financial
financial

Coach Profits Jump 37.2%

Brand eyes Western Europe.

By and
with contributions from Evan Clark
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Outside Coach in Shanghai.

Photo By Courtesy Photo

Coach Inc. delivered third-quarter profits that comfortably beat analysts’ expectations Tuesday as the accessories brand prepared to boost its global presence on two continents.

One day after disclosing ambitious plans for expansion in Europe, the company posted a 37.2 percent increase in quarterly net income, doubled the annual dividend rate to 60 cents a share and authorized the repurchase of up to $1 billion of outstanding common stock by the end of June 2012. And as Coach prepared for the Thursday celebration of last week’s opening of a new 7,000-square-foot flagship in Shanghai, the firm said its first men’s-only store in the U.S., on Bleecker Street in New York, would open May 7 following the recent debut of a men’s store in Japan.

For the three months ended March 27, net income rose to $157.6 million, or 50 cents a diluted share, from $114.9 million, or 36 cents, in the year-ago quarter. Analysts had expected EPS of 46 cents. Cost-reduction measures in the year-ago quarter reduced net income by $8 million.

Sales rose 12.3 percent to $830.7 million from $739.9 million, with North American same-store sales rising 5.1 percent. Sales at factory stores were boosted by a higher penetration of exclusive product, up to 80 percent from last year’s 60 percent levels.

For the nine months, income rose 12.9 percent to $539.4 million, or $1.69 a diluted share, from $477.6 million, or $1.46, last year. Sales gained 8.3 percent to $2.66 billion from $2.45 billion.

Citing a further strengthening of its full-price business across all geographies, chairman and chief executive officer Lew Frankfort told Wall Street analysts on a conference call that Coach’s performance reflected “the continued traction of the product and growth strategies we put into place this fiscal year.”

With this week’s disclosure that it’s partnering with France’s Printemps department store and forming a joint venture with English men’s wear firm Hackett Ltd. for distribution in the U.K., Spain, Portugal and Ireland, Coach’s emphasis is clearly becoming multinational.

Frankfort told WWD in a telephone interview that the global luxury handbag and accessories markets could reach $29 billion during 2013. “Most of that [growth] will come from emerging markets, with China contributing one-third of the growth,” the ceo said.

He expects to open 20 sites in China next year and is looking to elevate Coach’s brand recognition in the world’s most populous country to the same level it enjoys in the U.S. and Japan. He said the “unaided awareness” level of the brand was 20 percent in Japan 10 years ago and is now more than 60 percent. He believes a comparable level could be reached in China over a seven- to 10-year period.

Asian consumers have evolved in recent years, Frankfort noted, with many now more self-assured in their selection of products to “complement wardrobing, rather than necessarily having high-logo products.”

Frankfort will be on hand Thursday when he and a bevy of celebrities fete the new Shanghai flagship. Some of the VIPs designed one-of-a-kind tote bags for the occasion, which will be on display in the store and will be auctioned off through Chinese portal sina.com, with the proceeds benefiting actor Jackie Chan’s children’s charity.

The Coach store is located on Huai Hai Middle Road, by the intersection of Song Shan Road, an area that is attracting other luxury tenants such as Cartier and Tiffany & Co.

“We believe [Huai Hai Middle Road] is going to be the new flagship center of Shanghai,” said Victor Luis, the Tokyo-based president of Coach Retail International. Luis oversees the brand’s business in Asia and travels to China at least once a month.

Luis said the brand is seeing “strong double-digit comps” in China as it ramps up the distribution network. When Coach ends its fiscal year in June, the company will have just more than 40 stores in China, Hong Kong and Macau. About 15 of those were opened this year.

He said the company has seen “amazing” growth since entering the country in 2003 and it expects the momentum to continue.

“We have a market of over 1.3 billion people, where we’re just beginning to see this explosion, if you will, of the middle class and where women make decisions for themselves,” he said. “There’s no glass ceiling. I meet as many women presidents in retail as I do men, which is quite a unique occurrence — even compared to the U.S.”

Luis noted Coach had originally expected sales in China to reach the $250 million mark in 2013 but has moved that target up a year to fiscal year 2012.

Coach is a relative latecomer to China. Luis stressed the company was similarly late coming to Japan in 1988, some seven years after Louis Vuitton opened its first freestanding store in the island nation. Japan is currently Coach’s second largest market, accounting for about 20 percent of revenue, while the U.S. generates 70 percent.

“We’ve been able to grow very nicely after a long, well-established market had been created,” he said.

Shares of Coach gained 15 cents, or 0.4 percent, to close at $42.03.

Retail stocks gained 0.5 percent Tuesday, recapturing some of the ground lost during the prior two trading sessions.

The S&P Retail Index rose 2.48 points to 477.42 as the Dow Jones Industrial Average perked up 0.2 percent, or 25.01 points, to 11,117.06. The S&P 500 broke back above 1,200, advancing 0.8 percent, or 9.65 points, to 1,207.17.

Shares of Phillips-Van Heusen Corp. slipped 0.7 percent to $62.43. After the market closed, PVH upped its financial guidance, citing across-the-board strength so far this fiscal year. The firm said first-quarter adjusted profits would tally 80 cents a share instead of the 73 to 75 cents previously forecast. For the full year, the firm is looking for profits of $3.25 to $3.33 a share.

PVH said its proposed $3 billion acquisition of Tommy Hilfiger would add another 20 to 25 cents to adjusted earnings per share this year. Next year, Tommy is expected to contribute 75 cents to $1 a share.

Investors were split in Asia, where the Hang Seng Index rose 1 percent to 21,623.38 in Hong Kong and the Nikkei 225 slipped 0.1 percent to 10,900.68 in Tokyo. European markets rallied, with the CAC 40 up 1.4 percent to 4,026.65 in Paris and the FTSE 100 ahead 1 percent to 5,783.69 in London.

For more on stocks, see page 14.
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