The North American segment of the Coach brand continued its positive comparable sales growth, even though sales fell 3% in the quarter. This was a direct result of a deliberate department store pullback and a reduction in reliance on e-commerce promotions. These steps are being taken to elevate the brand positioning, which was reflected in the above-$400 price bracket rising in penetration to over 50% of the handbag sales, up from ~30% last year. This further drove the handbag AURs (Average Unit Retail) to over $300. While these efforts have resulted in a slow growth, an overall rate of 1% for the company, it has resulted in a better bottom line performance and a healthy inventory position. The company was able to reduce the inventory from $575 million in the year ago period, to $547 million at the end of the September quarter, putting it in a better position heading into the holiday selling season.
The International business continued to grow strongly, with sales rising 7%, driven primarily by Europe, where sales grew at a double-digit pace, due to new distribution and positive double-digit comps. Post the Brexit vote, sales in the UK have increased at a higher rate as a result of a weaker currency and increased traction with the local consumers. Growth in Mainland China also increased by double-digits, offset by continued weakness in Hong Kong and Macau, which resulted in an overall flat growth in the Greater China region on a reported basis, and 5% on a constant currency basis.
The expenses for the company trended lower, and this, coupled with a rising gross profit margin, resulted in a 17% jump in the operating income, and a rise in the operating margin by 230 basis points to 16%. The company also continued its investment into the Stuart Weitzman brand, in order to drive global awareness and brand relevance, and to gain traction with the international and millennial consumers.
Coach also reaffirmed the FY 2017 guidance outlined earlier, wherein it expected a low-to-mid single digit growth in revenue, and a double-digit growth in both net income and earnings per diluted share. The operating margin is expected to be between 18.5% and 19% for the year, which incorporates the negative impact of 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 a closure of about 25% of stores. These efforts will drive the positive momentum in North America, as it heads into its most important quarter of the year.
Have more questions on Coach? See the links below:
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- Is A Coach-Burberry Merger In The Cards?
- Why Has Coach’s Stock Price Risen 30% In One Year?
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- Coach Q4 And FY 2016 Earnings: A Return To Growth In North America
- Why Do We Feel Coach Has A 17% Upside Potential?
- How Will Coach Close Out Its Financial Year?
- What Will Be Coach’s Revenue And EBITDA Breakdown In 2016?
- How Will Coach Perform In 2016?
- What Will Be The Impact of Coach’s Collaboration With Disney?
- How Has Coach’s Revenue Per Square Foot Changed Over The Years?
- What Percentage Of Coach’s Stock Price Can Be Attributed To Growth?
- What Has Resulted In A Decline In North American Net Sales And A Rise in International Sales For Coach So Far In FY 2016?
- Coach’s Strong Presence In China To Help The Company In The Future
- How Did the Different Segments Of Coach Perform In Q3 2016?
- How Has The Transformation Plan Affected Coach’s North American Retail Store Count?
- Coach Q3 2016 Earnings And Revenue Beats Expectations
- What To Expect From Coach In Q3 FY 2016?
- Is Coach’s Transformation Plan Working?
- Coach: Year 2015 In Review
- Is The Men’s Segment Becoming Big Business For Coach?
- How Will Coach’s Revenue And EBITDA Change In The Next 3 Years?
- What Is Coach’s Fundamental Value Based On Expected 2016 Results?