Filing summary
Entity and period: The supplied filing is Coach, Inc.’s Form 10-K for the 52-week fiscal year ended June 28, 2014—not a Tapestry, Inc. filing or a 2013 Q4 filing. Fiscal 2013 ended June 29, 2013. The filing reports Coach’s North America and International segments.
Financial performance
| Metric | Fiscal 2014 | Fiscal 2013 |
|---|---|---|
| Net sales | $4.806 billion | $5.075 billion |
| Gross profit / margin | $3.297 billion / 68.6% | $3.698 billion / 72.9% |
| Operating income / margin | $1.120 billion / 23.3% | $1.525 billion / 30.0% |
| Net income / diluted EPS | $781.3 million / $2.79 | $1.034 billion / $3.61 |
| Operating cash flow | $985.4 million | $1.414 billion |
| Cash and investments at year-end | $1.353 billion | $1.332 billion |
| Total debt at year-end | $140.5 million | $1.0 million |
| Working capital | $1.042 billion | $1.348 billion |
Cash and cash equivalents were $591.9 million at year-end, down from $1.063 billion; short- and long-term investments totaled $761.2 million. Fiscal 2014 investing cash use was $707.7 million and financing cash use was $748.0 million. Capital expenditures were $219.6 million. The company reported no material legal proceeding expected to affect its financial position.
Unaudited fourth-quarter fiscal 2014 results: sales were $1.136 billion, gross profit $706.4 million, net income $75.3 million and diluted EPS $0.27. Fourth-quarter fiscal 2013 comparatives were $1.223 billion, $887.4 million, $221.3 million and $0.78, respectively.
Changes versus fiscal 2013
- Sales declined 5.3% (3.1% excluding currency effects), principally because North America sales fell 10.9%; International sales grew 5.5%, or 12.3% excluding currency effects.
- North America comparable store sales fell 15%, with lower traffic and weaker internet performance cited. International growth reflected China and Asia growth, new stores and the acquisition of the European joint venture.
- Reported gross margin fell 430 basis points; operating margin fell 670 basis points. Excluding items affecting comparability, gross margin was 70.3% versus 73.0%, and operating margin was 26.0% versus 31.1%.
- Reported net income declined 24.5%; excluding comparability items, it declined 18.5%. Diluted EPS was $3.10 excluding those items, down from $3.73.
- Fiscal 2014 included $131.5 million of pretax transformation and related charges ($88.3 million after tax, or $0.31 per diluted share), compared with $53.2 million of restructuring and transformation charges in fiscal 2013.
Outlook, management commentary and risks
- Coach announced a multi-year plan to reinvigorate growth and reposition the company as a global lifestyle brand. Planned measures include approximately $500 million of store and wholesale-location improvements in fiscal 2015 and 2016, about $50 million of incremental advertising beginning in fiscal 2015, reduced promotions, inventory realignment and closure of approximately 70 underperforming North American stores in fiscal 2015.
- Management expected additional pretax transformation charges of approximately $120 million to $170 million, primarily in fiscal 2015. It described consumer traffic as weak and inconsistent, with ongoing promotional competition and uncertainty in discretionary spending.
- Fiscal 2015 capital expenditures were estimated at $300 million to $350 million, excluding approximately $90 million to $125 million of Hudson Yards headquarters-related capital expenditures. The company also expected approximately $240 million of Hudson Yards joint-venture investment in fiscal 2015; further direct headquarters spending was estimated at $188 million over the construction period.
- Management said existing liquidity was expected to support operations and planned investments, while anticipating increased borrowing in fiscal 2015. The $700 million revolving facility had $140 million outstanding at year-end. Most cash and short-term investments were held outside the U.S. and intended to be permanently reinvested.
- Key risks include execution of the transformation plan, fashion and brand relevance, inventory and markdown exposure, international expansion and foreign exchange, global sourcing and cost pressures, long-term store leases, cyber and systems disruption, and potential headquarters-project cost overruns or delays. The filing identifies $188.7 million of non-current unrecognized tax benefits for which settlement timing could not be reliably estimated.
Most important facts to verify
- Confirm the requested issuer and period: the source is Coach, Inc.’s fiscal 2014 10-K, not a Tapestry, Inc. 2013 Q4 report.
- Assess whether North America sales and comparable-store trends stabilized after the reported declines, and whether international growth continued excluding acquisitions and currency effects.
- Track gross-margin recovery, promotional intensity, and the realized cost and timing of store closures and transformation charges.
- Verify actual spending and funding for the transformation and Hudson Yards commitments, including debt growth and cash generation.
- Review the full audited financial statements and notes for tax exposures, lease obligations, and subsequent developments; the filing states that its financial statements and internal controls received unqualified audit opinions.