Coach Rolls Past Estimates - TheStreet

Coach Rolls Past Estimates

After posting 80% growth in earnings, the luxury goods maker raised guidance.
Publish date:

Updated from 10:40 a.m. EDT



new fiscal year began as its last one ended: with huge earnings growth on strong sales.

In its quarter ended September 27, the handbag maker and retailer earned $42.33 million, or 22 cents a share. On a per-share basis, that result was up more than 80% from the same period a year ago, when Coach earned $22.48 million, or 12 cents a share.

Revenue at the luxury goods company increased 34% from the first quarter last year to $258.38 million.

The results blew through Wall Street's estimates. Analysts surveyed by Thomson First Call were expecting Coach to earn 18 cents a share on $246.36 million in sales.

Riding that performance, the company told analysts to raise their second quarter estimates and upped its guidance for the second quarter and the full year.

Coach now expects to earn 44 cents a share on $385 million in sales in the second quarter. For the full year, the company forecasts that it will earn $1.09 per share on sales of $1.2 billion.

Analysts were calling for earnings of 42 cents a share in the second quarter on $370.17 million in revenue. For all of fiscal 2004, analysts had projected Coach would earn $1 a share on sales of $1.15 billion.

Last quarter, Coach officials

projected the company would earn a split-adjusted 96 cents a share this fiscal year on $1.1 billion in revenue. The luxury goods chain completed a 2-for-1 split in its stock earlier this month.

Coach saw strong revenue growth in its first quarter through much of its operations. Sales through its U.S. retail operations grew 26% to $134.5 million. On a same-store basis, which compares results at like locations open more than one year, the company's sales grew by 17.8%.

Meanwhile, revenue from the company's wholesale operations -- which sells Coach bags and accessories to department stores and to the company's Coach Japan joint venture -- grew 44% to $123.9 million.

In addition to the revenue gains, Coach was able to boost its earnings by controlling expenses in the quarter. The company's gross profit margin -- the difference between what a company charges customers for its products and what those products cost it to produce or sell -- rose 4 percentage points to a healthy 72.7% of sales.

The jump in gross margin was due in part to sales of more profitable products and through more profitable channels, company officials said. An effort to decrease sourcing costs for its products also benefited Coach's margins, officials said.

Coach also held the line on operating costs during the quarter. As a portion of sales, such costs declined 3.6 percentage points to 45%