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Press release from Business Wire

Coach Reports First Quarter Earnings of $0.63, up 43%; on 20% Sales Gain

Tuesday, October 26, 2010

Coach Reports First Quarter Earnings of $0.63, up 43%; on 20% Sales Gain07:00 EDT Tuesday, October 26, 2010 NEW YORK (Business Wire) -- Coach, Inc. (NYSE: COH), a leading marketer of modern classic American accessories, today reported sales of $912 million for its first fiscal quarter ended October 2, 2010, compared with $761 million reported in the same period of the prior year, an increase of 20%. Net income for the quarter totaled $189 million, with earnings per diluted share of $0.63. This compared to net income of $141 million and earnings per diluted share of $0.44 in the prior year's first quarter, representing an increase of 34% and 43%, respectively. Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said, “We're extremely pleased with our fiscal first quarter results. This quarter's performance demonstrated a continuation of the strength we have seen in our business throughout 2010, as the wind was once again at our back. Our performance also reflects the resiliency of the premium handbag and accessory category in North America, as well as significant growth in developing markets, as our globalization initiatives take hold.” For the quarter, operating income totaled $286 million, up 28% from the $223 million reported in the comparable year-ago period, while operating margin was 31.3% versus 29.3% reported for the prior year. During the quarter, gross profit rose 23% to $676 million from $550 million a year ago. Gross margin was 74.2% versus 72.3% a year ago, with the expansion driven primarily by sourcing cost improvements. SG&A expenses as a percentage of net sales totaled 42.8%, as compared to 42.9% reported in the year-ago quarter. The company also announced that during the first fiscal quarter, it repurchased and retired nearly 3.6 million shares of its common stock at an average cost of $38.35, spending a total of $137 million. At the end of the period, approximately $422 million remained under the company's present repurchase authorization. First fiscal quarter sales results in each of Coach's primary channels of distribution were as follows: Direct-to-consumer sales increased 19% to $775 million from $654 million last year. North American comparable store sales rose 8.5% for the quarter. In Japan, sales rose 3% on a constant-currency basis, while dollar sales rose 14%, adjusted for a stronger yen. China results continued very strong, with comparable store sales rising at a double-digit rate. Indirect sales increased 27% to $136 million in the first quarter from the $108 million reported for the prior year. This gain reflected significant growth in shipments into U.S. department stores and international wholesale, given positive POS sales, notably in the international business, and expectations for a stronger holiday season for Coach. During the first quarter of fiscal 2011 in North America the company opened three retail stores – including one in a new market for Coach. In addition, seven factory stores were opened including two traditional locations and the first five men's factory stores. This brought the total to 345 retail stores and 128 factory stores as of October 2, 2010. In Japan, Coach opened two locations, bringing the total to 169 at the end of the quarter. In China, eight new locations were opened during the quarter, bringing the total to 49. Mr. Frankfort continued, “We believe we are at another inflection point for the Coach brand. We have responded to a muted consumer environment globally with our merchandising, marketing and pricing strategies and are experiencing strong top and bottom line results. We continue to become increasingly global, as we expand our distribution in both new and existing regions, while implementing new initiatives, such as men's, throughout our multi-channel distribution model.” “We are particularly pleased with our recent developments in Europe, notably plans to open our first regional global flagship, which will be located on New Bond Street in London, as well as additional locations in France, Spain and Portugal, over the next several months.” “We're well positioned for the upcoming holiday season and the balance of the fiscal year and remain confident in our growth prospects and ability to drive sales and earnings at a double-digit pace, given the current strength of the Coach business and our increasing global expansion,” Mr. Frankfort concluded. Coach will host a conference call to review first fiscal quarter results at 8:30 a.m. (ET) today, October 26, 2010. Interested parties may listen to the webcast by accessing on the Internet or dialing into 1-888-405-2080 and asking for the Coach earnings call led by Andrea Shaw Resnick, SVP of Investor Relations & Corporate Communications. A telephone replay will be available starting at 12:00 noon today, for a period of five business days. The number to call is 1-866-352-7723. A webcast replay of this call will be available for five business days on the Coach website. Coach, with headquarters in New York, is a leading American marketer of fine accessories and gifts for women and men, including handbags, women's and men's small leathergoods, business cases, weekend and travel accessories, footwear, watches, outerwear, scarves, sunwear, fragrance, jewelry and related accessories. Coach is sold worldwide through Coach stores, select department stores and specialty stores, through the Coach catalog in the U.S. by calling 1-800-223-8647 and through Coach's website at Coach's shares are traded on the New York Stock Exchange under the symbol COH. This press release contains forward-looking statements based on management's current expectations. These statements can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "intend," "estimate," "are positioned to," "continue," "project," "guidance," “target,” "forecast," "anticipated," or comparable terms. Future results may differ materially from management's current expectations, based upon risks and uncertainties such as expected economic trends, the ability to anticipate consumer preferences, the ability to control costs, etc. Please refer to Coach's latest Annual Report on Form 10-K for a complete list of risk factors.     COACH, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOMEFor the Quarters Ended October 2, 2010 and September 26, 2009(in thousands, except per share data)(unaudited)   QUARTER ENDEDOctober 2,September 26,20102009(1)   Net sales $ 911,669 $ 761,437   Cost of sales   235,498     211,259     Gross profit 676,171 550,178   Selling, general and administrative expenses   390,511     326,931     Operating income 285,660 223,247   Interest income, net 248 1,835   Other expense   (810 )   -     Income before provision for income taxes 285,098 225,082   Provision for income taxes   96,222     84,255     Net income $ 188,876   $ 140,827       Net income per share   Basic $ 0.64   $ 0.44     Diluted $ 0.63   $ 0.44       Shares used in computing net income per share   Basic   296,304     318,286     Diluted   301,249     321,115   (1) Amounts presented differ from amounts previously reported due to change in income statement classification. On July 4, 2010, the Company changed its income statement classification for interest and penalties recognized for uncertain tax positions, codified within the Accounting Standards Codification Topic 740, from interest income, net to the provision for income taxes.     COACH, INC.CONDENSED CONSOLIDATED BALANCE SHEETSAt October 2, 2010, July 3, 2010 and September 26, 2009(in thousands)(unaudited)     October 2,   July 3,   September 26,   2010   2010   2009ASSETS   Cash, cash equivalents and short term investments $ 711,963 $ 696,398 $ 994,680 Receivables 133,173 109,068 105,120 Inventories 458,920 363,285 337,545 Other current assets   121,194   133,890   173,128   Total current assets 1,425,250 1,302,641 1,610,473   Property and equipment, net 546,246 548,474 582,230 Other noncurrent assets   638,334   616,000   601,913   Total assets $ 2,609,830 $ 2,467,115 $ 2,794,616   LIABILITIES AND STOCKHOLDERS' EQUITY   Accounts payable $ 105,448 $ 105,569 $ 94,198 Accrued liabilities 463,453 422,725 437,259 Current portion of long-term debt   750   742   704   Total current liabilities 569,651 529,036 532,161   Long-term debt 24,064 24,159 24,429 Other liabilities 433,442 408,627 397,045   Stockholders' equity   1,582,673   1,505,293   1,840,981   Total liabilities and stockholders' equity $ 2,609,830 $ 2,467,115 $ 2,794,616 CoachAnalysts & Media:Andrea Shaw Resnick, 212-629-2618SVP Investor Relations & Corporate Communications