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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission file number: 1-16153

Coach, Inc.

(212) 594-1850

Securities Registered Pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      The approximate aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant was approximately $7,956,367,955 as of September 3, 2004. For purposes of determining this amount only, the registrant has excluded shares of common stock held by directors and officers. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant.

      On September 3, 2004, the Registrant had 188,067,989 outstanding shares of common stock, which is the Registrant’s only class of capital stock.

COACH, INC.

TABLE OF CONTENTS FORM 10-K

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      Founded in 1941, Coach has grown from a family-run workshop in a Manhattan loft to a leading American designer and marketer of high-quality fine accessories and gifts for women and men. Coach developed its initial expertise in the small-scale production of classic, high-quality leather goods constructed from “glove-tanned” leather with close attention to detail. Coach sells its products worldwide through its own retail stores, select department stores, its on-line store and its catalogs. Coach has built upon its brand awareness in the United States by expanding into international markets, particularly in Japan and East Asia, diversifying its product offerings beyond leather handbags, further developing its multi-channel distribution strategy and licensing products with the Coach brand name.

SPECIAL NOTE ON FORWARD-LOOKING INFORMATION

      This document and the documents incorporated by reference in this document contain certain forward-looking statements based on management’s current expectations. These statements can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “intend,” “estimate,” “are positioned to,” “continue,” “project,” “guidance,” “forecast,” “anticipated,” or comparable terms.

      Coach’s actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in the sections of this Form 10-K filing entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Coach, Inc.”. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of the forward-looking statements contained in this Form 10-K.

WHERE YOU CAN FIND MORE INFORMATION

      Coach’s quarterly financial results and other important information are available by calling the Investor Relations Department at (212) 629-2618.

      Coach maintains a website at www.coach.com where investors and other interested parties may obtain, free of charge, press releases and other information, as well as gain access to periodic reports to the SEC.

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PART I

OVERVIEW

      Coach is a designer and marketer of high-quality, modern American classic accessories. Coach believes that it is one of the best recognized fine accessories brands in the U.S. and is enjoying increased recognition in targeted international markets. Net sales were $1,321.1 million in the year ended July 3, 2004 (“fiscal 2004”), $953.2 million in the year ended June 28, 2003 (“fiscal 2003”) and $719.4 million in the year ended June 29, 2002 (“fiscal 2002”). Operating income was $444.5 million in fiscal 2004, $243.8 million in fiscal 2003 and $133.6 million in fiscal 2002. Coach’s primary product offerings include handbags, women’s and men’s small leather goods, business cases, weekend and travel accessories, outerwear and related accessories. Together with its licensing partners, Coach also offers watches, footwear, eyewear and office furniture with the Coach brand name.

      Coach’s products are sold through a number of direct to consumer channels, which at the end of fiscal 2004 included:

	•	174 North American retail stores;
	•	76 North American factory stores;
	•	the Internet; and
	•	the Coach catalog.

      Coach’s direct-to-consumer business represented approximately 55% of its total sales in fiscal 2004.

      Coach’s remaining sales were generated from products sold through a number of indirect channels, which at the end of fiscal 2004 included:

	•	nearly 1,100 department store locations in the U.S.;
	•	115 international department store, retail store and duty free shop locations in 17 countries;
	•	100 department store shop-in-shops, and retail and factory store locations operated by Coach Japan, Inc.; and
	•	corporate sales programs.

      Over the last several years, Coach has successfully transformed itself from a manufacturer of traditionally styled classic leather products to a marketer of modern, fashionable handbags and accessories, using a broader range of fabrics and materials. Today, Coach’s updated styles and multiple product categories address an increasing portion of its consumer’s accessory wardrobe, responding to its customer’s demands for both fashion and function. Along with the rejuvenation of the product line, Coach has created a similarly modern environment to showcase its product assortments and reinforce a consistent brand position. Finally, Coach has established a flexible, cost-effective manufacturing model in which independent manufacturers supply virtually all of its products, which allows Coach to bring its broader range of products to market more rapidly and efficiently.

