Coach Reports Fourth Quarter and Fiscal Year Earnings Per Share of $0.59 and $3.10 Excluding Transformation and Other Related Actions; $0.27 and $2.79 on a GAAP Basis
By a News Reporter-Staff News Editor at Investment Weekly News -- Coach, Inc. (NYSE:COH, SEHK:6388), a leading New York design house of modern luxury accessories and lifestyle collections, reported net sales of $1.14 billion for its fourth fiscal quarter ended June 28, 2014, compared with $1.22 billion reported in the same period of the prior year, a decrease of 7%. On a constant currency basis, total sales declined 6% for the period. Net income for the quarter totaled $164 million, with earnings per diluted share of $0.59, excluding transformation and other related actions. This compared to net income of $254 million and earnings per diluted share of $0.89, in the prior year's fourth quarter, excluding restructuring and transformation-related charges. Reported net income totaled $75 million with earnings per diluted share of $0.27 compared to the prior year's reported net income of $221 million and earnings per diluted share of $0.78.
For the fiscal year, net sales declined 5% to $4.81 billion from $5.08 billion the prior fiscal year while net income excluding transformation and other related actions was $870 million versus $1.07 billion in the prior year. On a constant currency basis sales declined 3% for the year. In addition, diluted earnings per share on a non-GAAP basis totaled $3.10 as compared $3.73 in the prior year. Reported net income for the year totaled $781 million and earnings per diluted share were $2.79, compared to reported net income for the prior year of $1.03 billion with earnings per diluted share of $3.61.
Victor Luis, Chief Executive Officer of Coach, Inc. said, "The fourth quarter capped a challenging year for the company, most notably in the North America women's bag and accessory business. However, it was also a year of many accomplishments for Coach, including the successful integration of our retail businesses in Europe, surpassing $500 million in sales in China, and driving Men's to about $700 million in sales globally. Most importantly, we laid the groundwork for our brand transformation. A crucial milestone was the arrival of Executive Creative Director Stuart Vevers last September, who has already had a significant impact on the creative direction of the brand. This was highlighted by our first New York Fashion Week presentation in February and the editorial praise his inaugural collection received globally. We also developed our new retail concept, inspired by our New York City heritage, using an iconic materials palette that is distinctively Coach."
"Most recently in June, we unveiled our comprehensive long-term strategic plan to reinvigorate our business, and rewrite the Coach playbook to achieve growth and leadership. We are taking the key transformation actions to enable the strategic path forward, embarking on the execution phase of our journey."
For the quarter, on a non-GAAP basis, operating income totaled $231 million compared to $371 million in the prior year, while operating margin was 20.4% versus 30.3%. During the quarter, on a non-GAAP basis, gross profit totaled $789 million versus $892 million a year ago, while gross margin was 69.4% versus 73.0%. SG&A expenses, as a percentage of net sales, totaled 49.0% on a non-GAAP basis, compared to 42.6% in the year-ago quarter.
For the quarter, reported operating income totaled $100 million, while operating margin was 8.8%. Reported gross profit was $706 million, while gross margin was 62.2%. SG&A expenses, as a percentage of net sales, totaled 53.4% on a reported basis. Similarly, on a reported basis, operating income for the fourth quarter of FY13 was $318 million with a 26.0% margin and the SG&A expense ratio was 46.6%.
For the full year FY14, on a non-GAAP basis, operating income totaled $1.25 billion versus $1.58 billion in the prior year, while operating margin was 26.0% versus 31.1%. Non-GAAP gross profit was $3.38 billion as compared to $3.70 billion a year ago. Gross margin was 70.3% versus 73.0% a year ago, on a non-GAAP basis. SG&A expenses, as a percentage of net sales, totaled 44.3% on a non-GAAP basis, compared to 41.9% in fiscal 2013.
For the full year FY14, reported operating income totaled $1.12 billion, while operating margin was 23.3%. Reported gross profit was $3.30 billion, while gross margin was 68.6%. SG&A expenses, as a percentage of net sales, totaled 45.3% on a reported basis. Similarly, on a reported basis, operating income for the fiscal year 2013 was $1.52 billion with a 30.0% margin and the SG&A expense ratio was 42.8%.
During the fourth quarter of FY14, the company recorded charges of approximately $132 million for transformation and other related actions. These charges consisted primarily of the realignment of inventory, impairment charges and costs related to store closures. These actions increased the company's cost of sales by $82 million and SG&A expenses by $49 million in the period, negatively impacting net income by $88 million after tax or $0.31 per diluted share. As previously announced, additional expenses related to the transformation will be incurred in fiscal 2015. The company expects to capture $70 million in savings related to its transformation initiatives in fiscal 2015 and approximately $150 million in ongoing annual savings beginning in fiscal 2016.
During the fourth quarter of FY13, the company recorded charges of $53 million for restructuring and transformation. These actions increased the company's SG&A expenses by $48 million and cost of sales by $5 million in the period, negatively impacting net income by $33 million after tax or $0.11 per diluted share.
The company had previously announced that during fiscal year 2014, it repurchased and retired over 10.2 million shares of its common stock at an average cost of $51.27, spending a total of $525 million. At the end of the year approximately $835 million remained under the company's current repurchase authorization.
The company also announced that its Board of Directors declared a quarterly cash dividend of $0.3375 per common share, maintaining an annual rate of $1.35. The dividend is payable on September 29, 2014 to shareholders of record as of the close of business on September 9, 2014.
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