Business context and reporting period
Filing identity mismatch: The supplied filing is Coach, Inc.’s Form 10-K for the fiscal year ended July 2, 2011—not a Tapestry, Inc. 2010 Q4 filing. Fiscal 2011 was 52 weeks; fiscal 2010 was 53 weeks, affecting year-over-year comparisons. Coach sells accessories through direct-to-consumer and wholesale/licensing channels.
Financial performance and position
| Metric | FY2011 | FY2010 |
|---|---|---|
| Net sales | $4.159 billion | $3.608 billion |
| Gross profit / margin | $3.024 billion / 72.7% | $2.634 billion / 73.0% |
| Operating income / margin | $1.305 billion / 31.4% | $1.150 billion / 31.9% |
| Net income | $880.8 million | $734.9 million |
| Diluted EPS | $2.92 | $2.33 |
| Operating cash flow | $1.033 billion | $990.9 million |
- Annual sales rose 15.3%; management estimated the extra week in FY2010 contributed about $70 million to that year’s sales. Direct-to-consumer sales grew 14.8%, and Indirect sales 18.8%.
- Net income rose 19.8% and diluted EPS 25.5%. North American comparable sales increased 10.6%; China delivered double-digit comparable-store growth. Japan sales rose 5.1%, including a 9.8% favorable foreign-exchange effect.
- Fiscal Q4 sales were $1.032 billion versus $950.5 million; net income was $202.5 million versus $195.5 million; diluted EPS was $0.68 versus $0.64.
- Cash and equivalents were $699.8 million, short-term investments $2.3 million, working capital $859.4 million, and total debt $24.2 million. No revolving-credit borrowings were outstanding at year-end. Operating cash flow less capital expenditures was approximately $885.5 million.
- Capital expenditures were $147.7 million. The company repurchased $1.098 billion of stock and paid $178.1 million in dividends during the year. The expected annual dividend rate increased to $0.90 per share.
Material changes, outlook and risks
- Sales and earnings increased, but gross margin declined 0.3 percentage points and operating margin declined 0.5 points. SG&A rose 15.8% and slightly increased as a share of sales; management cited higher compensation, design and marketing costs, and expansion-related expenses.
- FY2011 included a $25.7 million charitable contribution, funded following a favorable tax examination settlement. Management’s adjusted operating income excluded the contribution; the related tax benefit offset it at net income, leaving reported net income unchanged by the adjustment.
- The March 2011 Japan earthquake and tsunami were estimated to reduce sales by about $20 million and EPS by $0.025 in Q3, and sales by about $26 million and EPS by $0.035 in Q4. Two temporarily closed stores reopened in July 2011.
- For FY2012, Coach expected approximately $200 million of capital expenditures; about 15 net new North American retail stores, 25 factory outlets, 30 China locations, and 15 Japan locations. It also planned expansion in Europe and direct operation of Singapore beginning in FY2012. These are management plans, not guarantees.
- Key risks include discretionary consumer demand and economic conditions; fashion and product execution; international expansion; foreign exchange; sourcing, labor, freight and material costs; competition and counterfeiting; inventory misjudgments; and seasonal sales concentration. Operating lease commitments totaled approximately $1.019 billion, in addition to $195.4 million of inventory purchase obligations.
- Management described the balance sheet as essentially debt-free and said cash and operating cash flow should cover foreseeable needs. The auditors issued unqualified opinions on the financial statements and internal controls; management also reported effective disclosure and financial-reporting controls.
Most important facts for investors to verify
- Confirm the intended issuer and period: the source is Coach, Inc. FY2011, despite the request’s Tapestry/2010 Q4 metadata.
- Assess comparable growth after accounting for FY2010’s extra week, foreign-exchange benefits in Japan, and store openings.
- Review the sustainability of margins, especially gross-margin pressure and rising SG&A, alongside inventory growth to $421.8 million.
- Evaluate planned international expansion, FY2012 capital spending, lease commitments, and whether shareholder returns remain supported by cash generation.
- Consider the tax settlement and charitable contribution, Japan disaster effects, and other stated operating risks when interpreting reported results and outlook.