      Coach has developed a number of key differentiating elements that set it apart from the competitive landscape including:

      A Distinctive Brand — Coach is one of America’s leading accessible luxury accessories brand, offering an aspirational product that is relevant, extremely well made and provides exceptional value.

      A Market Leadership Position with Growing Share — Coach is America’s leading accessories brand and each year, as its market share increases, our leadership position strengthens.

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      Coach’s Loyal and Involved Consumer — Coach consumers have a specific emotional connection with the brand. Part of the Company’s everyday mission is to cultivate consumer relationships by strengthening this emotional connection.

      Multi-Channel International Distribution — This allows Coach to maintain a critical balance as results do not depend solely on the performance of a single channel or geographic area.

      Coach is Innovative and Consumer-Centric — Coach listens to its consumer through rigorous consumer research and strong customer orientation. Coach works to anticipate the consumer’s changing needs by keeping the product assortment fresh and relevant.

      Coach believes that these differentiating elements have enabled the Company to offer a unique proposition in the market place. In fiscal 2004, net sales increased 38.6% and operating income increased 82.3%, compared to fiscal 2003. In fiscal 2003, net sales increased 32.5% and operating income increased 82.4%, compared to fiscal 2002.

Growth Strategies

      Based on its established strengths Coach is pursuing the following strategies for future growth:

      Expand Market Share. Coach is driving market share by leveraging its leadership position as an accessible luxury lifestyle brand and gaining a greater share of its consumer’s accessories wardrobe. Coach is intensifying awareness as an everyday accessory resource, by offering aspirational, stylish, well-made product. As part of this strategy, Coach is emphasizing new usage occasions, such as weekend and evening, and offering items at a broader range of prices.

      Grow North American Retail Store Base. Coach believes that it has a successful retail store format that reinforces its brand image, generates strong sales per square foot and can be readily adapted to different location requirements. The modernized store environment has an open, loft-like feeling, with crisp white brick walls and a timeless, uncluttered look. Over the next four to five years, Coach plans to open approximately 100 retail stores in North America, bringing the retail store base to over 275 stores. In fiscal 2004 and fiscal 2003, Coach opened 19 and 20 new retail stores, respectively. It generally takes four to six months from the time Coach takes possession of a store to open it. In addition, Coach is also expanding select highly productive locations. In fiscal 2004, nine stores were expanded. We expect to expand at least nine stores in the fiscal year ending July 2, 2005 (“fiscal 2005”). We also expect to drive comparable store sales gains through higher traffic by attracting new and existing consumers more often, generating higher average ticket and increasing units per transaction. In addition, we have evolved our in-store marketing programs to create a more satisfying, service-oriented, shopping experience.

      Expand Business with the Japanese Consumer Worldwide. Coach is aggressively raising brand awareness with the Japanese consumer. Japanese women spend four times per capita globally, on luxury accessories, than her American counterpart, with approximately half of her worldwide spending on these items occurring outside of Japan.

      Domestically in Japan, in June 2001, we established Coach Japan, Inc. We then acquired the existing distributors and expanded the number of locations and retail square footage. We have continued to grow market share and now hold the number two position within the imported luxury accessories market.

      Japanese also seek to purchase luxury accessories when traveling internationally. In order to capitalize on this opportunity, we will continue to open image enhancing locations wherever the Japanese consumer chooses to shop. Important U.S. travel destinations include Hawaii, California, New York and Orlando, Florida. In these key locations, we strive to provide the Japanese consumer with a superior level of customer service tailored specifically to her needs, including bi-lingual staff. In addition, a significant number of the International stores, which are operated by our distributors, are located in key Japanese travel destinations such as Korea and Hong Kong.

      Improve Operational Efficiencies. Coach has upgraded and reorganized its manufacturing, distribution and information systems over the past several years to allow it to bring new and existing products to market

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Coach’s Products

      Handbags. Coach’s original business, the design, manufacture and distribution of fine handbags, accounted for approximately 58% of net sales in fiscal 2004. Coach makes monthly offerings of its handbag collections, featuring classically inspired designs as well as fashion trend designs. Typically, there are three to four collections per quarter and four to seven styles per collection, depending on the concept and opportunity.

