Coach Reports Margin Improvement on Lower SG&A Rate in 4Q16



Coach reports improvement in key financial metrics

Coach (COH) reported its fourth quarter and fiscal 2016 results on August 9, 2016. It saw an improvement in its major financial metrics. The company’s GAAP (generally accepted accounting principles) operating profit stood at $116 million in 4Q16—compared to $39 million the same quarter last year. As a result, its operating margin improved from 3.9% in 4Q15 to 10.1% in 4Q16.

The improvement in the operating margin was driven by a lower SG&A (selling, general, and administrative expenses) rate. SG&A expenses represented 52.8% of sales versus 56.8% in the same quarter last year. As noted by Victor Luis, Coach’s CEO, “we achieved the expected inflection in profitability, as we leveraged our expenses on the growth in the business.”

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Comparing Coach’s operating margin to peers

Over the last two years, Coach has actively worked on improving its brand perception. The company introduced a new range of products, acquired Stuart Weitzman to add the “cool factor,” closed its unprofitable stores, and reduced promotion days to main brand integrity. The efforts have been quite fruitful. They improved the company’s profitability.

Although the company’s performance has improved, it continues to trail Michael Kors (KORS). It has been eating away Coach’s market share. It reported an operating margin of 18.9% for the recent quarter. The company reported its results on August 10.

Kate Spade (KATE) reported its results on August 3. It reported a GAAP operating margin of 10.6%. Ralph Lauren (RL), on the other hand, reported an operating loss with an operating margin of -2% in the last reported quarter. The company also reported its results on August 10.

Net income

Coach’s adjusted net income for the quarter stood at $126 million—compared to $85 million a year ago. Adjusted earnings per diluted share stood $0.45—up 47% compared to the previous year.

Investors looking to invest in Coach through ETFs can choose to invest in the iShares Morningstar Mid-Cap Value ETF (JKI). Coach has a weight of ~0.81%, respectively, in JKI.


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