Coach returns to revenue and profit growth in Q3

Third quarter net sales at Coach totalled 1.03 billion dollars compared with 929 million dollars reported in the same period of the prior year, an increase of 11 percent. On a constant currency basis, total sales increased 13 percent for the period. Gross profit totaled 713 million dollars both a non-GAAP and reported basis, an increase of 7 percent.

Commenting on the third quarter results, Victor Luis, Chief Executive Officer of Coach said, “We are very pleased with our third quarter performance, highlighted by a return to growth for the Coach brand, driving overall operating profit growth. Both our retail and outlet stores in North America sequentially improved from the holiday quarter and e-commerce was an overall contributor as well. Our international businesses posted strong growth on a constant currency basis, highlighted by double-digit increases in Mainland China and Europe*, *as well as sales gains in Japan and Other Asia*.*”

Overview of third quarter results at Coach

Net sales for the Coach brand totaled 954 million dollars compared with 929 million dollars reported in the same period of the prior year, an increase of 3 percent. On a constant currency basis, total sales increased 4percent for the period. Gross profit for the Coach brand totaled 667 million dollars on both a non-GAAP and reported basis

Total North American Coach brand sales increased 1 percent on a reported basis for the quarter to 499 million dollars and increased 2 percent on a constant currency basis, reflecting continued sequential improvement. North American direct sales rose 1percent on a dollar basis and 2percent on a constant currency basis, with flat comparable store sales including the slightly positive impact of e-commerce. Sales at North American department stores declined at a mid-single-digit rate.

International Coach brand sales rose 5 percent to 448 million dollars on a reported basis. On a constant currency basis, international sales rose 7percent with growth across all regions. Total China sales rose 2 percent in constant currency and declined 2 percent in dollars with double-digit growth and positive comparable store sales on the Mainland offset in part by continued weakness in Hong Kong and Macau. In Japan, sales rose 7percent in constant currency, while dollar sales rose 8 percent, reflecting the stronger yen.

Sales for the remaining directly operated businesses in Asia posted solid growth in constant currency but rose slightly in dollars, while Europe remained very strong, growing at a double-digit pace driven by both comparable store sales and distribution increases. At POS, sales in international wholesale locations increased moderately.

Stuart Weitzman results in the quarter

Net sales for the Stuart Weitzman brand totaled 79 million dollars for the third fiscal quarter. Gross profit for the Stuart Weitzman brand totaled 46 million dollars on both a non-GAAP and reported basis, resulting in a gross margin of 58.2 percent.

“We are encouraged by the momentum of the business we are driving across all of our regions. Most importantly, we are proud of the evolving perception of the Coach brand and Coach as we move from a specialty retailer to a house of modern luxury brands. As we’ve said in our heritage campaign, it’s not about being classic, it’s about being an original, which no other American brand in our space can claim,” added Luis.

Fiscal year 2016 outlook

The company is maintaining its fiscal 2016 constant currency revenue growth and margin guidance. Coach brand revenues for the year are still expected to increase by low-single digits in constant currency on a 52-week basis.

Based on current exchange rates, foreign currency is expected to negatively impact overall revenue growth by 225-250 basis points. The company is still forecasting revenue for the Stuart Weitzman brand to be in the area of 340 million dollars on a reported dollar basis for fiscal 2016, driving Coach total revenue growth to high-single digits on a constant currency basis and adding about 0.12 dollar to earnings per diluted share.

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