Filing summary
Company and period: The supplied filing is Coach, Inc.’s unaudited Form 10-Q for the quarter and six months ended December 29, 2012 (fiscal 2013 Q2). This does not match the request metadata identifying Tapestry, Inc. and “2012 Q2.”
Financial performance
| Metric | Quarter ended Dec. 29, 2012 | Six months ended Dec. 29, 2012 |
|---|---|---|
| Net sales | $1,503.8 million; up 3.8% | $2,665.1 million; up 6.6% |
| Gross profit / margin | $1,085.4 million / 72.2%; margin unchanged | $1,930.6 million / 72.4%; margin unchanged |
| Operating income / margin | $526.6 million / 35.0%; up 5.1% | $858.3 million / 32.2%; up 4.3% |
| Net income | $352.8 million; up 1.5% | $574.1 million; up 2.1% |
| Diluted EPS | $1.23; up 4.8% | $2.00; up 5.0% |
| Operating cash flow | Not separately presented for the quarter | $830.0 million, versus $836.1 million |
Quarterly SG&A was $558.8 million, or 37.2% of sales, compared with $544.3 million, or 37.6%. Six-month SG&A was $1,072.3 million, or 40.2% of sales, versus $987.0 million, or 39.5%. The effective tax rate was 32.9% for both the quarter and six-month period; the prior-year comparison was affected by Japan-related tax benefits.
Balance sheet, liquidity and capital allocation
- At December 29, cash and cash equivalents were $858.7 million; total current assets were $1,848.4 million and current liabilities were $768.9 million.
- Total debt, including current and long-term portions, was approximately $22.7 million. The $400 million revolving credit facility had no borrowings outstanding; $154.8 million of letters of credit were outstanding.
- Six-month cash flow: operating activities provided $830.0 million; investing activities used $268.5 million; financing activities used $617.0 million. Cash declined $58.6 million from fiscal year-end.
- Investing included $117.1 million of property and equipment purchases, $99.4 million of investment purchases and $45.4 million paid for the Korea and Malaysia acquisitions. Management expected fiscal 2013 capital expenditures of approximately $250 million.
- The company paid $255.5 million in dividends and repurchased $400.0 million of stock during the six months. A new $1.5 billion repurchase authorization runs through June 2015; $1,361.6 million remained at December 29, 2012. Quarterly dividends declared were $0.30 per share.
Business changes and comparisons
- International sales grew faster than North American sales: 11.8% versus 0.6% for the quarter, and 13.5% versus 3.4% for six months. International growth included newly acquired Korea and Malaysia operations and the previously acquired Taiwan business, as well as strong China comparable-store sales.
- North American comparable-store sales, including Internet, fell 2.2% in the quarter; they rose 0.9% for the six-month period. Management cited Internet strength, but lower traffic in full-price and factory stores and lower wholesale shipments weighed on quarterly results.
- Coach reorganized reporting into North America and International segments; prior-period segment data was restated. It acquired 47 Korea retail and department stores and 10 Malaysia retail stores, with an estimated $10 million in contingent payments to the Korea seller.
- Foreign exchange, particularly the yen, reduced International sales. Management reported a 5.5% negative yen impact on Japan sales in the quarter and a 3.3% impact for six months.
Outlook, risks and unusual items
- The filing gives no specific revenue or earnings guidance. Management expected approximately $250 million in fiscal 2013 capital expenditures, primarily for new stores and infrastructure, funded mainly by cash and operating cash flow.
- Management described a soft macroeconomic environment, intensified competition and promotional retail conditions. Its strategy emphasized global distribution, China and other underpenetrated markets, store productivity, men’s products, digital commerce and expense discipline.
- Key stated risks include execution of growth plans, competition, foreign currency movements, economic and political conditions, changing consumer preferences, cost control and seasonal sales fluctuations. The filing reported no material changes to the risk factors in the fiscal 2012 Form 10-K.
- Prior-year results included a $20.3 million Coach Foundation contribution and $12.4 million of tax benefit associated primarily with Japanese tax-law changes and a transfer-pricing agreement. The company presents these as comparability items; reported prior-year results and adjusted comparisons therefore differ.
- Management believed pending legal proceedings would not have a material adverse effect. It also stated that disclosure controls were effective and there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended issuer and period: the document is a Coach, Inc. fiscal 2013 Q2 filing, not a filing identified as Tapestry, Inc. or calendar 2012 Q2.
- Review reported GAAP results alongside the company’s non-GAAP comparisons, especially the prior-year charity contribution and Japan-related tax adjustment.
- Assess the quality and durability of International growth, including the contribution from acquired businesses, China comparable-store sales and yen currency headwinds.
- Track North American comparable-store sales, selling-cost growth and the effect of planned store and infrastructure investment on operating margins.
- Review cash deployment through dividends, buybacks, acquisitions and capital expenditures, and monitor contingent acquisition payments and foreign-exchange exposure.