Coach’s quarterly results reflect strategic turnaround

Worldwide
Published:  02 November, 2016

The New York headquartered leather goods brand has posted net sales of US$1.04 billion for the first fiscal quarter, up 1% on a reported basis but -1% on a constant currency basis as sales are impacted by Coach’s strategic decision to elevate the brand’s positioning in the North American wholesale channel through a reduction in promotional events and door closures.

Coach has reported a total first quarter gross profit of US$715 million +3% on a reported basis and on adjusted basis. Gross margin for the quarter was 68.9% on both reported and adjusted basis. Net income for the quarter totalled US$117 million.

Net sales for the Coach brand totalled US$950 million for the first fiscal quarter, up 1% on a reported basis but -1% on a constant currency basis; impacted by the strategic actions in the North America wholesale channel.

In North America, total sales decreased 3% on both a reported and constant currency basis to US$545 million against US$561 million the prior year. Direct sales were flat on a dollar basis for the quarter. Sales at North American department stores declined approximately 30% on both a POS and net sales basis.

In Asia, Coach brand sales rose 7% to USUS$395 million on a reported basis from $369 million last year, and 3% on a constant currency basis. Greater China sales were approximately even with prior year in dollars and increased 5% on a constant currency basis driven by double-digit growth. In Japan, sales rose 11% in dollars and decreased 7% in constant currency impacted by a decline in Chinese tourist spend, lapping last year’s dramatic increase. 

Europe remained strong, growing at a double-digit pace. Sales in international wholesale locations are said to have increased modestly, driven by strong domestic performance offset in part by relatively weaker tourist results.

Net sales for the Stuart Weitzman brand totalled US$88 million for the first fiscal quarter against US$87 million reported in the same period of the prior year. Gross profit totalled US$51 million on a reported basis, an increase of 3%, while gross margin for the quarter was 58.4% against 56.8% in the prior year on a reported basis.

“Our solid first quarter results, despite the volatile environment and global macroeconomic headwinds, reflect the continued progress we are making in our transformation and pursuing our vision of modern luxury. Our performance gives us confidence in the upcoming holiday season and the long-term prospects for Coach driven by the strength of our brands and the talent of our teams”, said Victor Luis, CEO, Coach.

After years of chasing fast growth and opening hundreds of shops and corners at several department stores, particularly in North America, the company has decided to radically change its Coach brand’s distribution strategy by removing merchandise from many distribution points and reducing discounts as its products became increasingly discredited, regarded as an affordable brand for the masses, and less so for its traditional leather craftsmanship which dates back to 1941.

In July 2016, Coach announced it would remove its products from roughly 25% of the wholesale locations in North America. The Company said it is maintaining its fiscal 2017 outlook as outlined in August.

Meanwhile, some luxury retailers in the U.S. such as Nordstrom, Bloomingdale’s and Barneys New York have opted to introduce fewer styles of handbags towards the approach of the Christmas holiday season in order to differentiate themselves from competitors and battle against the economic downturn in the sector. Read more here.

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