Coach 2010 Annual Report Download - page 29

TABLE OF CONTENTS
Selling expenses were $1.18 billion, or 28.5% of net sales compared to $1.05 billion, or 29.1% of net sales, during fiscal 2010. The
dollar increase in selling expenses was due to higher operating expenses in Coach China and North American stores due to higher sales and
new store openings. Additionally, selling expenses of Reed Krakoff stores contributed to the dollar increase since the brand was not launched
until the beginning of fiscal 2011. Coach China and North American store expenses as a percentage of sales decreased primarily due to
operating efficiencies and sales leverage. The decrease in Coach Japan operating expenses in constant currency of $10.2 million was offset
by the impact of foreign currency exchange rates which increased reported expenses by approximately $33.5 million.
Advertising, marketing, and design costs were $224.4 million, or 5.4% of net sales, compared to $179.4 million, or 5.0% of net sales,
during fiscal 2010. The increase was primarily due to new design expenditures and development costs for new merchandising initiatives.
Also contributing to the increase were marketing expenses related to consumer communications, which includes our digital strategy through
coach.com, our global e-commerce sites, marketing sites and social networking. The Company utilizes and continues to explore
implementing new technologies such as our global web presence, with informational websites in 17 countries, social networking and blogs
as cost-effective consumer communication opportunities to increase on-line and store sales and build brand awareness.
Distribution and consumer service expenses were $58.2 million, or 1.4% of net sales, compared to $48.0 million, or 1.3% of net sales,
during fiscal 2010. To support our growth in China and the region, during the second half of fiscal 2010 we established an Asia distribution
center in Shanghai, owned and operated by a third-party, allowing us to better manage the logistics in this region. During fiscal 2011, the
Asia distribution center contributed to the increase in distribution and consumer service expenses; however in the long run, the Company
expects the Asia distribution center to reduce costs as a percentage of net sales.
Administrative expenses were $252.4 million, or 6.1% of net sales, compared to $204.0 million, or 5.7% of net sales, during fiscal
2010. Excluding items affecting comparability of $25.7 million in fiscal 2011, expenses were $226.7 million, representing 5.5% of net
sales. The increase in administrative expenses was primarily due to higher share-based and performance-based compensation.
Interest Income, Net
Net interest income was $1.0 million in fiscal 2011 compared to $8.0 million in fiscal 2010. The decrease is attributable to lower returns
on our investments due to lower investment balances during the year.
Provision for Income Taxes
The effective tax rate was 32.3% in fiscal 2011 compared to 36.5% in fiscal 2010. Excluding the benefit from the items affecting
comparability, the effective tax rate was 33.6% in fiscal 2011. The decrease in the effective tax rate is primarily attributable to a favorable
settlement of a multi-year tax return examination and higher profitability in lower tax rate jurisdictions in which income is earned, due to the
increased globalization of the Company, and a lower effective state tax rate.
Net Income
Net income was $880.8 million in fiscal 2011 compared to $734.9 million in fiscal 2010. The increase was due to the higher operating
income and a reduction of the effective tax rate.
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