Coach’s margins and sales improve
Coach (COH), one of the most established players in the US affordable luxury segment, reported results for 1Q17 on November 1, 2016. As discussed in the previous two sections, the company’s sales improved 1% on strong international business and positive sales comps in North America.
The company also reported an improvement in its gross profit during the quarter, which increased 3% YoY (year-over-year) to $715 million. Its gross margin expanded by 128 basis points on a GAAP (generally accepted accounting principles) basis to 68.9% of sales. The Coach brand’s gross profit rose 3%, while Stuart Weitzman’s rose 2%. As shown in the graph above, Coach has the best gross margin in its peer group.
Coach’s operating margin boosted by lower expenses
SG&A (selling, general, and administrative) expenses were up 1%, in line with the sales growth. The Coach brand’s SG&A expenses fell 1% YoY. On the other hand, Stuart Weitzman brand’s SG&A expenses rose to $45 million from $36 million in 1Q16 because of higher store occupancy costs and a change in timing of marketing expenses.
Coach’s operating income stood at $177 million, up 7% from 1Q16. The higher operating profit was a result of the Coach brand’s stronger operating margin, which expanded 200 basis points during the quarter.
Coach’s net income rose 11.4% to $126 million, while its earnings per share increased 9.8% to $0.45. Coach’s competitor Kate Spade (KATE), which reported its results on November 2, recorded a rise of over 110% in EPS to $0.13. Michael Kors (KORS), which is slated to report results on November 10, is predicted to report an earnings fall of around 13%. Read the next section to learn more about the company’s outlook and Wall Street’s view on Coach.