Coach Inc.: Hoping Holidays Continue Strong Growth

Dec. 20, 2006
Distinctive accessory maker broadens reach, battles knockoffs, targets price-sensitive consumer.

It's a status symbol. Clutching a Coach purse, with its distinctive markings, lets the world know you paid a lot of money for a bag that holds keys, maybe a cell phone and various sundry items to get you through the day.

If you consider Coach's first-quarter 2007 earnings, which ended Sept. 30, a lot of folks have status.

According to an Oct. 24 statement, New York-based Coach Inc. -- one of IndustryWeek's IW 50 Best Manufacturers for 2006 -- increased earnings 40%. Net sales rose 34% to $126 million.

"Our exceptional results this quarter reflect the strength of our franchise and the enthusiastic reception to our product offerings," said Lew Frankfort, chairman and CEO of Coach, in the statement. "Further fueling our results has been the continued rapid growth in the U.S. premium handbag market, as consumers continue to trade up within the category. Given the strength of our product pipeline, breadth of our assortment and shoppers' strong interest in accessories for gifts and self-purchase, Coach is clearly well positioned for another excellent holiday season."

Frankfort also noted that Coach will offer a broad assortment of gifts under $100 geared toward the more price-sensitive consumer.

The company estimates second fiscal quarter sales of about $785 million, representing a year-over-year increase of about 21% and earnings per diluted share of 56 cents, up more than 25% over the year-earlier period, and ahead of the analysts' consensus of 55 cents. For the fiscal year 2007, the company expects to generate sales of about $2.55 billion, an increase of 21% from the prior year and earnings per diluted share of at least $1.63, ahead of the analysts' consensus of $1.58, and representing an increase of at least 28%.

With such strong brand recognition, the company is constantly battling knockoffs. In fact, the problem of product counterfeiting has grown more than 10,000% in the past two decades, says The International Anti-Counterfeiting Coalition (IACC). The IACC estimates that counterfeiting is a $600 billion-a-year industry worldwide.

Coach Inc.
At A Glance
Coach Inc.New YorkPrimary Industry: apparelNumber of employees: 5,7002005 In ReviewRevenue: $1.710 billionProfit Margin: 22.72%Sales Turnover: 1.27Inventory Turnover: 2.31Revenue Growth: 29.47%Return On Assets: 37.78%Return On Equity: 49.68%

While many counterfeit and knockoff products are sold on the street or at home parties, some major retailers also have displayed the bogus items.

According to a Dec. 16 article in the Minneapolis-St. Paul, Minnesota Star Tribune, "There has been growing friction among brand owners and large retailers over intellectual property rights. In September, Coach sued Target for allegedly selling counterfeit handbags, which Target claimed it had purchased at a department store liquidation sale. Coach moved to have the lawsuit dismissed the next month."

For its due diligence, Coach's Web site enables consumers to report fake merchandise.

According to the Web site: "Combating counterfeiting of Coach product is an important objective for Coach. The counterfeiters illegally profit at the expense of Coach and affect the entire economy through lost revenues and taxes. In addition, counterfeiters do not typically honor safety and environmental regulations, namely child labor and anti-sweatshop laws. Without a doubt, the high quality and workmanship embodied in genuine Coach product is not duplicated in the counterfeit product; counterfeit quality is typically poor."

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