Coach, Inc. Form 10-Q Summary
Filing identity and period: The supplied filing is Coach, Inc.’s unaudited Form 10-Q for the quarter ended September 29, 2012 (first quarter of fiscal 2013), filed November 7, 2012. It is not a filing under the name Tapestry, Inc.; investors should verify the issuer and period intended by the request.
Financial performance
| Metric | Quarter ended Sep. 29, 2012 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $1,161.4 million | $1,050.4 million | +10.6% |
| Gross profit / margin | $845.2 million / 72.8% | $764.7 million / 72.8% | +10.5% profit |
| Operating income / margin | $331.7 million / 28.6% | $322.0 million / 30.7% | +3.0% income |
| Net income / margin | $221.4 million / 19.1% | $215.0 million / 20.5% | +3.0% income |
| Diluted EPS | $0.77 | $0.73 | +5.7% |
| Operating cash flow | $202.2 million | $225.0 million | Down $22.8 million |
North America sales increased 7.6% to $784.2 million, including comparable-store sales growth of 5.5%. International sales increased 15.4% to $361.8 million, with double-digit comparable-store growth in China. International results included acquired Korea and Malaysia operations and the Taiwan business acquired in fiscal 2012.
Gross margin held at 72.8%, while operating margin fell 2.1 percentage points. SG&A rose 16.0% to $513.5 million, or 44.2% of sales versus 42.1%, driven principally by acquired businesses, store costs, and investment in international infrastructure, marketing, design, and systems.
Cash, liquidity, and capital
Cash and cash equivalents were $760.8 million at quarter-end, down $156.5 million from June 30, 2012. Operating activities generated $202.2 million; investing used $101.7 million, including $45.4 million for the Korea and Malaysia acquisitions and $56.3 million for property and equipment; financing used $257.7 million, including $175.0 million of share repurchases and $85.8 million of dividends.
Total debt was approximately $23.3 million, consisting primarily of the $22.3 million current portion; the company reported no borrowings on its $400 million revolving credit facility. It had $179.9 million of letters of credit outstanding and reported compliance with credit-facility covenants. Current assets were $1.77 billion and current liabilities $730.9 million. Inventory was $598.1 million, up from $504.5 million at fiscal year-end.
Material developments, outlook, and risks
- Coach acquired its domestic retail businesses in Malaysia and Korea for cash payments of $45.4 million through quarter-end. It estimated an additional $10.0 million in contingent Korea payments, scheduled through the first quarter of fiscal 2015.
- The company reorganized reporting into North America and International segments; prior-period segment data was restated. Segment comparisons should be read in light of this change.
- Management expected about 25 net new North American stores, 30 new China locations, and approximately 10 net new Japan locations in fiscal 2013. It forecast approximately $250 million in fiscal-year capital expenditures. These are plans, not assurances.
- In October 2012, the board authorized a new $1.5 billion share-repurchase program through June 2015; $86.6 million remained under the prior program at quarter-end.
- Management described retail conditions as challenging and consumers, particularly in North America and Japan, as cautious. Risks include competition, consumer and fashion trends, economic and political conditions, currency movements, cost control, seasonality, and execution of growth plans. The filing reported routine legal proceedings and stated management did not expect their aggregate outcome to have a material adverse effect.
Key facts for investors to verify
- Confirm that Coach, Inc. and fiscal Q1 2013 are the intended issuer and period; the request identifies Tapestry, Inc. and 2012 Q1.
- Assess whether sales growth and international expansion can offset rising SG&A and the decline in operating and net margins.
- Review acquisition integration, the estimated contingent Korea payment, and the segment reclassification when comparing periods.
- Check subsequent repurchases, dividends, capital spending, and cash generation against management’s stated plans.
- Consider working-capital seasonality, foreign-exchange exposure, and the company’s stated macroeconomic and retail risks.