Business context and reporting period
The supplied filing is Coach, Inc.’s Form 10-K for the 52-week fiscal year ended June 30, 2012, filed August 22, 2012. This does not match the request metadata identifying Tapestry, Inc. and “2011 Q4”; the filing itself identifies the registrant as Coach, Inc. and reports fiscal 2012. Coach sold premium accessories through Direct-to-Consumer and Indirect segments; handbags represented 65% of sales. Direct-to-Consumer generated 88.8% of revenue.
Key financial metrics
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Net sales | $4.763 billion | $4.159 billion | +14.5% |
| Gross profit / margin | $3.466 billion / 72.8% | $3.024 billion / 72.7% | +14.6%; margin +0.1 pp |
| Operating income / margin | $1.512 billion / 31.7% | $1.305 billion / 31.4% | +15.9%; margin +0.3 pp |
| Net income / margin | $1.039 billion / 21.8% | $880.8 million / 21.2% | +17.9%; margin +0.6 pp |
| Diluted EPS | $3.53 | $2.92 | +20.9% |
| Cash from operations | $1.222 billion | $1.033 billion | +$188.4 million |
| Cash and cash equivalents | $917.2 million | $699.8 million | +$217.4 million |
| Working capital | $1.086 billion | $859.4 million | +$227.0 million |
Investing activities used $259.4 million, including $184.3 million of capital expenditures, $53.2 million for the Singapore and Taiwan acquisitions, and $24.1 million of loans to European joint-venture operations. Financing activities used $741.9 million, including $700.0 million of share repurchases and $260.3 million of dividends, partly offset by proceeds from share-based awards. Total debt was $23.4 million, primarily the headquarters mortgage; there were no revolver borrowings. The new $400 million revolving facility had $393.3 million available at year-end after letters of credit. Inventory was $504.5 million, up from $421.8 million.
Material changes versus the prior comparable period
- Direct-to-Consumer sales rose 16.1% to $4.232 billion; Indirect sales rose 3.8% to $531.5 million. North American comparable store sales increased 6.6%; China reported double-digit comparable-store growth.
- Growth included store additions and acquisitions: Coach opened 26 North American factory stores, 30 China locations and 11 Japan locations; it acquired its Singapore and Taiwan retail businesses. The company operated 833 stores at fiscal year-end, versus 750 a year earlier.
- SG&A increased 13.7% in dollars but declined to 41.0% of sales from 41.3%, reflecting sales leverage. The effective tax rate fell to 31.0% from 32.3%.
- Share repurchases decreased to $700 million from $1.098 billion, while dividends paid increased to $260.3 million from $178.1 million. The declared dividend rose to an expected annual rate of $1.20 per share.
Outlook, commentary, risks and unusual items
Management planned approximately $250 million of fiscal 2013 capital expenditures, about 10 net new North American retail stores and 18 factory outlets, 30 new China locations and approximately 13 net new Japan locations. It described the retail environment as challenging, with cautious consumers in North America and Japan, while citing international expansion, product innovation, e-commerce and expense discipline as growth priorities. Malaysia and Korea retail operations moved to direct control after year-end.
Principal risks include weaker discretionary consumer spending, fashion and product execution, intense competition, international expansion and operating risks, currency movements, rising sourcing, labor and freight costs, inventory misjudgment and markdowns, dependence on third-party manufacturers and distribution, cybersecurity and customer-data breaches, and protection of intellectual property. The business is seasonal, with higher sales and operating income typically in the holiday quarter.
Fiscal 2012 included a $39.2 million Coach Foundation contribution associated with favorable tax items, including Japan tax changes and a transfer-pricing agreement; the contribution and related tax adjustments had no net effect on reported net income or diluted EPS. Management’s adjusted non-GAAP operating margin was 32.6%, versus 32.0% in fiscal 2011. The company disclosed $1.075 billion of future minimum operating lease payments, including $179.3 million due within one year. Pending legal matters were characterized as routine, with no expected aggregate material adverse effect. The filing reports effective disclosure controls and internal control over financial reporting, with unqualified auditor opinions.
Important facts for investors to verify
- Confirm the intended issuer and period: this source is Coach, Inc.’s FY2012 10-K, not a filing labeled Tapestry, Inc. or 2011 Q4.
- Review the audited statements and notes for cash-flow drivers, the inventory build, lease obligations, debt maturities and letters of credit.
- Assess whether planned international store growth and direct operation of acquired markets can sustain sales and margins, particularly in China and other Asian markets.
- Examine the quality and comparability of earnings, including the tax-related items, foundation contribution and management’s non-GAAP adjustments.
- Monitor dividend and repurchase capacity alongside capital spending, working-capital needs and macroeconomic, sourcing, currency and cybersecurity risks.