Q1 2011 Earnings Call
October 26, 2010 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
Randal Konik - Jefferies & Company, Inc.
Robert Drbul - Barclays Capital
Paula Torch - Needham & Company, LLC
Brian Tunick - JP Morgan Chase & Co
David Schick - Stifel, Nicolaus & Co., Inc.
Laura Champine - Cowen and Company, LLC
Lorraine Hutchinson - BofA Merrill Lynch
Previous Statements by COH
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Good day, and welcome to the Coach Conference Call. [Operator Instructions] At this time, for opening remarks and introductions, I would 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.
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 for a holiday preview.
Before we begin, we must point out that this conference call will involve certain forward-looking statements, including projections for our business in the current or future quarters of fiscal year. These statements are based upon a number of continuing assumptions. Future results may differ materially from our current expectations based upon 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 historical growth trends may not be indicative of future growth.
Now let me outline the speakers and topics for this conference call. Lew Frankfort will provide an overall summary of our first fiscal quarter 2011 results and will also discuss our progress on global initiatives. Mike Tucci will review our key programs for the holiday season. Mike Devine will conclude with details on financial and operational highlights for 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 now introduce Lew Frankfort, Coach's Chairman and CEO.
Thanks, Andrea, and welcome, everyone. As noted in our press release, we posted an excellent quarter as key financial metrics show double-digit growth and bottom line results that well exceeded top line sales. All of our business units posted strong performances despite muted consumer spending as the merchandising, marketing and pricing strategies, we put into place in FY '10, continued to drive growth.
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 collections, and our pricing and assortment strategy continued to resonate with consumers worldwide.
Beyond the top line, we were also very pleased with our high-level of profitability and substantial cash generation in the first quarter. Looking forward, we're very pleased the current trends we're experiencing in the business and are well positioned for the upcoming holiday season.
While I would get into further detail about current conditions and the outlook for our business shortly, I did want to take the time to review our quarter first. Some highlights were: First, net sales totaled $912 million versus $761 million a year ago, an increase of 20%; second, earnings per share totaled $0.63, up 43% from prior year; third, direct-to-consumer sales rose 19% to $775 million from $654 million in the prior year; fourth, North American same-store sales for the quarter rose 8.5% from prior year while total store sales rose 17%; fifth, sales in Japan rose 14% in dollars and 3% on constant-currency basis despite the difficult environment; and finally, in China, we continue to generate very strong sales growth with a continuation of significant double-digit comps.
During the quarter, we opened three North American retail stores, including one in the Newmarket for Coach, Corpus Christi, Texas. In addition, we opened seven factory stores, including our first five Men's stand-alone factory stores. At the end of the period, there were 345 full price and 128 factory stores in operation in North America.
Moving on to China, we opened eight locations, all in the Mainland during the quarter, bringing the total number to 49 locations. And in Japan, two locations were added during the quarter, including our first Men's stand-alone factory location. At quarter end, there were 169 total locations in Japan with 20 stand-alone full Price stores including eight flagships, 116 shop-in-shops, 27 factory stores and six distributor-operated locations.
Indirect sales, which the context now represents about 12% of Coach's sales on an annualized basis, decreased 27% to $136 million from $108 million in the same period last year. This gain reflected significant growth in shipments into U.S. department stores and international wholesale locations, given positive POS sales notably in our international businesses and expectations for a stronger holiday season for Coach.
Specifically, sales at POS in U.S. department stores rose slightly for the quarter. At the same time, international Retail sales grow sharply, driven by both distribution growth and comparable store sales. The international traveler represents a meaningful growth opportunity as Coach's global awareness and presence expands.
We estimate that the addressable U.S. handbag and accessory category rose about 5% to 10% last quarter, similar to the increase we experienced in the first six months of the calendar year. At the same time, Coach's bag and accessories sales rose about 16% across all channels in North America over the same period. In our own stores, handbag and accessories sales rose 20%. It's worth noting that our customers' future purchasing intent is at the highest level we have seen in the last two years.