Coach Reports 3Q Results; Details Cost Saving Initiatives

The company also announced that its Board of Directors has voted to initiate a cash dividend, at an annual rate of $0.30 per share. The first quarterly payment, of $0.075 per share, will be paid on June 29, 2009 to stockholders of record as of June 8, 2009.

Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc. said, "The announcement today of the initiation of a dividend reflects our financial strength and our confidence in Coach's business outlook. With a business model that generates significant cash flow and with virtually no debt, we are in a position to take advantage of profitable growth opportunities, while continuing to return capital to shareholders."

As noted, during the quarter, the company recorded three one-time charges. These consisted of expenses related to the reduction of corporate staffing levels in the U.S., the closure of four North American retail stores and the closure of the company's sample-making facility in Italy. In aggregate, these actions increased the company's SG&A expenses by $13 million in the period and negatively impacted earnings by $8 million after tax. Combined with other key measures previously implemented, such as the elimination of merit-based salary increases and a hiring freeze outside of critical growth areas, the company now expects to capture over $50 million in total pre-tax savings next fiscal year.

Mr. Frankfort said, "We were pleased to generate top line results that were essentially even with prior year and encouraged by the stabilization of our comparable store sales to pre-Christmas levels in North America. Importantly, we enhanced the vibrancy of our franchise by providing our consumers with innovative, relevant product at a compelling value without going on sale in our retail stores. Our third quarter results demonstrate our resilience and ability to navigate through this challenging environment. In addition, the steps that we're taking to reduce our expense structure will help position Coach to enhance our profitability."

For the quarter, before one-time items, operating income totaled $199 million, down 23% from the $257 million reported in the comparable year ago period, while operating margin was 26.9% versus 34.5% reported for the prior year. During the quarter, gross profit declined 6% to $525 million from $558 million a year ago. Gross margin was 71.0% versus 75.0% a year ago, impacted as expected by deeper factory store promotions, channel mix and our sharper pricing initiative in full price. SG&A expenses as a percentage of net sales, excluding one-time items, increased to 44.1%, compared to the 40.5% reported in the year-ago quarter. Including the impact of the one-time items, operating income totaled $185 million, the operating margin was 25.1% and the SG&A expense ratio was 45.9%.

Third fiscal quarter sales in each of Coach's primary channels of distribution were as follows:

-- Direct-to-consumer sales rose 9% to $634 million in the third quarter from $582 million last year. North American comparable store sales for the quarter declined 4.2%. In Japan, sales rose 1% on a constant-currency basis, while dollar sales rose 14%, reflecting the stronger yen year-over-year. China sales remained robust, as retail sales continued to comp at a double-digit rate.

-- Indirect sales decreased 35% to $106 million in the third quarter from the $162 million reported for the prior year. This decline was primarily due to reduced shipments into U.S. department stores. The company continues to tightly manage inventories in that channel given lower demand. International sales at retail rose during the period, notably in locations focused on the domestic consumer, driven by distribution.

During the third quarter of fiscal 2009, the company opened two retail stores and closed two others, while opening three factory stores in North America, bringing the total to 324 retail stores and 109 factory stores as of March 28, 2009. In addition, one retail store and one factory store were expanded. In Japan, Coach opened one factory store, bringing the total number of locations in Japan to 161 at the end of the quarter.

"Our roadmap for long-term growth is intact. We remain committed to balancing our growth strategies with the appropriate level of caution around spending, given the environment. At the same time, we will continue to implement our distribution plans to capture the emerging market opportunity with a particular focus on China, where our brand is taking hold and the category is developing rapidly. To this end, we have just completed the acquisition of all Mainland China retail locations, taking control of our destiny in the region.

"In summary, Coach is financially solid and well positioned to manage through this economic downturn. We have a strong balance sheet, significant cash position, and, despite current lower overall consumer spending, we continue to grow our leading market share in the U.S. handbag and accessory category," Mr. Frankfort concluded.

For the nine months ended March 28, 2009, net sales were $2.453 billion, up 2% from the $2.399 billion reported in the first nine months of fiscal 2008. Excluding one-time items, net income totaled $486 million, down 15% from the $570 million reported a year ago, while earnings per share declined 5% to $1.49 from $1.56. Including the impact of one-time items, net income for the nine months totaled $478 million and earnings per share were $1.46.

The company also announced that during the third fiscal quarter, it repurchased and retired 3.6 million shares of its common stock at an average cost of $13.98, spending a total of $50 million. At the end of the period, $710 million was available under the company's repurchase authorization.

