• FY sales fall 12.9%
  • Gross margin down 200 bps
  • Net income drops to $402m
Coach failed to increase its gross margin

Coach failed to increase its gross margin

Luxury accessories business Coach has closed out its fiscal year with what an analyst has described as a "rather dismal" set of numbers, which continue the long run trend of decline.

Overall, sales fell 12.9% to US$4.19bn, with a sharp fall of 19.5% at the company’s North American division. International sales were up by 3% on a constant currency basis, but the strong dollar wiped out these gains to produce a 5.3% drop.

The sales slump deteriorated Coach's net income, which dropped to $402m from $781m a year earlier. Earnings were hit by transformation-related charges and acquisition costs.

Conlumino CEO Neil Saunders said, of particular disappointment is Coach’s inability to increase its gross margin which fell to 69.4% in the quarter from 73% in the prior year.

"Given that Coach is in the process of trying to rebuild its brand by being less promotional and selling through more merchandise at higher price points, this is an unwelcome outcome and one that calls into question the effectiveness of the company’s strategy to date," he noted.

The acquisition of Stuart Weitzman, and restructuring efforts around inventory and store closures, resulted in a 7% increase in selling, general and administrative expenses for the year.

Looking ahead, CEO Victor Luis, said: "We will continue to invest in our brands and businesses to achieve long-term sustainable growth. We will also accelerate the roll-out of our modern luxury concept globally and across channels. Taken together, these initiatives are expected to drive a return to top line growth in FY16 and positive North American comps by the end of the year."

For fiscal 2016, the company said it expects Coach stand-alone brand revenues to increase by low-single digits in constant currency, based on foreign currency having an approximate 200 basis point negative impact. Gross margin is projected to be in the area of 70%, also hit by negative foreign currency effects.