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Coach (COH)

Q2 2011 Earnings Call

January 25, 2011 8:30 am ET


Michael Tucci - President of Retail Division - North America

Andrea Resnick - Senior Vice President of Investor Relations & Corporate Communications

Lew Frankfort - Chairman and Chief Executive Officer

Michael Devine - Chief Financial Officer, Chief Accounting Officer and Executive Vice President


Dana Telsey - Telsey Advisory Group

Christine Chen - Needham & Company, LLC

Robert Drbul - Barclays Capital

Brian Tunick - JP Morgan Chase & Co

Omar Saad - Crédit Suisse AG

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

Jennifer Black - Jennifer Black & Associates

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Neely Tamminga - Piper Jaffray Companies

Kimberly Greenberger - Morgan Stanley

Laura Champine - Cowen and Company, LLC

Lorraine Hutchinson - BofA Merrill Lynch



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Good day, and welcome to the Coach Conference Call. [Operator Instructions] At this time, for opening remarks and introductions, I'd like to turn the call over to Senior Vice President of Investor Relations and Corporate Communications at Coach, Ms. Andrea Shaw Resnick. You may begin.

Andrea Resnick

Thank you Shirley. Good morning, and thank you for joining us. With me today to discuss our quarterly results are Lew Frankfort, Coach's Chairman and CEO; and Mike Devine, Coach's CFO. Mike Tucci, President of North American Retail is also joining us to discuss our holiday performance and spring initiative.

Before we begin, we'd now point out that this conference call will involve certain forward-looking statements, including projections for our business in the current or future quarters or fiscal year. These statements are based upon a number of continuing assumptions. Future results may differ materially from our current expectations and based upon a variety of risks and uncertainties, such as expected economic trends or our ability to anticipate consumer preferences. Please refer to our latest annual report on Form 10-K for a complete list of these risk factors. Also please note that the historical growth trends may not be indicative of future growth.

Now let me outline that the speakers and topics for this conference call. Lew Frankfort will provide an overall summary of our second fiscal quarter 2011 results. He will also discuss strategies going forward. Mike Tucci will review the holiday season from the U.S. retail perspective and discuss key initiatives for the spring season ahead. Mike Devine will continue with details on financial and operational results of the quarter. Following that, we will hold a question-and-answer session that will end shortly before 9:30 a.m. We will then conclude with some brief summary comments.

I'd now like to introduce Lew Frankfort, Coach's Chairman and CEO.

Lew Frankfort

Thanks, Andrea, and welcome, everyone. As noted in our release this morning, we were very pleased with our holiday results, including strong sales and earnings growth and exceptional comparable store sales in our North American Retail businesses. Our performance clearly demonstrates the brands of vibrancy across channels and geographies and bodes well for future growth. Beyond the top line, we were also very pleased with our high levels of profitability and substantial cash generation.

In addition, we made continued progress against our global business initiatives, including international expansion, Men's, and digital media. We experienced strong response to our new collections, and our pricing and assortment strategy continued to resonate with consumers worldwide. We're well situated to build upon our leadership position and continue to gain market share. Further, the announcement today of the authorization of a new buyback program reflects our financial strength and our confidence in Coach's future.

While I will get into more detail about the outlook for the category and our business shortly, I did want to take the time to review our quarter first. Some key highlights of our second fiscal quarter were: First, earnings per share rose 33% to $1 compared with $0.75 in the prior year; second, quarterly net sales totaled $1.26 billion versus $1.1 billion a year ago, an increase of 19%; third, Direct-to-Consumer sales rose 17% to $1.1 billion from $934 million in the prior year on a comparable basis; fourth, North American same-store sales for the quarter accelerated, writing 12.6% from prior year, while total North American Direct-to-Consumer sales rose 17%; and fifth, sales in Japan were even to prior year in constant currency and rose 8% in dollars; and finally, we continue to generate very strong sales growth and significant double digit comps in China.

During the quarter, we opened two North American retail stores both in Canada, as well as one factory store. Thus, at the end of the period, there were 347 Full Price and 129 factory stores in operation in North America.

Moving to Japan, one Coach shop-in-shop was opened in addition to a travel retail location. At quarter end, they were 171 total locations in Japan with 20 Full Price stores, including eight flagships, 117 shop-in-shops, 27 factory stores and seven distributor-operated travel retail locations.

And in China, we added three new locations all in the mainland. At the end of the quarter, they were 52 Coach locations in China, including 10 in Hong Kong, two in Macau and 40 locations on the mainland in 16 cities. As we've discussed previously, we are building a multichannel distribution model in China, including flagships, retail stores, shop-in-shops and factory stores.

Indirect sales increased 28% to $168 million from $131 million in the same period last year. This gain reflected significant growth in shipments into international wholesale and U.S. department stores given positive POS sales trends notably in the international business. Specifically, sales for the quarter at retail and international wholesale locations were very strong driven by double-digit gains in same-store sales and new distribution, while sales at POS and U.S. department stores rose 3% for the quarter.

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