01—Abstract
Summary
Summary of the 10-K filed August 22, 2013. Cited figures are marked; the original filing is the authoritative source.
Coach, Inc. reported fiscal 2013 (52 weeks ended June 29, 2013) net sales of $5.08 billiona, up 6.6% from $4.76 billion in fiscal 2012.
North America sales rose 4.9% to $3.48 billionb, with comparable store sales up 0.3%. International sales rose 9.9% to $1.54 billion, driven by new and acquired stores and strong comparable store growth in Asia, partly offset by weak sales in Japan and a negative yen translation impact of $82.2 million. Operating income increased 0.8% to $1.52 billion, and operating margin declined to 30.0% from 31.7%, largely reflecting SG&A growth of 11.2% to $2.17 billion.
Net income decreased 0.4% to $1.03 billionc, and diluted EPS rose 2.3% to $3.61. Excluding restructuring and transformation charges of $53.2 million in fiscal 2013, non-GAAP diluted EPS was $3.73. The company is in the midst of a transformation from an international accessories business into a global lifestyle brand, anchored in accessories, with focus on men's, footwear and outerwear, international expansion, and digital growth.
Restructuring charges relate primarily to the strategic reassessment of the Reed Krakoff business, which is being sold to an investment group led by Mr. Krakoff, and to streamlining the organization and reassessing the store fleet. The company ended the year with $1.33 billiond in cash, cash equivalents and investments, no outstanding revolving borrowings, and a $700 million JP Morgan revolving facility. It also declared a 12.5% dividend increase to an expected annual rate of $1.35 per share and expanded its share repurchase authorization to $1.5 billion through June 2015, with $1.36 billion remaining at year-end.
Investors should also note the approximately $440 million expected investment in the Hudson Yards joint venture for the new corporate headquarters over three years, with $130 million to $160 million estimated in fiscal 2014, as well as the July 2013 acquisition of Hackett Limited's 50% interest in the European joint venture. Management also announced the departures of Mike Tucci and Jerry Stritzke in August 2013 and the appointment of Stuart Vevers as Executive Creative Director.
02—Key points
Key Highlights
- Net sales rose 6.6% to $5.08 billion, with North America up 4.9% to $3.48 billion and International up 9.9% to $1.54 billion.
- Operating income increased 0.8% to $1.52 billion, but operating margin fell to 30.0% from 31.7% as SG&A expenses grew 11.2% to $2.17 billion.
- Net income decreased 0.4% to $1.03 billion; diluted EPS increased 2.3% to $3.61, and non-GAAP diluted EPS was $3.73 excluding $53.2 million of restructuring and transformation charges.
- Comparable store sales in North America increased 0.3%, while Asia comparable store sales grew strongly, led by double-digit growth in China.
- The Board increased the expected annual dividend rate 12.5% to $1.35 per share and approved a new $1.5 billion share repurchase program through June 2015, with $1.36 billion remaining at year-end.
- Cash, cash equivalents and investments totaled $1.33 billion at June 29, 2013, with no outstanding borrowings under the $700 million revolving credit facility.
- The company plans roughly $440 million of investment in the Hudson Yards joint venture for its new headquarters over three years, and expects fiscal 2014 capital expenditures of approximately $280 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Tapestry kept $0.20.
- Revenue$5.08B100.0%
- Cost of revenue−$1.38B27.1%
- Gross profit$3.70B72.9%
- Operating costs−$2.17B42.8%
- Operating income$1.52B30.0%
- Interest, other & tax−$490.1M9.7%
- Net income$1.03B20.4%
Where FY2013 revenue went
$5.08B- SG&A: $2.17B, 43% of revenue
- Cost of revenue: $1.38B, 27% of revenue
- Net income: $1.03B, 20% of revenue
- Interest, other & tax: $490.1M, 9.7% of revenue
Kept 20% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed August 22, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $5.08B$4.76B | +6.6% |
| Cost of Revenue | $1.38B$1.30B | +6.2% |
| Gross Profit | $3.70B$3.47B | +6.7% |
| SG&A Expenses | $2.17B$1.95B | +11.2% |
| Operating Income | $1.52B$1.51B | +0.8% |
| Interest Expense | $1.40M— | — |
| Net Income | $1.03B$1.04B | −0.4% |
| EPS (Basic) | $3.66$3.60 | +1.7% |
| EPS (Diluted) | $3.61$3.53 | +2.3% |
| Shares Outstanding (Basic) | 282.50M288.28M | −2.0% |
| Shares Outstanding (Diluted) | 286.30M294.13M | −2.7% |
05—Questions
Frequently Asked Questions
Why did operating margin decline in fiscal 2013 despite higher sales?
Operating margin fell to 30.0% from 31.7% because SG&A expenses rose 11.2% to $2.17 billion, or 42.8% of net sales versus 41.0% in fiscal 2012. The filing attributes the increase mainly to higher selling expenses from International stores reflecting higher sales and new store openings, higher North American Internet expenses, and $48.4 million of restructuring and transformation charges recorded in SG&A. Excluding items affecting comparability, SG&A was 41.9% of net sales in fiscal 2013.
What is the status of the Reed Krakoff business?
Coach entered into a binding agreement to sell the Reed Krakoff business to an investment group led by Reed Krakoff, who is resigning. Coach will receive ten dollars in cash and an approximate 15% equity interest in the newly formed company, subject to adjustment, and the buyer will assume certain liabilities. The closing is subject to conditions, including the buyer receiving additional equity financing, and either party may terminate if closing has not occurred by August 31, 2013. The sale is anticipated to close by the end of the first quarter of fiscal 2014.
How is Coach investing in its new corporate headquarters?
Coach invested $93.9 million in fiscal 2013 in the Hudson Yards joint venture, a financing vehicle for a Manhattan office tower in which the company owns less than 43%. The company expects to invest approximately $440 million in the joint venture over the next three years, with $130 million to $160 million estimated in fiscal 2014. Coach also expects about $190 million of additional direct capital expenditures for the headquarters build-out, after $24.8 million in fiscal 2013. The investment will be financed with cash on hand, credit facility borrowings and approximately $130 million from the sale of current headquarters buildings. Occupancy is expected in calendar 2015.
How much of Coach's sales come from outside North America, and where is growth coming from?
The International segment represented approximately 31% of total net sales in fiscal 2013. International net sales rose 9.9% to $1.54 billion, driven by new and acquisition-related stores, including the acquired Korea and Malaysia businesses, and by the company opening 42 net new stores, including 30 in mainland China, Hong Kong and Macau and 11 in Japan. Weak sales performance in Japan and a $82.2 million negative foreign exchange impact from the yen partially offset this growth.
What are the key risks to investors highlighted in the filing?
The filing highlights risks including macroeconomic conditions affecting discretionary luxury spending, the execution of the global lifestyle brand transformation and international expansion, intense competition from European and American luxury and private label brands, and the need to anticipate fashion trends. It also cites risks from international operations such as currency fluctuations, cyber security threats, global sourcing and rising labor and transportation costs, dependence on licensing partners, and cost overruns on the new headquarters. For HDR holders, risks include limited trading liquidity on the Hong Kong Stock Exchange and reliance on the depositary to exercise voting rights.
06—Continue