      Accessories. Women’s accessories, consisting of wallets, wristlets, cosmetic cases, key fobs and belts, represented approximately 19% of Coach’s net sales in fiscal 2004. Coach’s small leather goods collections are coordinated with our handbags. Men’s accessories, consisting of belts, wallets and other small leather goods, represented approximately 4% of Coach’s net sales in fiscal 2004.

      Business Cases. Business cases represented approximately 4% of Coach’s net sales in fiscal 2004. This category includes computer bags and messenger-style bags, as well as men’s and women’s totes.

      Outerwear, Gloves, Hats and Scarves. This category represented approximately 4% of Coach’s net sales in fiscal 2004. The assortment is approximately 85% women’s and contains a fashion assortment in all four components of this category.

      Weekend and Travel Accessories. The Coach weekend and travel collections are comprised of cabin bags, duffels, suitcases, garment bags and a comprehensive collection of travel accessories. Weekend and travel accessories represented approximately 2% of Coach’s net sales in fiscal 2004.

      Watches. Movado Group, Inc. (“Movado”) has been Coach’s watch licensee since 1998 and has developed a distinctive collection of watches inspired by both the women’s and men’s collections. These watches are primarily manufactured in Switzerland and are branded with the Coach name and logo.

      Footwear. Jimlar Corporation (“Jimlar”) has been Coach’s footwear licensee since 1999. The footwear is developed and manufactured primarily in Italy and is distributed through more than 500 locations in the U.S., including leading Coach retail stores and U.S. department stores. Approximately 90% of this business is in women’s footwear, which coordinates with Coach handbags and employs fine materials, including calf and suede.

      Eyewear. In the fall of 2003, Coach eyewear was launched with Marchon Eyewear (“Marchon”) as the licensee. The eyewear collection is a collaborative effort from Marchon and Coach that combines the Coach aesthetic for fashion accessories with the latest fashion directions in eyewear and sunglasses. Coach sunglasses are sold in Coach retail stores, department stores, select sunglass retailers and optical retailers in major markets. The ophthalmic collection is available through Marchon’s extensive network of optical retailers.

Design and Merchandising

      Coach’s New York-based design team, led by its executive creative director, is responsible for conceptualizing and directing the design of all Coach products. Designers have access to Coach’s extensive archives of product designs created over the past 60 years, which are a valuable resource for new product concepts. Coach designers are also supported by a strong merchandising team that analyzes sales, market trends and consumer preferences to identify business opportunities that help guide each season’s design process. Merchandisers also analyze products to edit, add and delete styles to achieve profitable sales across channels. Three product category teams, each comprised of design, merchandising/product development and

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      Coach’s merchandising team works in close collaboration with our licensing partners to ensure that the licensed products, such as watches, footwear, eyewear and office furniture, are conceptualized and designed to address the intended market opportunity and convey the distinctive perspective and lifestyle associated with the Coach brand. While Coach’s licensing partners may employ their own designers, Coach oversees the development of their collection concepts and the design of licensed products. Licensed products are also subject to Coach’s quality control standards and we exercise final approval for all new products prior to their sale.

Marketing

      Coach’s marketing strategy is to deliver a consistent message every time the consumer comes in contact with the Coach brand, through all of its communications and visual merchandising. The Coach image is created and executed internally by the creative marketing, visual merchandising and public relations teams.

      In conjunction with promoting a consistent global image, Coach uses its extensive customer database and consumer knowledge to target specific products and communications to specific consumers to efficiently stimulate sales across all distribution channels.

      Coach engages in a wide range of direct marketing activities, including catalogs, brochures and email contacts targeted to promote sales to consumers in their preferred shopping venue. As part of Coach’s direct marketing strategy, it uses its database consisting of approximately 7.5 million active U.S. households. Catalogs and email contacts are Coach’s principal means of communication and are sent to selected households to stimulate consumer purchases and build brand awareness. The growing number of visitors to the www.coach.com on-line store provides an opportunity to increase the size of this database. Coach’s on-line store, like its catalogs and brochures, provides a showcase environment where consumers can browse through a strategic offering of our latest styles and colors in order to increase both on-line and store sales as well as build brand awareness.