Coach will host a conference call to review these results at 8:30 a.m. (EDT) today, April 21, 2009. Interested parties may listen to the webcast by accessing www.coach.com/investors on the Internet or dialing into 1-888-405-2080 and asking for the Coach earnings call led by Andrea Shaw Resnick, SVP of Investor Relations. A telephone replay will be available starting at 12:00 noon today, for a period of five business days. The number to call is 1-866-352-7723. A webcast replay of the earnings conference call will also be available for five business days on the Coach website.

Coach, with headquarters in New York, is a leading American marketer of fine accessories and gifts for women and men, including handbags, women's and men's small leathergoods, business cases, weekend and travel accessories, footwear, watches, outerwear, scarves, sunwear, jewelry, fragrance and related accessories. Coach is sold worldwide through Coach stores, select department stores and specialty stores, through the Coach catalog in the U.S. by calling 1-800-223-8647 and through Coach's website at www.coach.com. Coach's shares are traded on The New York Stock Exchange under the symbol COH.

This press release contains forward-looking statements based on management's current expectations. These statements can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "intend," "estimate," "are positioned to," "continue," "project," "guidance," "forecast," "anticipated," or comparable terms. Future results may differ materially from management's current expectations, based upon risks and uncertainties such as expected economic trends, the ability to anticipate consumer preferences, the ability to control costs, etc. Please refer to Coach's latest Annual Report on Form 10-K for a complete list of risk factors.

COACH, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
For the Quarters and Nine Months
Ended March 28, 2009 and March 29, 2008
(in thousands, except per share
data)
(unaudited)
                                                                 QUARTER ENDED                     NINE MONTHS ENDED
                                                                 March 28,        March 29,        March 28,       March 29,
                                                                 2009             2008             2009            2008
Net sales                                                        $   739,939      $   744,522      $    2,452,724  $    2,399,257
Cost of sales                                                        214,876          186,204           677,432         585,446
Gross profit                                                         525,063          558,318           1,775,292       1,813,811
Selling, general and administrative expenses                         339,686          301,626           1,008,066       915,298
Operating income                                                     185,377          256,692           767,226         898,513
Interest (expense)/income, net                                       (121    )        9,547             3,057           35,111
Income before provision for income taxes and discontinued            185,256          266,239           770,283         933,624
operations
Provision for income taxes                                           70,397           103,827           292,707         364,109
Income from continuing operations                                    114,859          162,412           477,576         569,515
Income (loss) from discontinued operations, net of income taxes      -                (4      )         -               16
Net income                                                       $   114,859      $   162,408      $    477,576    $    569,531
Net income per share
Basic
Continuing operations                                            $   0.36         $   0.47         $    1.47       $    1.58
Discontinued operations                                              -                (0.00   )         -               0.00
Net income                                                       $   0.36         $   0.47         $    1.47       $    1.58
Diluted
Continuing operations                                            $   0.36         $   0.46         $    1.46       $    1.56
Discontinued operations                                              -                (0.00   )         -               0.00
Net income                                                       $   0.36         $   0.46         $    1.46       $    1.56
Shares used in computing net income per share
Basic                                                                320,163          348,125           325,481         360,507
Diluted   321,355    351,593    327,102   365,497

COACH, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
At March 28, 2009, June 28, 2008
and March 29, 2008
(in thousands)
                                                   March 28,        June 28,       March 29,
                                                   2009             2008 (1)       2008 (1)
ASSETS                                             (unaudited)                     (unaudited)
Cash, cash equivalents and short term investments  $     551,267    $  698,905     $   616,202
Receivables                                              127,148       106,738         148,074
Inventories                                              357,670       318,490         290,640
Other current assets                                     195,230       235,085         187,534
Total current assets                                     1,231,315     1,359,218       1,242,450
Long term investments                                    6,000         8,000           -
Property and equipment, net                              587,108       464,226         420,943
Other noncurrent assets                                  491,578       415,909         464,344
Total assets                                       $     2,316,001  $  2,247,353   $   2,127,737
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable                                   $     67,623     $  134,726     $   63,676
Accrued liabilities                                      348,160       315,930         289,554
Subsidiary credit facilities                             1,896         -               11,079
Current portion of long-term debt                        594           285             285
Total current liabilities                                418,273       450,941         364,594
Long-term debt                                           24,986        2,580           2,580
Other liabilities                                        330,828       303,457         329,567
Stockholders' equity                                     1,541,914     1,490,375       1,430,996
Total liabilities and stockholders' equity         $     2,316,001  $  2,247,353   $   2,127,737

(1) Amounts presented differ from amounts previously reported due to change in accounting principle. On June 29, 2008, the Company changed its method of accounting for inventories of Coach Japan from last-in, first-out to first-in, first out.

SOURCE: Coach, Inc.

Coach, Inc. 
Analysts & Media: 
Andrea Shaw Resnick, 212-629-2618 
SVP Investor Relations and Corporate Communications