Coach, Inc. (NYSE:COH) a leading New York design house of modern luxury accessories and lifestyle collections, today announced sales of $929 million for its third fiscal quarter ended March 28, 2015, compared with $1.10 billion reported in the same period of the prior year, a decrease of 15%. Reported sales would have been 3% higher excluding the impact of currency. Net income for the period totaled $100 million, with earnings per diluted share of $0.36, excluding transformation-related charges. Reported net income totaled $88 million, with earnings per diluted share of $0.32. This compared to net income of $191 million and earnings per diluted share of $0.68 in the prior year’s third quarter.
Victor Luis, Chief Executive Officer of Coach, Inc., said, “We are pleased with our third quarter performance which was consistent with our plan and annual guidance despite the increased negative impact of foreign exchange on our top-line results. As was the case in our second quarter, we drove sequential improvement in our North America bricks and mortar business while further reducing our eOutlet events. In addition, our international businesses posted moderate growth on a constant currency basis, highlighted by double-digit increases in Europe and China. Importantly, our brand transformation remains on track across the three key brand pillars, as we continued to open and renovate modern luxury concept stores globally, successfully introduced Stuart Vevers’s product in our outlet channel and had an overwhelmingly positive reception to our third New York Fashion Week presentation.”
For the third quarter, on a non-GAAP basis, operating income totaled $146 million, compared to $263 million reported in the year-ago period, while operating margin was 15.8% versus 23.9% reported for the prior year. During the quarter, on a non-GAAP basis, gross profit was $665 million from $781 million a year ago, and gross margin was 71.6% versus 71.1% in the prior year. SG&A expenses as a percentage of net sales totaled 55.8% on a non-GAAP basis, as compared to 47.2% reported in the year-ago quarter.
For the quarter, reported operating income totaled $124 million, while operating margin was 13.3%. Reported gross profit was$665 million, while gross margin was 71.6%. SG&A expenses, as a percentage of net sales, totaled 58.3% on a reported basis.
For the nine months ended March 28, 2015, net sales were $3.19 billion, down 13% from the $3.67 billion reported in the first nine months of fiscal 2014. On a constant currency basis, sales declined 11% for the period. Net income totaled $446 million, with earnings per diluted share of $1.61, excluding transformation-related charges and acquisition costs. Reported net income for the nine-month period totaled $391 million, with earnings per diluted share of $1.41. This compared to net income of $706 million and earnings per diluted share of $2.51 reported in the prior year’s first nine months.
During the third quarter of FY15, the company recorded charges of $23 million under its multi-year transformation plan. These charges consisted primarily of accelerated depreciation for renovations, lease termination costs related to store closures and organizational efficiency costs. These actions increased the company’s SG&A expenses by $23 million, negatively impacting net income by $12 million after tax or $0.04 per diluted share in the third quarter.
During the first nine months of fiscal 2015 the company recorded total transformation-related charges of $80 million increasing SG&A expenses by $75 million in total, cost of sales by $5 million, reducing net income by $53 million after tax or $0.19 per diluted share for the current nine-month period. In addition, the company recorded costs of $4 million associated with the pending acquisition of Stuart Weitzman in the second quarter which impacted net income by $2 million after tax or $0.01 per diluted share.
Third fiscal quarter sales results in each of Coach’s segments were as follows:
Victor Luis added, “We’re excited by the strong results we’re continuing to generate in our new and renovated stores globally, most notably in North America. During the last quarter, we also took significant action towards fleet optimization, closing a total of 43 retail stores and 12 outlet stores in North America, taking us to 56 and 13 closures, respectively for these channels year-to-date. Importantly, we continued to reduce promotional impressions – a critical component of our brand transformation strategy. OurNorth America quarterly brand tracking survey showed further improvement among category drivers that Coach is perceived as less promotional, while our brand affinities remained strong overall.”
“During the fourth quarter, we will be focused on our aggressive remodel and store opening schedule, welcoming and integratingStuart Weitzman to the Coach family, and formulating the plans to celebrate our 75th anniversary, starting this fall. We continue to be focused on the execution of our strategy, elevating Coach’s perception in the mind of our consumers and reinvesting in the brand. We are confident in our ability to build upon our New York heritage of authenticity and craftsmanship to drive brand relevance and sustainable growth over our planning horizon,” Mr. Luis concluded.
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