Third quarter net sales at Coach totalled 995 million dollars, a decrease of 4 percent on a reported and 3 percent on a constant currency basis. Net income on a reported basis totalled 122 million dollars, with earnings per diluted share of 0.43 dollar compared to reported net income in the third quarter of FY16 of 112 million with earnings per diluted share of 0.40 dollar. On a non-GAAP basis, net income was 130 million dollars compared to 124 million dollars a year ago, an increase of 5 percent, with earnings per diluted share of 0.46 dollar, up 4 percent versus prior year.

Commenting on the 3rd quarter development, Victor Luis, CEO of Coach said in a media release, “Our solid performance this quarter was very much in line with our expectations and our strategic initiatives. We continued to drive growth in our directly-operated Europe and Mainland China businesses, which represent the most significant geographic opportunities for our brands. And, despite our deliberate pullback in the North America wholesale channel and the impact of calendar shifts, we delivered earnings growth. We announced a new leadership structure and strengthened our Coach brand team, a critical step in Coach’s evolution as a customer-focused, multi-brand organization.”

Third quarter result highlights

The company said, its strategic decision to elevate the Coach brand’s positioning in the North American wholesale channel through a reduction in promotional events and door closures negatively impacted sales growth by approximately 150 basis points in the quarter. Gross profit of 706 million dollars declined 1 percent on a reported and non-GAAP basis. Gross margin for the quarter expanded 190 basis points from prior year to 70.9 percent on both a reported and non-GAAP basis.

Operating income on a reported basis totalled 151 million dollars, an increase of 13 percent, while operating margin was 15.2 percent versus 13 percent. On a non-GAAP basis, operating income was 162 million dollars, an increase of 7 percent, while operating margin was 16.3 percent versus 14.7 percent.

Net income on a reported basis totalled 122 million dollars, with earnings per diluted share of 0.43 dollar compared to reported net income in the third quarter of FY16 of 112 million with earnings per diluted share of 0.40 dollar. On a non-GAAP basis, net income was 130 million dollars compared to 124 million dollars a year ago, an increase of 5 percent, with earnings per diluted share of 0.46 dollar, up 4 percent versus prior year.

Net sales for the Coach brand were 915 million dollars, a decrease of about 4 percent on a reported and constant currency basis. Total North American Coach brand sales decreased 5 percent on a reported and constant currency basis to 474 million dollars versus 499 million dollars last year. Both North American aggregate and bricks and mortar comparable store sales rose approximately 3 percent despite the negative impact of the shift in timing of Easter. Total North American direct sales declined 2 percent. Sales at North American department stores declined approximately 40 percent on both a POS and net sales basis.

International Coach brand sales were 430 million dollars compared to 448 million dollars a year ago, a decrease of approximately 4 percent on a reported basis, including approximately 70 basis points of pressure related to foreign currency translation. Greater China sales declined 2 percent versus prior year in dollars and increased 2 percent on a constant currency basis, driven by strong growth and positive comparable store sales in Mainland China, offset by continued softness in Hong Kong and Macau. In Japan, sales rose 2 percent in dollars and decreased 1 percent in constant currency.

The company said, sales for the remaining directly-operated businesses in Asia decreased low-double digits on a reported and constant currency basis, due primarily to weakness in Korea where macroeconomic and geopolitical headwinds have pressured spending from domestic consumers and tourists. Sales in the directly operated channels in Europe remained strong, growing at a double-digit rate in constant currency, while total sales decreased modestly in dollars and rose slightly in constant currency, reflecting the impact of the planned shift in wholesale shipment timing. International wholesale declined on a net sales basis due to shipment timing with the fourth quarter, while POS sales also declined.

Gross profit for the Coach brand totalled 656 million dollars, a decrease of 2 percent on a reported and non-GAAP basis. Gross margin for the quarter increased 180 basis points over prior year, including approximately 20 basis points of benefit from currency, to 71.7 percent on both a reported and non-GAAP basis.

Stuart Weitzman Q3 sales up 1 percent

Net sales for the Stuart Weitzman brand were 80 million dollars for the quarter compared to 79 million dollars reported in the same period of the prior year, an increase of 1 percent, impacted by wholesale shipment timing. Gross profit for the Stuart Weitzman brand was 50 million dollars, an increase of 8 percent versus prior year, on a reported and non-GAAP basis. Gross margin for the quarter was 62.1 percent, an increase of approximately 390 basis points over prior year, on a reported and non-GAAP basis.

“At Stuart Weitzman, we’re executing on our plan, driving global awareness and brand relevance, and gaining traction with the millennial consumer. We’re also making key brand investments in management and creative talent, as well as infrastructure to support long-term, multi-category growth. To this end, we’re especially excited about the arrival of Giovanni Morelli, who joins the brand this week as Creative Director,” added Luis.

FY17 sales expected to improve low-single-digits

The company is maintaining its operational outlook for fiscal 2017 as outlined in January and continues to expect revenues for fiscal 2017 to increase low-single digits, including the impact of currency. In addition, the Company is maintaining its operating margin forecast for Coach between 18.5-19 percent for the year.

This guidance incorporates the negative impact of both 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 the closure of about 25 percent of doors. Taken together, the company continues to project double-digit growth in both net income and earnings per diluted share for the year.

Picture:Coach website

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