How much of Coach's business comes from its own stores and channels?

The Direct-to-Consumer segment, which includes Company-operated stores in North America and Japan, the Internet and catalogs, represented approximately 80% of total net sales in fiscal 2007. North American stores and Coach Japan contributed approximately 58% and 18% of total net sales, respectively. The Indirect segment, comprising wholesale and licensing, represented approximately 20%.

What growth plans did management outline for fiscal 2008?

Management plans to add about 40 retail stores in North America, six new factory stores, and 15 to 20 new locations in Japan. It intends to open approximately 30 net new locations through distributors in Greater China, Southeast Asia and the Middle East. Total capital expenditures are expected to be about $200 million.

Why did the company exit the corporate accounts business?

In March 2007, the company exited its corporate accounts business in order to better control the location and image of the brand where Coach product is sold. That business sold products primarily to distributors for gift-giving and incentive programs. Its fiscal 2007 net sales were $66.5 million, and it is reported as discontinued operations.

How concentrated is Coach's manufacturing and supply base?

All products are manufactured by independent manufacturers located in many countries, including China, the United States, India, Hungary, Indonesia, Italy, Korea, Mauritius, Singapore, Spain, Taiwan and Turkey. No one vendor provides more than 13% of Coach's total units.

What risks does the filing highlight for investors?

The filing cites intense competition from European luxury brands and private label retailers, exposure to foreign currency and macroeconomic conditions in international markets, and the sensitivity of luxury spending to economic downturns. It also notes global sourcing risks, the cost of excess inventory if demand is misjudged, and seasonal fluctuations, with higher sales typically in the holiday-influenced second fiscal quarter.

TPR 10-K FY2007 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed August 23, 2007. Cited figures are marked; the original filing is the authoritative source.

Coach, Inc. (now Tapestry, Inc.) reported fiscal 2007 (ended June 30, 2007) net sales of $2,612.5 million^a, up 28.4% from $2,035.1 million in fiscal 2006.

Operating income rose 39.0% to $993.4 million^b, and operating margin expanded to 38.0% from 35.1%. Income from continuing operations increased 37.2% to $636.5 million, and diluted earnings per share from continuing operations rose 41.3% to $1.69. Net income was $663.7 million, or $1.76 per diluted share, including $27.1 million from discontinued operations related to the corporate accounts business, which the company exited in March 2007.

Growth was driven by the Direct-to-Consumer segment, which generated $2,101.8 million^c in net sales (about 80% of total) and rose 30.5%. North American comparable store sales increased 22.3%, and the company opened 41 new retail stores, bringing the total to 259. The Indirect segment grew 20.3% to $510.7 million, with U.S. wholesale net sales up 31%.

Handbags accounted for 64% of net sales in fiscal 2007. The balance sheet strengthened considerably, with cash, cash equivalents and investments of $1,185.8 million^d at year-end, up from $537.6 million, and stockholders' equity rising to $1,910.4 million from $1,188.7 million. Operating cash flow was $779.1 million.

The company repurchased $150.0 million of stock during fiscal 2007 and had $500 million remaining under its October 2006 authorization. Management plans capital expenditures of about $200 million for fiscal 2008, including roughly 40 new North American retail stores and 15 to 20 new Japanese locations.

02—Key points

Key Highlights

Net sales increased 28.4% to $2.61 billion, with Direct-to-Consumer sales up 30.5% to $2.10 billion.
Operating income rose 39.0% to $993.4 million, and operating margin improved to 38.0% from 35.1%.
Diluted EPS from continuing operations increased 41.3% to $1.69; net income was $663.7 million.
North American comparable store sales rose 22.3%, and retail store count grew to 259 from 218.
Cash, cash equivalents and investments grew to $1.19 billion from $537.6 million at fiscal 2006 year-end.
Exited the corporate accounts business in March 2007, reporting its results as discontinued operations.
Repurchased $150.0 million of common stock in fiscal 2007, with $500 million remaining under the October 2006 authorization.

03—Questions

Frequently Asked Questions

How much of Coach's business comes from its own stores and channels?
The Direct-to-Consumer segment, which includes Company-operated stores in North America and Japan, the Internet and catalogs, represented approximately 80% of total net sales in fiscal 2007. North American stores and Coach Japan contributed approximately 58% and 18% of total net sales, respectively. The Indirect segment, comprising wholesale and licensing, represented approximately 20%.
What growth plans did management outline for fiscal 2008?
Management plans to add about 40 retail stores in North America, six new factory stores, and 15 to 20 new locations in Japan. It intends to open approximately 30 net new locations through distributors in Greater China, Southeast Asia and the Middle East. Total capital expenditures are expected to be about $200 million.
Why did the company exit the corporate accounts business?
In March 2007, the company exited its corporate accounts business in order to better control the location and image of the brand where Coach product is sold. That business sold products primarily to distributors for gift-giving and incentive programs. Its fiscal 2007 net sales were $66.5 million, and it is reported as discontinued operations.
How concentrated is Coach's manufacturing and supply base?
All products are manufactured by independent manufacturers located in many countries, including China, the United States, India, Hungary, Indonesia, Italy, Korea, Mauritius, Singapore, Spain, Taiwan and Turkey. No one vendor provides more than 13% of Coach's total units.
What risks does the filing highlight for investors?
The filing cites intense competition from European luxury brands and private label retailers, exposure to foreign currency and macroeconomic conditions in international markets, and the sensitivity of luxury spending to economic downturns. It also notes global sourcing risks, the cost of excess inventory if demand is misjudged, and seasonal fluctuations, with higher sales typically in the holiday-influenced second fiscal quarter.

04—Continue

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