Coach 2008 Annual Report Download - page 27

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TABLE OF CONTENTS
During fiscal 2009, SG&A expenses increased 7.2% to $1.35 billion, compared to $1.26 billion in fiscal 2008, driven primarily by an
increase in selling expenses partially offset by a decrease in administrative expenses. As a percentage of net sales, SG&A expenses were
41.8% and 39.6% during fiscal 2009 and fiscal 2008, respectively. Excluding items affecting comparability of $28.4 million and $32.1
million in fiscal 2009 and fiscal 2008, respectively, SG&A expenses were $1.32 billion and $1.23 billion, respectively, representing 40.9%
and 38.6% of net sales, respectively.
Selling expenses were $981.5 million, or 30.4% of net sales, in fiscal 2009 compared to $865.2 million, or 27.2% of net sales, in
fiscal 2008. Excluding items affecting comparability during fiscal 2009 of $5.0 million related to the closure of four underperforming
stores, selling expenses were $976.5 million, representing 30.2% of net sales. The dollar increase in selling expenses was primarily due to
an increase in operating expenses of North American stores, the newly formed Coach China and Coach Japan. The increase in North
American store expenses was primarily attributable to expenses from new and expanded stores opened during fiscal 2009 and the
incremental expense associated with having a full year of expenses related to stores opened in the prior year. Fiscal 2009 includes operating
expenses of Coach China, which consisted of investments in stores, marketing, organization and infrastructure. The increase in Coach
Japan operating expenses was driven primarily by the impact of foreign currency exchange rates which increased reported expenses by
approximately $29.1 million.
Advertising, marketing, and design costs were $163.6 million, or 5.1% of net sales, in fiscal 2009, compared to $147.7 million, or
4.6% of net sales, during fiscal 2008. The increase was primarily due to design expenditures and development costs for new merchandising
initiatives.
Distribution and consumer service expenses were $52.2 million, or 1.6% of net sales, in fiscal 2009, compared to $47.6 million, or
1.5%, in fiscal 2008. The increase was primarily the result of an increase in fixed occupancy costs related to the expansion of our
distribution center that was completed in August 2008.
Administrative expenses were $153.4 million, or 4.7% of net sales, in fiscal 2009 compared to $199.5 million, or 6.3% of net sales,
during fiscal 2008. Excluding items affecting comparability of $23.4 million and $32.1 million in fiscal 2009 and fiscal 2008, respectively,
expenses were $130.0 million and $167.4 million, respectively, representing 4.0% and 5.3% of net sales. The decrease in administrative
expenses was primarily due to a decrease in performance-based compensation expense and lower rent expense as a result of the purchase of
our corporate headquarters building.
Interest Income, Net
Net interest income was $5.2 million in fiscal 2009 compared to $47.8 million in fiscal 2008. Excluding items affecting comparability
of $2.0 million and $10.7 million in fiscal 2009 and fiscal 2008, respectively, net interest income was $3.2 million and $37.2 million. This
decrease is attributable to lower returns on our investments due to lower interest rates and lower average cash balances.
Provision for Income Taxes
The effective tax rate was 36.2% in fiscal 2009 compared to 34.5% in fiscal 2008. In the fourth quarter of fiscal 2009 and fiscal 2008,
the Company recorded a benefit of $16.8 million and $50.0 million, respectively, primarily related to favorable settlements of tax return
examinations and certain other tax accounting adjustments. Excluding these benefits, the effective tax rates were 38.0% and 39.0%.
Income from Continuing Operations
Income from continuing operations was $623.4 million in fiscal 2009 compared to $783.0 million in fiscal 2008. Excluding items
affecting comparability of $1.2 million and $41.0 million in fiscal 2009 and fiscal 2008, respectively, income from continuing operations
was $622.1 million and $742.0 million in fiscal 2009 and fiscal 2008, respectively. This decrease was primarily due to a decline in
operating income and interest income, net, partially offset by a lower provision for income taxes.
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