Coach reports EPS in-line, revs in-line; maintains operational outlook for FY17, while lowers rev on FX (35.98)
- Reports Q2 (Dec) earnings of $0.75 per share, in-line with the Capital IQ Consensus of $0.75; revenues rose 3.8% year/year to $1.32 bln vs the $1.32 bln Capital IQ Consensus. Total North American Coach brand sales increased 2% on both a reported and constant currency basis to $744 million versus $731 million last year. North American direct sales rose 5% for the quarter. Total North American bricks and mortar comparable store sales rose ~4%, while aggregate North American comparable store sales increased ~3%, including the negative impact of e-commerce. As planned, sales at North American department stores declined ~30% on both a POS and net sales basis. International Coach brand sales rose 3% to $448 million on a reported basis from $437 million last year and 1% on a constant currency basis. Greater China sales were ~even with prior year in dollars and increased 6% on a constant currency basis. In Japan, sales rose 9% in dollars and decreased 2% in constant currency, impacted by a decline in Chinese tourist spend, lapping last year's dramatic increase. Gross margin for the quarter was 69.0%, including ~30 basis points of benefit from currency, as compared to 67.7% in the prior year period.
- The Company is maintaining its operational outlook for fiscal 2017, while adjusting its revenue guidance based solely on current exchange rates. The Company's previous fiscal 2017 revenue guidance was for an increase of low-to-mid single digits, including an expected benefit from foreign currency of ~100-150 basis points. Given the significant strengthening of the U.S. dollar, the Company is now projecting revenue to increase low-single digits, including an expected negative impact from foreign currency of 50 basis points for the full fiscal year or over 100 basis points of pressure for the second half of the fiscal year based on current exchange rates (consensus +1.7% to $4.57 bln). Importantly, the Company is maintaining its operating margin forecast for Coach, Inc. of between 18.5-19.0% for fiscal 2017. This guidance incorporates the negative impact of both Stuart Weitzman and the strategic decision to elevate the Coach brand's positioning in the North American wholesale channel, including a reduction in promotional events and the closure of about 25% of doors. Interest expense is still expected to be in the area of $25 million for the year while the full year fiscal 2017 tax rate is now projected at about 26% as compared to previous guidance of ~28%. Taken together, the Company continues to project double-digit growth in both net income and earnings per diluted share for the year.
- "We are both pleased and proud of our performance this holiday season, particularly in light of the challenging and volatile global retail environment. Our team delivered top-line growth in each of our reportable segments, highlighted by positive comparable store sales in North America and overall gross margin expansion."