Leather goods maker Coach, Inc. (COH) reported Tuesday a decline in first-quarter profit, as continued promotional environment and channel mix impacted gross margins. Meanwhile, earnings per share remained flat with last year and exceeded Street expectations. Sales grew from the prior year and beat market view, helped by North American stores generating an 8% overall gain.
The New York-based company's net income for the first quarter declined to $140.83 million from $145.81 million in the previous year. Earnings per share remained flat at $0.44, reflecting lower number of shares outstanding. On average, 22 analysts polled by Thomson Reuters expected the company to report earnings of $0.39 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales for the first quarter grew to $761.44 million from $752.53 million in the same quarter last year. Seventeen analysts had a consensus revenue estimate of $753.82 million for the quarter.
In the preceding fourth quarter, the company had posted net income of $145.79 million or $0.45 per share, compared to net income of $213.52 million or $0.62 per share in the prior-year quarter. Fourth quarter sales had dropped marginally to $777.74 million from $781.50 million in the prior-year quarter.
Commenting the first quarter results, Lew Frankfort, chairman and chief executive officer said, "We achieved a solid quarterly top-line performance; with North American stores generating an 8% overall gain on a 1% decline in comparable store sales. At the same time, we were very pleased to achieve earnings per share that matched the prior year with excellent operating margins."
The company said its North American retail business improved sequentially due to the initiatives put into place earlier this year. Coach said it also benefited from the launch of Poppy collection and other products at particularly compelling prices.
According to the company, direct-to-consumer sales, which now include China business, increased 10% to $654 million from $592 million last year. North American comparable store sales declined 1.1%. In Japan, sales declined 3% on a constant-currency basis, while dollar sales rose 11%, adjusted for a stronger yen.
The company noted that its China results continued very strong, with comparable store sales rising at a double-digit rate. Coach also said it is opening its first Mainland China flagship store, planned for Spring 2010 in Shanghai. Further, to support its growth in China, Coach is planning to open an Asia distribution center, also in Shanghai, before the end of the fiscal.
Indirect sales during the quarter decreased 33% to $108 million from $160 million in the earlier year, mainly due to reduced shipments into U.S. department stores.
Gross margin for the recent quarter was 72.3%, in comparison with 74.2% in the previous year, impacted by continued promotional environment and channel mix. Cost of sales increased to $211.26 million from $194.34 million a year ago.
During the quarter, operating income decreased 4% to $223.25 million from $233.49 million reported last year and operating margin was 29.3%, compared to 31% a year ago. Selling, general and administrative expenses were $326.93 million, up from $324.71 million in the comparable quarter last year.
"While we continue to plan conservatively, we believe that we're well positioned for the seasons ahead. We're also squarely focused on the abundant growth opportunities available to us as we begin to emerge from this downturn," Frankfort added.
COH is currently trading at $33.54, down $0.97 or 2.81%, on a volume of 2.15 million shares. In the past 52 weeks, Coach shares have been trading between $11.41 and $35.47 on the NYSE.
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