How Will Coach Close Out Its Financial Year?

Coach is holding a conference call to report its fourth quarter and financial year 2016 earnings on August 9, 2016.

Factors To Consider:

1) Collaboration With Disney

• Coach teamed up with Disney for range of handbags, t-shirts, and sneakers, featuring the world’s most iconic mouse.
• It debuted in New York and Paris on June 10th, followed by its other stores on June 17th.
• Since the launch, several items have sold out online, including all four colors of the $395 kisslock handbags, designed in the shape of Mickey’s ears, and $1,500 leather dolls and bean bags.
• Such limited editions help prevent discounting in order to move inventory, which would result in lowering the brand value.

2) Reduced Spending On Handbags

• Coach is heavily reliant on its handbags and handbag-related products, which constitute 80% of its sales.
• If this category slows down, it would be hard for the company to turnaround its business.
• According to a recent survey, 24% of consumers expect to spend less on handbags in 2016, higher than the percent expecting to spend less on other luxury items.
• Coach also realizes 60% of its sales from outlets, which makes it hard to wean the company off discounting.

Highlights Of The Previous Quarter:

1) Turnaround of Coach’s North American Business

• Same-store sales at the retail stores were unchanged, after a number of quarters of negative comps, representing the fourth consecutive quarter of improvement.
• While store and mall traffic were soft, due to increased internet sales, more was spent per customer versus a year prior.
• Positive comps were seen in the renovated luxury concept retail outlets.
• Low single-digit growth in the North American premium women’s handbag and accessories market.
• Higher premium handbag purchases, as compared to six months ago.
• The above $400 price bracket rose in penetration, and forms ~40% of handbag sales, up from ~30% last year.
• Handbag AUR (Average Unit Retail) has risen to over $300 in the quarter, for the first time since FY 2009.

2) Chinese Market And Chinese Tourists Driving International Sales

• Greater China third quarter sales increased 2%.
• This was driven by double-digit growth and positive comps on the Mainland, offset by weakened markets in Hong Kong and Macau due to a slowdown in inbound tourist traffic from the Mainland.
• Annual sales forecast of $600M, reflecting continued softness in Hong Kong and Macau.
• Decline in Chinese tourists to North America and Europe, notably France, affected performance there.
• Growth in Chinese tourist spending in Japan, Korea, and Southeast Asia resulted in high growth.
• Japan sales grew by 7% on a constant currency basis, benefiting from increased Chinese tourist traffic and a positive response to the new modern luxury stores.

Have more questions on Coach? See the links below:

• What Will Be Coach’s Revenue And EBITDA Breakdown In 2016?
• How Will Coach Perform In 2016?
• What Will Be The Impact of Coach’s Collaboration With Disney?
• How Has Coach’s Revenue Per Square Foot Changed Over The Years?
• What Percentage Of Coach’s Stock Price Can Be Attributed To Growth?
• Why Are We Bullish On Coach?
• What Has Resulted In A Decline In North American Net Sales And A Rise in International Sales For Coach So Far In FY 2016?
• Coach’s Strong Presence In China To Help The Company In The Future
• How Did the Different Segments Of Coach Perform In Q3 2016?
• How Has The Transformation Plan Affected Coach’s North American Retail Store Count?
• Coach Q3 2016 Earnings And Revenue Beats Expectations
• What To Expect From Coach In Q3 FY 2016?
• Is Coach’s Transformation Plan Working?
• What Is The Breakdown Of The Charges Associated With Coach’s Transformation Plan?
• Coach: Year 2015 In Review
• Is The Men’s Segment Becoming Big Business For Coach?
• How Will Coach’s Revenue And EBITDA Change In The Next 3 Years?
• What Is Coach’s Fundamental Value Based On Expected 2016 Results?

Notes: