stores, Coach Japan, the Internet and catalogs, generated $1.61 billion in net sales, up 23.2%, while the Indirect segment (wholesale and business-to-business) generated $500.8 million, up 24.3%.
The company continued to expand its store base, ending fiscal 2006 with 218 North American retail stores, 86 factory stores and 118 Coach Japan locations. Management plans to add at least 35 new U.S. retail and factory stores and at least 15 net new Japanese locations in fiscal 2007, with capital expenditures expected to be about $150 millionb. Coach repurchased 19.1 million shares at an average cost of $31.50 during the year and had approximately $150 million remaining under its stock repurchase program at year end.
The company held $537.6 millionc in cash, cash equivalents and investments and reported no outstanding borrowings under its Bank of America revolving facility. The filing identifies key risks including dependence on successful new product introductions, intense competition, international operations (about 25% of net sales from outside the U.S.), discretionary luxury spending during economic downturns, and global sourcing exposure. Coach has never paid cash dividends, and management stated that its internal control over financial reporting was effective as of July 1, 2006.
02—Key points
Key Highlights
- Net sales increased 23.4% to $2,111.5 million in fiscal 2006, compared with $1,710.4 million in fiscal 2005.
- Net income rose 37.8% to $494.3 million, or $1.27 per diluted share, versus $0.92 per diluted share in fiscal 2005.
- Gross margin expanded 100 basis points to 77.6%, and operating margin improved to 36.2% from 33.5%.
- Direct-to-Consumer net sales grew 23.2% to $1.6 billion, with comparable store sales in the U.S. up 20.7%.
- Indirect segment net sales grew 24.3% to $500.8 million, driven by U.S. wholesale, international wholesale and business-to-business growth.
- The company ended fiscal 2006 with 218 North American retail stores, 86 factory stores and 118 Coach Japan locations, and plans at least 35 new U.S. retail and factory stores in fiscal 2007.
- Coach repurchased 19.1 million shares for about $600 million during fiscal 2006 and had approximately $150 million remaining under its repurchase program at year end.
03—Questions
Frequently Asked Questions
How did Coach perform financially in fiscal 2006?
Coach reported net sales of $2.11 billion, up 23.4%, and net income of $494.3 million, up 37.8%. Diluted earnings per share were $1.27, compared with $0.92 in fiscal 2005. Operating income grew 33.5% to $764.6 million.
What are the main drivers of Coach's growth?
The filing attributes growth to new and expanded stores in North America and Japan, comparable store sales gains (U.S. comparable store sales up 20.7%), and wholesale growth in the Indirect segment. Gross margin also improved through supply chain initiatives and product mix shifts.
What is Coach's store expansion plan?
Coach plans to add about 100 North American retail stores over the next three years, bringing the base to over 300. It believes North America can eventually support about 400 stores and Japan at least 180 locations. For fiscal 2007, it expects to open at least 35 new U.S. retail and factory stores and at least 15 net new Japanese locations, with capital expenditures of about $150 million.
What are the key risks described in the filing?
Risks include the need to successfully develop and launch new products, intense competition including private label retailers, international operations (about 25% of net sales from outside the U.S.), reduced luxury spending in economic downturns, global sourcing disruptions, excess inventory if demand is misjudged, and seasonal and quarterly fluctuations.
Does Coach pay dividends and how is it returning capital to shareholders?
Coach has never declared or paid cash dividends and currently intends to retain earnings. It returns capital through share repurchases, buying back 19.1 million shares in fiscal 2006 at an average cost of $31.50, with about $150 million remaining under its program as of July 1, 2006.
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