Coach 2010 Annual Report Download - page 28

TABLE OF CONTENTS
Direct-to-Consumer — Net sales increased 14.8% to $3.62 billion during fiscal 2011 from $3.16 billion during fiscal 2010, driven
by sales increases in our Company-operated stores in North America and China. Net sales of fiscal 2010 included an additional week of
sales, which represented approximately $62 million.
Comparable store sales measure sales performance at stores that have been open for at least 12 months, and includes sales from
coach.com. Coach excludes new locations from the comparable store base for the first year of operation. Similarly, stores that are expanded
by 15.0% 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, net sales increased 14.4% driven by sales from new and expanded stores and by a 10.6% increase in comparable
store sales. During fiscal 2011, Coach opened three net new retail stores and 22 new factory stores, and expanded six factory stores in North
America. In Japan, net sales increased 5.1% driven by an approximately $69.8 million, or 9.8%, positive impact from foreign currency
exchange. During fiscal 2011, Coach opened eight net new locations and expanded three locations in Japan. Coach China results continued
to be strong with double-digit percentage growth in comparable store sales. During fiscal 2011, Coach opened 25 net new stores in Hong
Kong and mainland China.
Indirect — Net sales increased 18.8% to $536.6 million from $451.8 million in fiscal 2010. The increase was driven primarily by an
18.4% increase in Coach International Wholesale and U.S. Wholesale net revenue. The net sales increase was partially offset by an
additional week of sales in fiscal 2010, which represented approximately $8 million. Licensing revenue of approximately $24.7 million and
$19.2 million in fiscal 2011 and fiscal 2010, respectively, is included in Indirect sales.
Operating Income
Operating income increased 13.5% to $1.30 billion in fiscal 2011 as compared to $1.15 billion in fiscal 2010. Excluding items affecting
comparability of $25.7 million in fiscal 2011, operating income increased 15.7% to $1.33 billion. Operating margin decreased to 31.4% as
compared to 31.9% in the prior year, as gross margin decreased while selling, general, and administrative (“SG&A”) expenses slightly
increased as a percentage of sales. Excluding items affecting comparability, operating margin was 32.0% in fiscal 2011.
Gross profit increased 14.8% to $3.02 billion in fiscal 2011 from $2.63 billion in fiscal 2010. Gross margin was 72.7% in fiscal 2011
as compared to 73.0% during fiscal 2010. Coach’s gross profit is dependent upon a variety of factors, including changes in the relative sales
mix among distribution channels, changes in the mix of products sold, foreign currency exchange rates and fluctuations in material costs.
These factors, among, others may cause gross profit to fluctuate from year to year.
SG&A expenses are comprised of four categories: (1) selling; (2) advertising, marketing and design; (3) distribution and consumer
service; and (4) administrative. Selling expenses include store employee compensation, store occupancy costs, store supply costs, wholesale
account administration compensation and all Coach Japan and Coach China operating expenses. These expenses are affected by the number
of Coach-operated stores in North America, Japan, Hong Kong, Macau and mainland China open during any fiscal period and the related
proportion of retail and wholesale sales. Advertising, marketing and design expenses include employee compensation, media space and
production, advertising agency fees, new product design costs, public relations, market research expenses and mail order costs.
Distribution and consumer service expenses include warehousing, order fulfillment, shipping and handling, customer service and bag
repair costs. Administrative expenses include compensation costs for the executive, finance, human resources, legal and information
systems departments, corporate headquarters occupancy costs, consulting and software expenses. SG&A expenses increase as the number
of Coach-operated stores increase, although an increase in the number of stores generally results in the fixed portion of SG&A expenses
being spread over a larger sales base.
During fiscal 2011, SG&A expenses increased 15.8% to $1.72 billion, compared to $1.48 billion during fiscal 2010. Excluding items
affecting comparability of $25.7 million in fiscal 2011, SG&A expenses were $1.69 billion. As a percentage of net sales, SG&A expenses
were 41.3% and 41.1% during fiscal 2011 and fiscal 2010, respectively. Excluding items affecting comparability during fiscal 2011,
SG&A expenses as a percentage of net sales were 40.7% as we leveraged our selling expense base on higher sales.
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