      In the U.S. and Japan, Coach spent approximately $22 million, or 2% of net sales in fiscal 2004, for national, regional and local advertising, primarily print and outdoor advertising, in support of its major selling seasons. Coach catalogs and www.coach.com also serve as effective brand communications vehicles, driving store traffic as well as direct-to-consumer sales. Coach’s co-branding partners include Canon, Palm and Motorola. Through their targeted sales and advertising programs, they have helped to strengthen Coach’s brand cachet. Advertising by the co-branding partners provides important additional exposure of the Coach brand, although the revenues generated from the purchase of Coach products by the co-branding partners are not material to the Coach business.

      Coach also has a sophisticated consumer and market research capability, which helps us assess consumer attitudes and trends and gauge the likelihood of success in the marketplace prior to product introduction.

Channels of Distribution

      Coach has four different direct channels that provide it with immediate, controlled access to consumers: retail stores, factory stores, the internet and catalog. The direct-to-consumer channels represented approximately 55% of Coach’s total net sales in fiscal year 2004.

      North American Retail Stores. Coach’s retail stores establish, reinforce and capitalize on the image of the Coach brand. Coach operates 174 retail stores in North America that are located in upscale regional shopping centers and metropolitan areas. It operates flagship stores, which offer the broadest assortment of

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      Depending on their size and location, the retail stores present product lines that include handbags, business cases, wallets, footwear, watches, weekend and related accessories. The modern store design creates a distinctive environment that showcases these various products. Store associates are trained to maintain high standards of visual presentation, merchandising and customer service. The result is a complete statement of the Coach modern American style at the retail level.

      North American Factory Stores. Coach’s 76 factory stores serve as an efficient means to sell manufactured-for-factory-store product as well as discontinued and irregular inventory, outside the retail channel. These stores operate under the Coach Factory name and are geographically positioned primarily in established centers that are usually between 50 to 100 miles from major markets. The following table shows the number of Coach factory stores and their total and average square footage:

      Coach’s factory store design, visual presentations and customer service levels support and reinforce the brand’s image. Prices are generally discounted from 10% to 50% below full retail prices. Through these factory stores, Coach targets both value-oriented customers who would not otherwise buy the Coach brand and dual channel shoppers.

      Internet. Coach views its website as a key communications vehicle for the brand to promote traffic in Coach retail stores and department store locations. Like Coach catalogs and brochures, the on-line store provides a showcase environment where consumers can browse through a selected offering of the latest styles and colors.

      Catalog. Coach mailed its first Coach catalog in 1980. In fiscal 2004, the Company distributed approximately 3.6 million catalogs in Coach stores and mailed a Coach catalog to about one million strategically selected U.S. households, from its database. While direct mail sales comprise a small portion of Coach’s net sales, Coach views its catalog as a key communications vehicle for the brand because it promotes store traffic and facilitates the shopping experience in Coach retail stores. As an integral component of its communications strategy, the graphics, models and photography are upscale and modern and present the product in an environment consistent with the Coach brand position. The catalogs highlight selected products

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Indirect Channels

      Coach began as a wholesaler to department stores. This channel remains very important to its overall consumer reach. Coach has grown its indirect business by the formation of Coach Japan and working closely with its partners, both domestic and international, to ensure a clear and consistent product presentation. The indirect channel represented approximately 45% of total net sales in fiscal 2004.

      Coach Japan, Inc. Coach is aggressively expanding market share and raising brand awareness with the Japanese consumer, primarily by opening flagship and freestanding stores. As of July 3, 2004, there were 100 Coach locations in Japan, including 77 department store shop-in-shops, three flagship locations, and 10 retail and 10 factory stores. The three flagship stores, which offer the broadest assortment of Coach products, are located in the Ginza, Shibuya and Marunouchi shopping districts of Tokyo. Coach Japan plans to open at least three additional flagship locations and eight other locations in fiscal 2005. In addition, to strengthen Coach’s presence in premier department stores, Coach Japan is expanding select highly productive shop-in-shops in these department stores. Coach Japan expanded 16 locations during fiscal 2004 and plans to expand an additional 14 locations during fiscal 2005. Lastly, Coach Japan is driving sales through improved store productivity by providing distinctive newness to the Japanese marketplace, where innovation is key. This channel represented approximately 21% of total net sales in fiscal 2004. The following table shows the number of Coach Japan locations and their total and average square footage:

