Filing identity and reporting period
The supplied filing is Coach, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2012, covering fiscal Q3 2012 and the first nine months of fiscal 2012. It does not identify Tapestry, Inc. or a 2011 Q3 reporting period; the request metadata and filing content therefore do not match.
Financial performance
Amounts below are U.S. dollars. The statements report dollars in thousands; figures here are rounded to millions except per-share data.
| Metric | Quarter ended March 31, 2012 | Quarter ended April 2, 2011 | Nine months ended March 31, 2012 | Nine months ended April 2, 2011 |
|---|---|---|---|---|
| Net sales | $1,109.0m | $950.7m | $3,608.0m | $3,126.8m |
| Gross profit / margin | $818.1m / 73.8% | $691.7m / 72.8% | $2,627.9m / 72.8% | $2,283.0m / 73.0% |
| Operating income / margin | $337.5m / 30.4% | $253.8m / 26.7% | $1,160.4m / 32.2% | $992.8m / 31.8% |
| Net income | $225.0m | $186.0m | $787.5m | $678.3m |
| Diluted EPS | $0.77 | $0.62 | $2.67 | $2.24 |
Quarterly sales grew 16.6%, operating income 33.0%, net income 21.0% and diluted EPS 24.3%. Nine-month sales rose 15.4%, operating income 16.9%, net income 16.1% and diluted EPS 19.1%. Quarterly direct-to-consumer sales increased 17.6%; indirect sales increased 9.9%. For the nine months, those channels grew 16.9% and 4.9%, respectively.
Cash flow, debt and liquidity
For the first nine months, operating cash flow was $938.9m, versus $812.6m a year earlier. Investing activities used $172.8m, including $111.6m of property and equipment purchases and $53.2m for distributor-business acquisitions. Financing activities used $530.6m, including $531.0m in share repurchases and $195.6m in dividend payments. Cash increased by $229.9m to $929.7m at March 31, 2012.
Total debt, including the current portion, was approximately $23.5m; no borrowings were outstanding under the disclosed revolving and regional credit facilities. Current assets were $1,759.5m and current liabilities $623.2m. The company reported $155.5m of outstanding letters of credit against $300.0m available. Management said cash on hand and operating cash flow should cover foreseeable working capital needs, planned capital spending, dividends and repurchases.
Material changes and unusual items
- Quarterly gross margin improved to 73.8% from 72.8%; nine-month gross margin edged down to 72.8% from 73.0%. Quarterly SG&A fell to 43.3% of sales from 46.1%; nine-month SG&A fell to 40.7% from 41.3%.
- The quarterly prior-year comparison included $25.7m of items affecting comparability, including charitable contributions and related tax effects. Excluding those items, reported quarterly operating-income growth was 20.7%, and prior-year operating margin was 29.4%. Nine-month 2012 results included a $20.3m Coach Foundation contribution and tax adjustments; management’s non-GAAP presentation excludes these comparability items.
- The Q3 effective tax rate was 33.00%, compared with 26.48% a year earlier, when a favorable tax examination settlement reduced the provision. The nine-month rates were 31.85% and 31.52%, respectively; Japan tax-law and transfer-pricing items affected the current-year period.
- Coach acquired its Singapore and Taiwan retail businesses for aggregate purchase prices of approximately $54.5m. It expected to assume direct control of its Malaysia business in July 2012 and reported an April agreement to acquire its Korea retail business, with transition expected in August 2012.
Outlook, commentary and risks
Management planned approximately 15 new North American retail stores and 25 factory outlets, about 30 new China locations, and approximately 15 net new Japan locations in fiscal 2012. Expected fiscal 2012 capital expenditures were approximately $200m, primarily for stores and infrastructure. These are operating plans, not a quantified revenue or earnings forecast.
Management cited global distribution, especially in China and other under-penetrated markets, store productivity, men’s products, digital commerce and disciplined expense control as growth priorities. It cautioned that results depend on execution, competition, consumer preferences, economic and political conditions, currency movements, cost control and seasonal sales fluctuations. The company used foreign-exchange derivatives for hedging, not speculation. Routine legal proceedings were not expected by management to have a material adverse effect. Disclosure controls were judged effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Confirm the issuer and period: this is Coach, Inc., Q3 fiscal 2012—not Tapestry, Inc. or 2011 Q3.
- Review the drivers and sustainability of sales growth, including comparable-store trends, new-store contributions, China performance and currency effects.
- Assess inventory growth and working-capital cash use: nine-month inventory increases used $64.3m of cash, compared with $31.9m in the prior period.
- Check progress and costs of planned store expansion, the Malaysia and Korea transitions, and the approximately $200m capital-expenditure plan.
- Consider shareholder returns and capital allocation: $531.0m of repurchases, $195.6m of dividends and $430.6m remaining under the repurchase authorization at quarter-end.
- Review tax adjustments, charitable contributions, foreign-exchange exposures and the valuation/liquidity of the $6.0m auction-rate security; its auction had been unsuccessful.