China Sales Help Boost Coach Q1 Profit

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Photographer Peter Lindbergh shot Gwyneth Paltrow for Coach's Spring/Summer ad campaign

New York—Coach Inc. reported today that its third quarter profit jumped 21% helped by strong sales especially in China.

For the quarter ended March 31, Coach posted a profit of $225 million, or 77 cents a share, up from $186 million, or 62 cents, a year earlier. Total sales grew 17% to $1.11 billion.

The American luxurygoods company once again beat analysts’ average estimate expecting earnings of 75 cents on revenue of $1.11 billion. That makes the fourth quarter in a row Coach beat analysts’ estimate.

Direct-to-consumer sales, which now include its Singapore business, increased 18% to $984 million. Comparable store sales rose 6.7% in North America.

By region, Japan had a 10% increase on a constant-currency basis. China, which the company has called its largest geographic growth opportunity, saw sales grow 60%, driven by distribution growth and double-digit same-store sales.

Indirect sales rose 10% to $125 million. Gross margin rose to 73.8% from 72.8%.

“Our excellent results this quarter and the trends we’re continuing to experience reflect the vibrancy of the Coach proposition. Given the strength of our business, we remain confident in our ability to continue to drive sales and earnings at a double-digit pace over our planning horizon,” Lew Frankfort, chairman/ceo, said.

Coach’s board of directors also voted to increase the cash dividend to an annual rate of $1.20 from 90 cents, starting with the dividend to be paid in July.

Meanwhile, Coach changed its pricing strategy at its off-price factory stores, eliminating in-store coupons as part of a new “no math” pricing structure. The company says the new method gives it more flexibility. “Complementing this strategy, we broadened our e-commerce factory programs and continued to refine our initiatives across all aspects of digital media,” Frankfort added.

Legacy Collection Launches in August

With its directly-operated business in China, which is expected to generate $300 million in sales this year, Coach is also taking control of other Asian retail businesses including Taiwan, Malaysia in July and Korea effective in 2013, Frankfort said.

Coach's new Legacy collection premieres in August

Another growth area for Coach has been men’s which Frankfort said it on track “to double to over $400 million this year. Given the success of men’s, we are now accelerating the rollout of men’s within existing retail stores,” Frankfort said. “By the end of this fiscal year, we expect to have a broader expression of men’s in nearly 100 Coach retail stores in North America, up from 42 at the end of the third quarter. Outside the U.S., where Men participate in the category at a higher rate, new dual gender and dedicated men’s shops are the primary distribution growth vehicles.”

Looking ahead, Coach will introduce its Legacy collection in August. “We’re particularly pleased with the reception that both the Willis and Hamptons Weekend groups are enjoying worldwide,” Frankfort said. “The strong response to both groups, which were inspired by successful collections from our archives, reinforce our confidence in the performance of our next significant platform, Legacy.”

The Legacy collection will be inspired by the brand’s heritage “grounded in leather and featuring iconic Coach elements.” Legacy will encompass a full range of women’s and men’s bags, small leathergoods, outerwear, footwear, jewelry, watches, and scarves.

During its third quarter in North America, Coach opened one retail store, closed another and opened five factory outlets include two men’s factory stores, bringing the brand’s total retail stores to 350 and 162 factory stores.

In China, five new locations were opened during the quarter, all on the mainland, bringing the total to 85. In Japan, Coach opened three locations and closed three others keeping the total at 184.



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