Coach 2006 Annual Report Download - page 17

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 
Net sales $ 2,612.5 100.0% $ 2,035.1 100.0% $ 577.4 28.4%
Gross profit 2,023.0 77.4 1,581.6 77.7 441.4 27.9
Selling, general and administrative
expenses
1,029.6 39.4 866.9 42.6 162.7 18.8
Operating income 993.4 38.0 714.7 35.1 278.7 39.0
Interest income, net 41.3 1.6 32.6 1.6 8.7 26.5
Provision for income taxes 398.1 15.2 283.5 13.9 114.7 40.4
Income from continuing operations 636.5 24.4 463.8 22.8 172.7 37.2
Income from discontinued operations,
net of taxes
27.1 1.0 30.4 1.5 (3.3) (10.8)
Net income 663.7 25.4 494.3 24.3 169.4 34.3
Net income per share:
Basic:
Continuing operations $ 1.72 $ 1.22 $ 0.50 40.9%
Discontinued operations 0.07 0.08 (0.01) (8.4)
Net income 1.80 1.30 0.49 37.9
Diluted:
Continuing operations $ 1.69 $ 1.19 $ 0.49 41.3%
Discontinued operations 0.07 0.08 (0.01) (8.2)
Net income 1.76 1.27 0.49 38.2
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The following table presents net sales by operating segment for fiscal 2007 compared to fiscal 2006:
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 (dollars in millions)
Direct-to-Consumer $ 2,101.8 $ 1,610.7 30.5% 80.5% 79.1%
Indirect 510.7 424.4 20.3 19.5 20.9
Total net sales $ 2,612.5 $ 2,035.1 28.4% 100.0% 100.0%
Direct-to-Consumer — Net sales increased by 30.5%, driven by increased sales from comparable stores, new stores and expanded
stores. Comparable store sales measure sales performance at stores that have been open for at least 12 months. Coach excludes new locations
from the comparable store base for the first year of operation. Similarly, stores that are expanded by 15% or more are also excluded from the
comparable store base until the first anniversary of their reopening. Stores that are closed for renovations are removed from the comparable
store base.
In North America, comparable store sales growth, sales from new stores and sales from expanded stores accounted for approximately
$233 million, $142 million and $31 million, respectively, of the net sales increase. In Japan, sales from new stores, comparable store sales
growth and sales from expanded stores accounted for approximately $46 million, $20 million and $8 million, respectively, of the net sales
increase. Coach Japan’s reported net sales were negatively impacted by approximately $12 million as a result of foreign currency exchange.
Sales growth in the Internet business accounted for the remaining sales increase. These sales increases were slightly offset by store closures
and a decline in the direct marketing channel.
Indirect — Net sales increased by 20.3%, driven primarily by growth in the U.S. wholesale division, which contributed increased
sales of approximately $73 million, as compared to the prior year. This sales increase was partially offset by an approximately $7 million
decrease in net sales in the international wholesale division, as shipments to our customers were curbed in consideration of slowing Japanese
travel trends in our markets and to ensure healthy inventory levels. Licensing revenue of approximately $15 million and $9 million in
fiscal 2007 and fiscal 2006, respectively, is included in Indirect sales.
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Operating income increased 39.0% to $993.4 million in fiscal 2007 as compared to $714.7 million in fiscal 2006, driven by increases
in net sales and gross profit, partially offset by an increase in selling, general and administrative expenses. Operating margin rose to 38.0%
in fiscal 2007 from 35.1% in fiscal 2006. This 290 basis point improvement is attributable to increased net sales, as discussed above, and
the leveraging of selling, general and administrative expenses.
The following chart illustrates our operating margin performance over the last two years:
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