Coach Reports Second Quarter Earnings of $0.75, Up 12%

Coach, Inc. (NYSE: COH), a leading marketer of modern classic American accessories, today announced sales of $1.07 billion for its second fiscal quarter ended December 26, 2009, compared with $960 million reported in the same period of the prior year, an increase of 11%. Net income for the quarter totaled $241 million, with earnings per diluted share of $0.75. This compared to net income of $217 million and earnings per diluted share of $0.67 in the prior year’s second quarter.

Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said, “We were very pleased with the strong sales and earnings growth we generated this holiday, driven in part by a return to positive North American comparable store sales. Our performance reflected continued traction of the initiatives we have put in place to adapt to the changed environment. Our customers embraced our innovative and relevant products and collections while our focus on digital and social media delivered a more engaging brand experience for many consumers.”

For the second fiscal quarter, operating income totaled $381 million, up 9% from the $348 million reported in the comparable year ago period, while the operating margin was 35.8% versus 36.3% reported for the prior year. During the quarter, gross profit increased 11% to $771 million from $692 million a year ago. Gross margin was 72.4% versus 72.1% a year ago, reflecting the re-engineering of key collections globally and margin improvement in our North American factory business, offset in part by channel mix. As expected, SG&A expenses as a percentage of net sales increased to 36.6%, compared to the 35.8% reported in the year-ago quarter as the company lapped certain significant and unusual cost-saving items.

The company also announced that during the second fiscal quarter, it repurchased and retired nearly 8.6 million shares of its common stock at an average cost of $35.03, spending a total of $300 million. At the end of the period, $410 million remained under the company’s repurchase authorization.

For the six months ended December 26, 2009, net sales were $1.83 billion, up 7% from the $1.71 billion reported in the first six months of fiscal 2009. Net income totaled $382 million, up 5% from the $363 million reported a year ago, while earnings per share rose 8% to $1.19 from $1.10.

Second fiscal quarter sales results in each of Coach’s primary channels of distribution were as follows:

• Direct-to-consumer sales increased 14% to $934 million from $818 million last year. North American comparable store sales for the quarter rose 3.2%. In Japan, sales fell 2% on a constant-currency basis, while dollar sales rose 7% driven by a stronger yen. China sales remained robust, as POS sales continued to comp at a double-digit rate.
• Indirect sales decreased 8% to $131 million in the second quarter from the $143 million reported for the prior year. This decline was primarily due to reduced shipments into U.S. department stores, as the company continues to tightly manage inventories in that channel given sales levels at POS. International POS sales rose during the period, notably in locations focused on the domestic consumer.

During the second quarter of fiscal 2010, the company opened three retail stores and two factory stores in North America, bringing the total to 343 retail stores and 118 factory stores as of December 26, 2009. In Japan, Coach opened one shop-in-shop, taking the total to 163 at the end of the quarter. In China, four net new locations were opened during the quarter, taking the total to 37.

Mr. Frankfort continued, “Our pricing and product initiatives have resonated with our consumer base, both here in North America and internationally. The response to Madison and Poppy, our lead collections for holiday, was strong, as was the reaction to our holiday gifting and marketing campaigns which built on our successes from the prior quarter. For early spring, we’re excited about the new Peyton collection, which launched on December 26 ^th, and is off to a great start. And later this week, we’re re-launching Poppy, featuring new styles and a fresh color palette.”

“We were especially pleased by the strengthening of our North America retail business during the holiday season, as revenues from new and existing stores increased by 16% and comparable store sales rose 3%. The trend in our domestic business built steadily over the quarter, with December our strongest month, reflecting Coach’s position as a gift resource. The most significant comp driver this holiday was conversion, reflecting the vitality of the brand and the strength of our product assortment.”

“Our holiday results bode well for the future. Despite the challenging retail environment, we’re confident that we’ll continue to deliver healthy sales and earnings growth over the balance of the fiscal year. We’re well positioned for the ‘new normal’, and expect to further expand our North American market share, irrespective of category growth. We will leverage the abundant growth opportunities available to us both domestically and internationally, as we become an increasingly global brand,” Mr. Frankfort concluded.

