Women’s Wear Daily
04.20.2014
fashion-features
fashion-features

Coach Profits Leap 41.4% as Brand Plans 100 More U.S. Stores

NEW YORK — The brand may be "Coach," but to judge from its earnings and forecast, it definitely flew first class in the second quarter.Coach...

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While holiday sales were indeed a standout, Frankfort outlined steps, including product innovation and store expansion, for Coach to achieve sustained accelerated financial growth and continued market share increases. Coach’s intention, he noted, is to double its market share of premium handbag and small accessories users over the next three to five years. Today, those figures stand at between 15 and 20 percent domestically and, in Japan, between 2 and 3 percent.

As ubiquitous as Coach handbags may appear, Frankfort said the firm can attract a new and stylish army of shoppers into the franchise while evolving the loyal Coach user by driving product through fashion innovation and product diversification.

For example, he said this spring Coach will introduce new styles, colors and silhouettes — like a new Signature bag with mini logos and a Hampton weekend tote, its first entry into the casual weekend segment — to keep the existing assortment fresh. Coach also will update its hats, gloves and scarfs with new fabrics and styles.

In addition, it will introduce women’s footwear to 20 additional stores next week, bringing the total to 80 retail stores.

Frankfort wants to add 100 retail stores in the U.S. in the next four to five years, expanding Coach’s U.S. store count here to at least 250, excluding outlets. In the same time frame, it seeks to add 25 Japanese stores to its current base of 89. He also wants to raise Coach’s awareness as a "365-day lifestyle accessory resource" for self-purchase and gift-giving by continuing to integrate its in-store, direct mail, Web site and advertising functions.

Frankfort said that while he sees Coach as an American brand, with nearly 80 percent of sales originated in the U.S., the second-largest opportunity to grow is in Japan. Coach believes it can increase market share to 6 percent of Japan’s $4 billion imported handbag market through more stores and double-digit comp expansion. Japan is essential to Coach’s plans, as Japanese women account for about 45 percent of the world’s global spending on luxury handbags and accessories, versus 25 percent of her American counterpart.

Michael¿Devine, chief financial officer, said on the call that he expects earnings for fiscal 2003, ending June 28, to hit at least $1.40 a share, a 45 percent increase over 2002, compared with analysts’ current consensus estimates of $1.33. He based his expectations on operating income growth of about 55 percent with operating margins exceeding 23 percent based on sales growth of at least 25 percent, to $900 million, with double-digit comp gains in both U.S. and Japan locations. The forecast assumes gross margins of about 70 percent versus 67.2 percent last year and a 100 basis point reduction in selling, general and administrative (SG&A) expenses.
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