Coach 2012 Annual Report Download - page 18

Coach merchandise, store replenishment and processing direct-to-customer orders is handled by these centers
and a prolonged disruption in any center’s operation could adversely affect our business and operations.
Increases in our costs, such as raw materials, labor or freight could negatively impact our overall
profitability. Labor costs at many of our manufacturers have been increasing significantly and, as the middle
class in developing countries continues to grow, it is unlikely that such cost pressure will abate. The cost of
transportation has been increasing as well and it is unlikely such cost pressure will abate if oil prices continue
to increase. We may not be able to offset such increases in raw materials or labor or transportation costs
through pricing measures or other means. These increasing costs of productions could also adversely affect our
ability to achieve the gross margin objectives we have established.
Our business is subject to increased costs due to excess inventories if we misjudge the demand for our
products.
If Coach misjudges the market for its products it may be faced with significant excess inventories for
some products and missed opportunities for other products. In addition, because Coach places orders for
products with its manufacturers before it receives wholesale customers’ orders, it could experience higher
excess inventories if wholesale customers order fewer products than anticipated. If that occurs, we may be
forced to rely on markdowns or promotional sales to dispose of excess, slow-moving inventory, which may
negatively impact our business.
Our Indirect segment could suffer as a result of consolidations, liquidations, restructurings and other
ownership changes in the retail industry.
Our Indirect segment, consisting of the U.S. Wholesale and Coach International businesses comprised
approximately 11% of total net sales for fiscal 2012. Continued consolidation in the retail industry could
further decrease the number of, or concentrate the ownership of, stores that carry our and our licensees’
products. Furthermore, a decision by the controlling owner of a group of stores or any other significant
customer, whether motivated by competitive conditions, financial difficulties or otherwise, to decrease or
eliminate the amount of merchandise purchased from us or our licensing partners could result in an adverse
effect on the sales and profitability within our Indirect segment.
Our operating results are subject to seasonal and quarterly fluctuations, which could adversely affect the
market price of Coach common stock.
Because Coach products are frequently given as gifts, Coach has historically realized, and expects to
continue to realize, higher sales and operating income in the second quarter of its fiscal year, which includes
the holiday months of November and December. Poor sales in Coach’s second fiscal quarter would have a
material adverse effect on its full year operating results and result in higher inventories. In addition,
fluctuations in sales and operating income in any fiscal quarter are affected by the timing of seasonal
wholesale shipments and other events affecting retail sales.
If we are unable to pay quarterly dividends at intended levels, our reputation and stock price may be
harmed.
Our quarterly cash dividend is currently $0.30 per common share. The dividend program requires the use
of a modest portion of our cash flow. Our ability to pay dividends will depend on our ability to generate
sufficient cash flows from operations in the future. This ability may be subject to certain economic, financial,
competitive and other factors that are beyond our control. Our Board of Directors (‘‘Board’’) may, at its
discretion, decrease the intended level of dividends or entirely discontinue the payment of dividends at any
time. Any failure to pay dividends after we have announced our intention to do so may negatively impact our
reputation, investor confidence in us and negatively impact our stock price.
Fluctuations in our tax obligations and effective tax rate may result in volatility of our operating results
and stock price.
We are subject to income taxes in many U.S. and certain foreign jurisdictions. We record tax expense
based on our estimates of future payments, which includes reserves for uncertain tax positions in multiple tax
jurisdictions. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results
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