Coach Q4 Earnings Beat Estimates As Transformation Takes Hold

stuart weitzman loafer
Stuart Weitzman, $455.
Courtesy Image.

Coach Inc. is providing more evidence that its turnaround efforts are bearing fruit.

The New York-based brand and owner of the Stuart Weitzman label announced Q4 earnings on Tuesday that were above forecasts, while its comparable sales in North America turned positive for the first time in more than three years.

Total Q4 net income soared to $81.5 million, or 29 cents per diluted share, from $11.7 million, or 4 cents per diluted share. Adjusted net income totaled $126 million, or 45 cents per diluted share, a 47 percent gain over the prior year. Those results topped estimates for earnings per share of 41 cents.

Revenues also gained 15 percent year-over-year, to $1.15 billion, but just missed Wall Street’s forecast for revenues of $1.17 billion.

CEO Victor Luis noted that the company saw particular acceleration in its North America direct business — comps gained a record 2 percent in the region — as its strategic actions begin to take hold.

We returned the Coach brand to growth [and are] elevating brand perception globally, thereby reaching an important milestone in the transformation journey we laid out over two years ago,” Luis said during the firm’s conference call. “I could not be more pleased with and proud of our teams’ execution of the transformation plan over the last two years as we track to our goals in spite of the significant and unanticipated volatility in tourist-spending flows as well as the range of macroeconomic, geopolitical and promotional headwinds.

The Stuart Weitzman brand — which named a new CEO and brand president last month and new creative director on Tuesday — brought in net sales of $84 million in the fourth quarter. Its full-year net sales totaled $345 million.

In addition to management changes, Luis said he plans to launch international flagship stores for the brand.

For Stuart Weitzman, we will drive our leadership position and fashion boots during the key winter selling season; continue to diversify our offerings outside of boots by developing iconic styles and pumps, sandals and flats; drive global awareness and brand relevance through impactful marketing and the launch of New York and London flagships; and leverage our new leadership to bring the Stuart Weitzman brand into its next chapter of growth as a multi-category player,” Luis said.

For the full year, the company’s sales totaled $4.49 billion, a rise of 7 percent on a reported basis and 9 percent in constant currency over the prior year. Net income totaled $461 million on a reported basis, up 14 percent, with earnings per diluted share of $1.65. This included a contribution of $23 million, or 8 cents per share, from Stuart Weitzman. On a non-GAAP basis, net income was $552 million, a climb of 4 percent, with earnings per diluted share of $1.98. This included a contribution of $33 million, or $12 cents per share, from Stuart Weitzman.

Luis said, one of the firm’s key strategic initiatives in the year ahead will be “elevating the Coach brand” in the North America wholesale channel as well as paring down its department-store distribution.

In FY17, we will  be rationalizing our department-store distribution, taking our door count down by about 25 percent — by more than 250 locations — as well as reducing markdown allowances to the channel, given the high level of promotions,” Luis said.

Also in FY17, the company expects revenues to increase by low- to mid-single digits, including an expected benefit from foreign currency of approximately 100-150 basis points based on current exchange rates. Net income and earnings per share are estimated to see double-digit growth.