Coach Q2 sales decline 14 percent

Coach reported sales of 1.22 billion dollars for its second fiscal quarter ended December 27, 2014, compared with 1.42 billion dollars reported in the same period of the prior year, a decrease of 14 percent. On a constant currency basis sales declined 12 percent for the quarter. Net income for the period totaled 200 million dollars, with earnings per diluted share of 0.72 dollars. Reported net income totaled 183 million dollars, with earnings per diluted share of 0.66 dollars compared to earnings per diluted share of 1.06 dollars in the prior year’s second quarter.

Commenting on the results, Victor Luis, Chief Executive Officer of Coach, said, “Our second quarter results were in line with our expectations and our annual guidance on a constant currency basis, with the further strengthening of the dollar impacting reported results. We were pleased with the sequential improvement in our North American comparable store sales – notably in the bricks and mortar channel - and the growth of our international businesses.”

For the second quarter, on a non-GAAP basis, operating income totaled 299 million dollars, compared to 436 million dollars reported in the year-ago period, while operating margin was 24.5 percent against 30.7 percent reported for the prior year*. *During the quarter, on a non-GAAP basis, gross profit was 841 million dollars from 983 million dollars a year ago, and gross margin was 69 percent versus 69.2 percent the prior year. For the quarter, reported operating income totaled 275 million dollars, while operating margin was 22.6 percent. Reported gross profit was 840 million dollars, while gross margin was 68.9 percent.

For the six months ended December 27, 2014, net sales were 2.26 billion dollars, down 12 percent from the 2.57 billion dollars reported in the first six months of fiscal 2014. On a constant currency basis, sales declined 11 percent for the period. Net income totaled 346 million dollars, with earnings per diluted share of 1.25 dollars, excluding transformation-related charges and acquisition costs. Reported net income for the six-month period totaled 303 million dollars, with earnings per diluted share of 1.09 dollars.

Total North American sales decreased 20 percent and North American direct sales declined similarly for the quarter with comparable store sales down 22 percent including the impact of reduced eOutlet events, which pressured total comparable stores sales by about six points. At POS, sales in North American department stores declined at a high-teens rate versus prior year, while shipments into department stores also declined.

International sales decreased 1 percent, however, on a constant currency basis, international sales grew 5 percent. Sales in China rose 13 percent on a constant currency basis and 12 percent in dollar terms with positive comparable store sales and slower distribution growth. In Japan, sales declined 7 percent on a constant-currency basis, while dollar sales were 18 percent below the prior year, reflecting the weaker yen. Constant currency sales for the remaining directly operated businesses in Asia grew slightly, while Europe remained strong, growing at a double-digit pace*. *At POS, sales in international wholesale locations increased while shipments also rose.

As the company approaches the second year of transformation, Coach also announced the streamlining and reinforcement of its North America business unit and global marketing and digital teams with the promotion of two key executives. Andre Cohen will become President -North America.Francine Della Badia, who previously led North America retail, will leave the company in February. David Duplantis, currently Coach’s President, Global Digital and Customer Experience, will expand his role to include Global Marketing and Customer Intelligence. The company expects to report third quarter financial results on April 28, 2015.