Coach 2002 Annual Report Download - page 28

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Table of Contents
of $3.4 million. The reorganization costs included $2.2 million for worker separation costs, $0.7 million for lease termination costs and
$0.5 million for the write-down of long-lived assets to net realizable value.
Operating Income
Operating income increased 82.4% to $243.7 million in fiscal 2003 from $133.6 million in fiscal 2002. This increase resulted from
higher sales, improved gross margins and the nonrecurrence of reorganization costs, partially offset by an increase in selling, general and
administrative expenses.
Interest Income, Net
Net interest income was $1.1 million in fiscal 2003, as compared to an expense of $0.3 million in fiscal 2002. The dollar change was due
to reduced borrowings and positive cash balances during fiscal 2003.
Income Taxes
The effective tax rate increased to 37.0% in fiscal 2003 compared with the 35.5% recorded in fiscal 2002. This increase was due in part to
the closure of our facility in Lares, Puerto Rico and the elimination of related tax benefits.
Minority Interest
Minority interest, net of tax increased to $7.6 million, or 0.8% of net sales, in fiscal 2003 from $0.2 million in fiscal 2002. The dollar
change was due to increased profitability in Coach Japan coupled with a stronger yen.
Net Income
Net income increased 70.8% to $146.6 million in fiscal 2003 from $85.8 million in fiscal 2002. This increase was the result of increased
operating income partially offset by a higher provision for income taxes and higher minority interest.
Earnings Per Share
Diluted net income per share was $1.58 in fiscal 2003 and $0.94 in fiscal 2002, which includes the effect of the two-for-one stock split in
July 2002.
Fiscal 2002 Compared to Fiscal 2001
Net Sales
Net sales increased by 19.8% to $719.4 million in fiscal 2002 from $600.5 million in fiscal 2001. These results reflect increased volume
in both the direct-to-consumer and indirect channels.
Direct. Net sales increased 14.1% to $447.1 million in fiscal 2002 from $391.8 million in fiscal 2001. The increase was primarily due to
new store openings. Net sales from new retail and factory stores accounted for approximately 78% or $42.9 million of the increase in net
sales. Since the end of fiscal 2001, Coach opened 20 retail stores and six factory stores. In addition, comparable store sales growth for retail
stores and factory stores open for one full year was 4.3% and 3.4%, which primarily represented the balance of the increase in net sales,
which was partially offset by the three retail stores that were closed during fiscal 2002.
Indirect. Net sales increased 30.5% to $272.3 million in fiscal 2002 from $208.7 million in fiscal 2001. This increase was driven
primarily by the consolidation of Coach Japan and comparable store sales growth in Japan. Coach Japan sales to consumers are recorded at
retail, versus sales to the former distributors, which were recorded at wholesale value. The impact of Coach Japan accounted for
approximately $55 million of the increase in net sales. This increase is a result of the shift to retail from wholesale pricing, which contributed
approximately $37 million of the increase, with the balance of this increase resulting from increased sales volume. The international
wholesale business was relatively consistent compared to the prior year. The
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