Coach (COH) Tops Q1 EPS by 1c; Maintains FY16 Guidance

Coach (NYSE: COH) reported Q1 EPS of $0.41, $0.01 better than the analyst estimate of $0.40. Revenue for the quarter came in at $1.03 billion versus the consensus estimate of $1.04 billion.

Fiscal Year 2016 Outlook:

The Company is maintaining its FY16 outlook outlined in August. Coach brand revenues for Fiscal 2016 are expected to increase by low-single digits in constant currency on a 52-week basis. Based on current exchange rates, foreign currency will have an approximate 200 basis point negative impact on overall Fiscal 2016 revenue growth distorted to the first half. Gross margin for the Coach brand is still projected to be in the area of 70% on a constant currency basis, while negative foreign currency effects may impact gross margin by 80-100 basis points. SG&A expenses for the brand are anticipated to rise at a mid-single-digit rate in constant currency, driven primarily by a shift in project timing from FY15, while dollar growth is expected to be somewhat lower. Therefore, taken together Coach brand operating margin for Fiscal 2016 is currently estimated to be in the mid-to-high teens. Interest expense is expected to be in the area of $30-$35 million for the year while the full year Fiscal 2016 tax rate is projected at about 28%.

This guidance excludes expected transformation-related charges of around $50 million, as well as Stuart Weitzman acquisition and integration related charges of around $30 million (which primarily includes the impact of limited life purchase accounting and contingent payments) over the course of 2016. In addition, the company is forecasting Stuart Weitzman brand sales in the area of $335 million on a reported dollar basis for fiscal 2016, driving Coach, Inc. total revenue growth to high-single digits and adding about $0.09 to earnings per diluted share, excluding charges associated with financing, short-term purchase accounting adjustments and contingent payments, and integration costs. As previously noted, given the lower gross margin and operating margin profile of the Stuart Weitzman business relative to the Coach brand, the Stuart Weitzman business is projected to negatively impact consolidated gross margin and operating margin by about 80-90 basis points and approximately 50 basis points, respectively. The company also notes that fiscal 2016 will include a 53rd week in its fiscal fourth quarter, which is expected to contribute approximately $75-$80 million in incremental revenue and $0.06 in earnings per diluted share to Coach, Inc.

For earnings history and earnings-related data on Coach (COH) click here.

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