Riding the Wave: Coach Bullish on Bags as Net Leaps 120%

Consumers reined in June spending, but not at Coach, which posted a 46.1 percent jump in sales and 119.9 percent leap in fourth-quarter income.

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NEW YORK — Coach delivered first-class results in the fourth quarter and expects the premium handbag sector to continue to soar.

A 46.1 percent jump in sales helped boost Coach Inc.’s fourth quarter income by 119.9 percent over last year, which beat Wall Street analysts’ best estimates.

Lew Frankfort, chairman and chief executive officer, said during a conference call to investors, “Our strong fiscal 2004 performance speaks to our philosophy of operating Coach as a small business with large sales, which we manage very actively.”

Frankfort was also bullish on the sales outlook. He said the company remains “confident in our ability to sustain our growth and deliver superior results over our planning horizon.” He pointed out that the company’s internal analysis “projects at least 20 to 25 percent growth in sales of premium handbags and women’s accessories in calendar 2004 to about $3.7 billion to $4 billion.”

For the three months ended July 3, income skyrocketed to $65.7 million, or 34 cents a diluted share, from $29.9 million, or 16 cents, in the same year-ago quarter. Analysts’ consensus estimate was 31 cents for the period. Sales for the quarter rose to $338.1 million from $231.5 million. The fourth quarter included an extra week in the calendar year, which the company said contributed $20 million to 2004 results. Excluding the extra week, sales would have risen 38 percent.

For the full year, income jumped 78.5 percent to $261.7 million, or $1.36 a diluted share, from $146.6 million, or 79 cents, last year. Sales gained 38.6 percent to $1.32 billion from $953.2 million. Excluding the extra week sales would have risen 37 percent.

While government data from the Commerce Department on Tuesday indicated that consumer spending dropped by 0.7 percent in June, after climbing by a strong 1 percent in May, Coach executives on the conference call said “consumers are embracing our $300-plus price points.”

Dana Telsey, retail analyst at Bear Stearns, said: “Coach has had an excellent 2004 and terrific start for 2005. Coach is different from other firms because of the amount of testing that they do on their products. The testing allows them to know what their customers like and what to put in their stores and get full-price selling. We believe that the future is bright for Coach and that it will have a very good holiday season.”
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