Coach will host a conference call to review second fiscal quarter results at 8:30 a.m. (ET) today, January 20, 2010. Interested parties may listen to the webcast by accessing www.coach.com/investors on the Internet or dialing into 1-888-405-2080 and asking for the Coach earnings call led by Andrea Shaw Resnick, SVP of Investor Relations & Corporate Communications. A telephone replay will be available starting at 12:00 noon today, for a period of five business days. The number to call is 1-866-352-7723. A webcast replay of this call will be available for five business days on the Coach website.

Coach, with headquarters in New York, is a leading American marketer of fine accessories and gifts for women and men, including handbags, women’s and men’s small leathergoods, business cases, weekend and travel accessories, footwear, watches, outerwear, scarves, sunwear, fragrance, jewelry and related accessories. Coach is sold worldwide through Coach stores, select department stores and specialty stores, through the Coach catalog in the U.S. by calling 1-800-223-8647 and through Coach’s website at www.coach.com. Coach’s shares are traded on the New York Stock Exchange under the symbol COH.

This press release contains forward-looking statements based on management's current expectations. These statements can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "intend," "estimate," "are positioned to," "continue," "project," "guidance," “target,” "forecast," "anticipated," or comparable terms. Future results may differ materially from management's current expectations, based upon risks and uncertainties such as expected economic trends, the ability to anticipate consumer preferences, the ability to control costs, etc. Please refer to Coach’s latest Annual Report on Form 10-K for a complete list of risk factors.

COACH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Quarters and Six Months Ended December 26, 2009 and December 27, 2008
(in thousands, except per share data)
(unaudited)
				QUARTER ENDED								SIX MONTHS ENDED
				December 26,			December 27,					December 26,					December 27,
				2009			2008					2009					2008
	Net sales			$	1,065,005		$	960,256				$	1,826,442				$	1,712,785
	Cost of sales				294,066			268,220					505,325					462,556
	Gross profit				770,939			692,036					1,321,117					1,250,229
	Selling, general and
	administrative expenses				390,102			343,673					717,033					668,380
	Operating income				380,837			348,363					604,084					581,849
	Interest income (expense), net				112			532					(484	)				3,178
	Income before provision for income taxes				380,949			348,895					603,600					585,027
	Provision for income taxes				139,999			131,989					221,823					222,310
		Net income		$	240,950		$	216,906				$	381,777				$	362,717
	Net income per share
	Basic			$	0.76		$	0.67				$	1.20				$	1.11
	Diluted			$	0.75		$	0.67				$	1.19				$	1.10
	Shares used in computing
	net income per share
	Basic				317,458			323,655					317,761					327,881
	Diluted				321,381			325,168					321,137					329,716

COACH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
At December 26, 2009, June 27, 2009 and December 27, 2008
(in thousands)
(unaudited)
					December 26,				June 27,				December 27,
					2009				2009				2008
ASSETS
Cash, cash equivalents and short term investments					$	1,103,177			$	800,362			$	424,153
Receivables						178,849				108,707				192,024
Inventories						269,200				326,148				383,081
Other current assets						165,166				161,192				221,579
Total current assets						1,716,392				1,396,409				1,220,837
Long term investments						6,000				6,000				6,000
Property and equipment, net						564,483				592,982				600,437
Other noncurrent assets						582,255				568,945				510,687
Total assets					$	2,869,130			$	2,564,336			$	2,337,961
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable					$	120,167			$	103,029			$	125,650
Accrued liabilities						457,557				348,619				391,260
Revolving credit facilities						-				7,496				1,896
Current portion of long-term debt						737				508				503
Total current liabilities						578,461				459,652				519,309
Long-term debt						24,339				25,072				25,076
Other liabilities						400,764				383,570				327,565
Stockholders' equity						1,865,566				1,696,042				1,466,011
Total liabilities and stockholders' equity					$	2,869,130			$	2,564,336			$	2,337,961