Coach 4Q Net Increases 34% as N America, China, Sales Rebound

CoachNew York—Coach reported today that its fourth-quarter net income rose 34% due mostly to sales increases in North America and China.

The upbeat figures reaffirm that the luxury leathergoods company’s strategy of offering more lower priced handbags like its less expensive Poppy line as well as its expansion into Asia are paying off.

In the quarter ended July 3, net income rose to $195.5 million, or 64 cents per share. That compares with $145.8 million, or 45 cents per share, last year.  Revenue rose 22% to $950.5 million. Analysts expected $888.9 million.

Coach said an extra week in the quarter added $70 million in revenue. Lew Frankfort, ceo, said market share grew in all regions.  Revenue in the company’s own stores open at least a year rose 6.3% in North America.

As for its wholesale business, Frankfort reported that shipments to U.S. department stores were flat during the quarter compared with a year earlier. However, he added that was better than losing sales to discounting. “We have been reluctant to be promotional.”

In China, revenue in stores open at least a year rose in the double digits. While China still only accounts for only about 3% of Coach’s sales, Frankfort said that by mid-decade, that could rise to 10%, or about $500 million.

Coach’s gross margins rose 2.9 percentage points to 73.3%, in part because of a drop in leather prices. Frankfort said he expects the costs of raw materials to edge upward.

Full Year Results

Frankfort said the year marked several first for the brand: the first year of direct operation of stores in China, the opening of Coach’s first standalone men’s stores and expansion in Western Europe.

For the full year, net income rose 18% to $734.9 million, or $2.33 per share, from $623.4 million, or $1.91 per share. Sales revenue rose 12% to $3.61 billion.

Frankfort said the company plans to focus more on men’s products such as wallets and accessories as a way to increase sales.”We now believe men’s will be a significant contributor to top line sales in the seasons and years ahead.”

Frankfort said he expects net income and revenue to rise “at a double-digit pace,” in fiscal 2011. During the quarter Coach bought back about 10.9 million shares for $450 million. About $560 million remain under the company’s repurchase program.

As of July 3, Coach had about $696.4 million in cash, cash equivalents and short-term investments.

 

 

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