Coach, Inc. Form 10-K Summary
Filing identity and period: The supplied filing is Coach, Inc.’s annual report for the 52-week fiscal year ended June 29, 2013—not a Tapestry, Inc. filing or a 2012 Q4 report. Coach is now known as Tapestry, Inc.; that later name should not be read back into this filing.
Business context and reporting period
Coach designed and marketed premium accessories through company-operated stores, e-commerce, wholesale, distributors, and licensing partners. It reported North America and International segments; prior-year segment figures were recast to match the geographic structure. Management’s strategy was to broaden Coach from an accessories company into a global lifestyle brand, expand internationally, develop men’s products, and grow digital channels.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $5.075 billion | $4.763 billion |
| Gross profit / margin | $3.698 billion / 72.9% | $3.466 billion / 72.8% |
| Operating income / margin | $1.525 billion / 30.0% | $1.512 billion / 31.7% |
| Net income / margin | $1.034 billion / 20.4% | $1.039 billion / 21.8% |
| Diluted EPS | $3.61 | $3.53 |
| Operating cash flow | $1.414 billion | $1.222 billion |
| Cash and cash equivalents | $1.063 billion | $917 million |
| Working capital | $1.348 billion | $1.086 billion |
| Long-term debt | $0.5 million | $1.0 million |
Investments totaled $269 million at year-end, including $72 million in short-term investments. Net cash used in investing was $571 million, including $241 million of property and equipment purchases, $94 million invested in the Hudson Yards joint venture, and purchases of investments. Net cash used in financing was $689 million, including $400 million of share repurchases and $340 million of dividends. Cash and cash equivalents increased $146 million during the year.
The company had no borrowings outstanding under its $700 million revolving facility or its Japan and Shanghai facilities. It reported $14.9 million of letters of credit outstanding. More than two-thirds of cash and short-term investments were held outside the U.S. and intended to be permanently reinvested. Management said available cash, operating cash flow, and credit lines should fund foreseeable needs.
Material changes versus FY2012
- Sales grew 6.6%; North America rose 4.9% and International rose 9.9%. North America comparable-store sales increased 0.3%.
- International growth reflected new stores and acquired operations, including Malaysia and Korea. China comparable-store sales grew at a double-digit rate, while Japan performance was weak; yen translation reduced reported sales by $82.2 million.
- SG&A rose 11.2% to $2.174 billion and increased from 41.0% to 42.8% of sales. Reported operating margin fell 1.7 percentage points; net income declined 0.4% despite sales growth.
- Reported results included $53.2 million of restructuring and transformation charges ($32.6 million after tax, or $0.11 per diluted share), including store and inventory impairments. Excluding specified items, management reported FY2013 operating income of $1.578 billion and diluted EPS of $3.73; these are non-GAAP measures.
- Operating cash flow increased $192 million, while investing outflows rose $311 million, mainly due to investments, Hudson Yards, and higher capital spending.
- The board increased the expected annual dividend rate to $1.35 per share beginning with the dividend paid July 1, 2013. The company repurchased 7.1 million shares for $400 million, versus 10.7 million shares for $700 million in FY2012.
Outlook, commentary, risks, and unusual items
- For FY2014, management expected approximately $280 million of capital expenditures, primarily for stores, department-store and distributor locations, and technology. It anticipated continued factory-store expansion in North America and low-double-digit owned-store growth in China, Asia, and Europe; Japan store growth was expected in the low-to-mid single digits.
- Coach expected to invest about $440 million in the Hudson Yards headquarters joint venture over three years, with an estimated $130–$160 million in FY2014, plus about $190 million of direct headquarters expenditures over construction. Completion and occupancy were expected in 2015. Cost overruns, delays, and operational disruption were identified risks.
- Management characterized retail conditions as challenging amid intensified competition, promotions, and macroeconomic uncertainty. Key risks include fashion and consumer-preference shifts, inventory markdowns, foreign exchange, sourcing and labor costs, international expansion execution, cyber and data-security incidents, and the protection of the Coach brand.
- Reed Krakoff planned to depart in connection with a proposed sale of his namesake business. The announced agreement contemplated Coach receiving $10 in cash, assumption of certain liabilities, and an approximately 15% equity interest; closing was conditional and anticipated by the end of FY2014’s first quarter. In July 2013, Coach also acquired Hackett Limited’s 50% interest in its European joint venture. Two other senior executives planned to depart at the end of August 2013.
- Contractual commitments included $1.088 billion of future operating lease payments, $185.8 million of inventory purchase obligations, and $166.1 million of gross unrecognized tax benefits, including interest and penalties. Management believed routine pending legal proceedings would not materially affect the company.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of June 29, 2013.
Important facts for investors to verify
- Confirm the correct issuer and period: this is Coach, Inc.’s FY2013 10-K, notwithstanding the request metadata.
- Review the complete audited statements and notes, especially the $53.2 million transformation charge and the distinction between GAAP and management’s non-GAAP results.
- Assess whether modest comparable-store growth, higher SG&A, and weaker Japan performance indicate sustained pressure on margins and sales productivity.
- Track cash deployment and commitments, including the headquarters project, dividends, repurchases, and the intended permanent reinvestment of foreign-held funds.
- Verify completion and final terms of the Reed Krakoff sale, the European joint-venture acquisition, and the associated leadership transitions.