Coach's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Coach (COH)

Q3 2012 Earnings Call

April 24, 2012 8:30 am ET

Executives

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

Lew Frankfort - Chairman and Chief Executive Officer

Michael D. Tucci - President of Retail Division - North America

Jane Nielsen - Chief Financial Officer, Chief Accounting Officer and Executive Vice President

Victor Luis - President of Coach Retail International

Jerry Stritzke - President and Chief Operating Officer

Analysts

Robert S. Drbul - Barclays Capital, Research Division

David A. Schick - Stifel, Nicolaus & Co., Inc., Research Division

Neely J.N. Tamminga - Piper Jaffray Companies, Research Division

Omar Saad - ISI Group Inc., Research Division

Barbara Wyckoff - Credit Agricole Securities (USA) Inc., Research Division

Brian J. Tunick - JP Morgan Chase & Co, Research Division

Jeff Black - Citigroup Inc, Research Division

Randal J. Konik - Jefferies & Company, Inc., Research Division

Lizabeth Dunn - Macquarie Research

Dana Lauren Telsey - Telsey Advisory Group LLC

Presentation

Operator

Good day, and welcome to the Coach Conference Call. Today's call is being recorded. 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.

Andrea Shaw Resnick

Thanks, Wendy. Good morning, and thanks for joining us today. With me to discuss our quarterly results are Lew Frankfort, Coach's Chairman and CEO; and Jane Nielsen, Coach's CFO. Mike Tucci, North American Group President is also joining us to discuss our retail initiatives, including Men's and digital and new product introductions.

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 or fiscal years. 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 and our quarterly report on Form 10-Q for the quarterly period ended December 31, 2011, 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 third fiscal quarter 2012 results and will also discuss our strategies going forward. Mike Tucci will review some new initiatives in North American retail, product and merchandising strategy and Men's. Jane Nielsen will conclude with details on financial and operational results of the quarter. Following that, we will hold the Q&A session where we will be joined by Jerry Stritzke, our President and Chief Operating Officer; and Victor Luis, our International Group President. This Q&A session will end shortly before 9:30 a.m. Lew 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're very pleased with our third quarter results, including strong sales and earnings growth, as well as operating margin expansion. Our performance clearly demonstrates the vibrancy of the Coach brand, our innovative and relevant product offering and our multichannel international distribution model. Further, the announcement today of the increased dividend 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 third fiscal quarter were: first, earnings per share rose 24% to $0.77 compared with $0.62 in the prior year; second, quarterly net sales totaled $1.11 billion versus $951 million a year ago, an increase of 17%; third, direct-to-consumer sales, which represent over 85% of total sales, now include domestic retail businesses in Singapore and Taiwan rose 18% to $984 million from $837 million in the prior year on a comparable basis; fourth, North American same-store sales for the quarter rose 6.7% from prior year while total North American direct-to-consumer sales rose 13%; fifth, we continued to generate very strong sales growth of nearly 60% and double-digit comps in China, where we remain on course to generate at least $300 million in sales this year; and finally, sales in Japan rose 10% versus prior year in constant currency and rose 14% in dollars.

In North America during the quarter, we opened 1 retail store, closed another while opening 5 factory stores, including 2 Men's factory stores. Thus, at the end of the period, there are 350 full-priced and 162 factory stores in operation in North America.

Moving to China. We added 5 new locations, all on the Mainland, bringing us to 85 Coach locations at quarter end, including 12 in Hong Kong, 3 in Macau and 70 locations on the Mainland in 32 cities.

And in Japan, 3 locations were opened, all Men's, while 3 were closed. At quarter end, there were 184 total locations in Japan.

Finally, I thought I would briefly mention our 2 other direct businesses in Asia acquired this fiscal year. First, in Singapore, we now operate 6 locations. Five were acquired last July, and we've opened one additional store since. And second, Taiwan, where we transitioned 26 locations to our direct control in January.

Indirect sales rose 10% from prior year to $125 million from $114 million on an -- on a comparable basis. Sales for the quarter at retail and international wholesale locations increased while sales at POS in U.S. department stores were modestly below last year's third quarter.

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