01—Abstract
Summary
Summary of the 10-K filed August 21, 2008. Cited figures are marked; the original filing is the authoritative source.
Coach, Inc. (now Tapestry, Inc.) reported fiscal 2008 (ended June 28, 2008) net sales of $3,180,757 thousanda, up 21.8% from $2,612,456 thousand in fiscal 2007, and income from continuing operations of $783,039 thousand, up 23.0%.
Diluted earnings per share from continuing operations were $2.17b, up 28.8%. Results include one-time items that netted to a $41.0 million gain in the fourth quarter, including a $20.0 million initial contribution to the Coach Foundation and a $50.0 million tax benefit primarily from a favorable tax return examination settlement. Excluding these items, diluted EPS from continuing operations was $2.06, up 21.9%.
Gross margin declined to 75.7%c from 77.4%, and operating margin fell to 36.1% from 38.0%, as management attributed the gross margin change to promotional activities in Coach-operated North American stores, currency translation and channel mix. The Direct-to-Consumer segment generated approximately 80% of fiscal 2008 net sales, with North American stores, Coach Japan and the Internet contributing about 59%, 19% and 2%, respectively. Coach operated 297 North American retail stores, 102 factory stores and 149 Coach Japan locations at year-end.
Management's stated growth strategies include adding about 40 North American retail stores per year, reaching about 500 stores in North America, and acquiring the Greater China retail businesses from its distributor ImagineX in fiscal 2009. The company repurchased 39.7 million shares for $1.34 billiond in cash during fiscal 2008, leaving $163.4 million available under its $1.0 billion program expiring June 2009. Cash, cash equivalents and investments totaled $706.9 million at year-end, down from $1,185.8 million, and the company had no borrowings under its $100 million revolving credit facility.
02—Key points
Key Highlights
- Net sales rose 21.8% to $3.18 billion, with Direct-to-Consumer sales up 21.0% to $2.54 billion and Indirect sales up 24.7% to $636.7 million.
- Diluted EPS from continuing operations was $2.17 (up 28.8%); excluding one-time items it was $2.06 (up 21.9%).
- Gross margin declined to 75.7% from 77.4%, and operating margin declined to 36.1% from 38.0%.
- North American comparable store sales rose 9.8%, and Coach opened 38 net new retail stores and nine new factory stores in North America.
- Repurchased 39.7 million shares for $1.34 billion during fiscal 2008; $163.4 million remained under the $1.0 billion program.
- Agreed to acquire the Greater China retail businesses from ImagineX in phases, expected to be completed in fiscal 2009, and agreed to buy its New York headquarters building for $128 million.
- Cash, cash equivalents and investments fell to $706.9 million from $1,185.8 million, while stockholders' equity fell to $1.52 billion from $1.91 billion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Tapestry kept $0.25.
- Revenue$3.18B100.0%
- Cost of revenue−$773.7M24.3%
- Gross profit$2.41B75.7%
- Operating costs−$1.26B39.6%
- Operating income$1.15B36.1%
- Interest, other & tax−$364.1M11.4%
- Net income$783.1M24.6%
Where FY2008 revenue went
$3.18B- SG&A: $1.26B, 40% of revenue
- Net income: $783.1M, 25% of revenue
- Cost of revenue: $773.7M, 24% of revenue
- Interest, other & tax: $364.1M, 11% of revenue
Kept 25% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed August 21, 2008Financial Statements
| Revenue | $3.18B |
| Cost of Revenue | $773.65M |
| Gross Profit | $2.41B |
| SG&A Expenses | $1.26B |
| Operating Income | $1.15B |
| Net Income | $783.05M |
| EPS (Basic) | $2.20 |
| EPS (Diluted) | $2.17 |
| Shares Outstanding (Basic) | 355.73M |
| Shares Outstanding (Diluted) | 360.33M |
05—Questions
Frequently Asked Questions
What drove the increase in fiscal 2008 earnings?
Income from continuing operations rose 23.0% to $783.0 million, driven primarily by a 21.8% increase in net sales. The filing also cites a $50.0 million one-time tax benefit, mainly from a favorable tax return examination settlement, and a net one-time gain of $41.0 million in the fourth quarter. Excluding one-time items, income from continuing operations was $742.0 million, up 16.6%.
Why did gross and operating margins decline?
Gross margin fell to 75.7% from 77.4%, which management attributed to promotional activities in Coach-operated North American stores, foreign currency translation rates and channel mix. Operating margin fell to 36.1% from 38.0% as the gross margin decline and higher operating expenses outweighed sales growth. SG&A expenses rose 22.4% to $1.26 billion, mainly from selling expenses.
How is Coach expanding its store base and international presence?
Management plans to add about 40 North American retail stores per year and believes North America can support about 500 retail stores, including up to 20 in Canada. It plans about 10 net new locations in Japan in fiscal 2009, and intends to acquire the Greater China retail businesses from ImagineX in phases, with the acquisition expected to be completed in fiscal 2009.
How much did Coach return to shareholders and what capacity remains?
During fiscal 2008 Coach repurchased and retired 39.7 million shares at an average cost of $33.68, totaling $1.34 billion in cash. As of June 28, 2008, $163.4 million remained under the program approved in November 2007 for up to $1.0 billion through June 2009. The company stated it has never declared or paid cash dividends and does not plan to pay regular cash dividends.
What are the main risks highlighted in the filing?
The filing cites intense competition from European luxury brands and private label retailers, including some wholesale customers; exposure to international operations and foreign currency movements, with about 25% of net sales from outside the U.S.; sensitivity of luxury spending to economic downturns; risks from global sourcing; and the potential for excess inventory if demand is misjudged. It also notes seasonal and quarterly fluctuations, with the second fiscal quarter historically the strongest.
06—Continue