Coach (COH) Tops Q2 EPS by 1c

Coach (NYSE: COH) reported Q2 EPS of $0.75, $0.01 better than the analyst estimate of $0.74. Revenue for the quarter came in at $1.32 billion versus the consensus estimate of $1.32 billion.

Coach Brand North America Comparable Store Sales Increased 3% in the Second Quarter

• Overview of Second Quarter 2017 Consolidated, Coach, Inc. Results:
• Net sales totaled $1.32 billion for the second fiscal quarter, an increase of 4% over prior year on a reported basis, including a benefit of 40 basis points related to currency translation. As expected, the Company’s strategic decision to elevate the Coach brand’s positioning in the North American wholesale channel through a reduction in promotional events and door closures negatively impacted sales growth by approximately 100 basis points in the quarter.
• Gross profit totaled $906 million, an increase of 5% on a reported basis and 6% on a non-GAAP basis. Gross margin for the quarter was 68.6% compared to 67.4% in the year ago period on both a reported and non-GAAP basis.
• SG&A expenses totaled $629 million on a reported basis, an increase of 5%, and represented 47.6% of sales compared to 47.0% in the year-ago quarter. As forecasted, on a non-GAAP basis, SG&A expenses were $612 million, an increase of 7%, or 46.3% of sales as compared to 45.1% in the year ago period, reflecting in part the impact of currency and the Company’s continued investment in Stuart Weitzman, as well as higher marketing spend versus prior year.
• Operating income for the quarter on a reported basis totaled $277 million, an increase of 6%, while operating margin was 21.0% versus 20.5%. On a non-GAAP basis, operating income was $294 million, an increase of 3%, while operating margin was 22.3% versus 22.4%.
• Net interest expense was $5 million in the quarter as compared to $6 million in the year ago period.
• Net income for the quarter on a reported basis totaled $200 million, with earnings per diluted share of $0.71. This compared to reported net income in the second quarter of FY16 of $170 million with earnings per diluted share of $0.61. On a non-GAAP basis, net income for the quarter totaled $211 million compared to $189 million a year ago, an increase of 12%, with earnings per diluted share of $0.75, up 11% versus prior year.

Fiscal Year 2017 Outlook:

The following fiscal 2017 guidance is provided on a non-GAAP, 52-week basis versus 52-week basis.

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 approximately 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.

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 approximately 28%.

Taken together, the Company continues to project double-digit growth in both net income and earnings per diluted share for the year.

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

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