      In June 2001, Coach and Sumitomo Corporation (“Sumitomo”) commenced a joint venture to form Coach Japan, Inc., in order to operate the Coach business in Japan. During fiscal 2002, Coach Japan acquired the prior distributors of Coach products in Japan, in order to expand its presence in the Japanese market and to exercise greater control over its brand in that country. Coach owns 50% of Coach Japan, however, as Coach appoints a majority of the Board of Directors it is deemed to have control; as such, Coach Japan is accounted for as a consolidated subsidiary. Under the terms of the joint venture agreement, Coach supplies its merchandise to Coach Japan for distribution and sale in Japan.

      U.S. Wholesale. Coach’s products are sold to nearly 1,100 U.S. wholesale locations and represented approximately 11% of total net sales in fiscal 2004. This channel offers access to Coach consumers who prefer shopping at department stores or who live in geographic areas that are not large enough to support a Coach retail store. Recognizing the continued importance of U.S. department stores as a distribution channel for premier accessories, Coach has fine-tuned its strategy to increase productivity and drive volume, by enhancing presentation, primarily though the creation of more shop-in-shops and the introduction of caseline enhancements with proprietary Coach fixtures. We are also custom-tailoring assortments to better match the attributes of our department store consumers, in each local market. Coach’s more significant U.S. wholesale customers are Federated Department Stores (including Macy’s, Bloomingdale’s, and Burdine’s), May Co. (including Lord and Taylor and Filene’s), Dillard’s, Nordstrom, Marshall Fields, and Saks, Inc.

      International Wholesale. Coach’s international business, which represented approximately 7% of total net sales in fiscal 2004, is generated through wholesale distributors and authorized retailers. Coach has

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      The following table shows the number of international retail stores, international department store locations and other international locations at which Coach products are sold:

      Business to Business. As part of the indirect channel of distribution, Coach sells some of its products through corporate incentive and gift-giving programs.

      Licensing. In our licensing relationships, Coach takes an active role in the design process and controls the marketing and distribution of products under the Coach brand. The current licensing relationships as of July 3, 2004 are as follows:

      Products made under license are, in most cases, sold through all of the channels discussed above and, with Coach’s approval, these licensees have the right to distribute Coach brand products selectively through several other channels: shoes in department store shoe salons, watches in selected jewelry stores and eyewear in selected optical retailers. These venues provide additional, yet controlled, exposure of the Coach brand. Coach’s licensing partners pay us royalties on their net sales of Coach branded products. However, such royalties are not material to the Coach business as they currently comprise less than 1% of Coach’s total revenues. The licensing agreements generally give Coach the right to terminate the license if specified sales targets are not achieved.

Manufacturing

      Coach has refined its production capabilities in coordination with the repositioning of its brand. By shifting its production from owned domestic facilities to independent manufacturers in lower-cost markets, it can support a broader mix of product types, materials and a seasonal influx of new, more fashion-oriented styles. During fiscal year 2004, approximately 61% of Coach’s total net sales, excluding Coach Japan, were generated from products introduced within the fiscal year. At the same time, we help manage total inventory and limit our exposure to excess and obsolete inventory by designating a significant number of the new styles as “limited editions” that are planned to be offered for a brief time and then replaced with fresh new products.

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      Coach has developed a flexible model that meets shifts in marketplace demand and changes in consumer preferences. It uses two main sources to make Coach products: outsourcing with skilled partners and production by its licensing partners. All product sources must achieve and maintain Coach’s high quality standards, which are an integral part of the Coach identity. One of Coach’s keys to success lies in the rigorous selection of raw materials. Coach has long-standing relationships with purveyors of fine leathers and hardware. As it has moved its production to external sources, Coach still requires that these same raw materials are used in all of its products, wherever they are made. We monitor compliance with the quality control standards through on-site quality inspections at all independent manufacturing facilities.

      All of Coach’s fiscal year 2004 product requirements were supplied by independent manufacturers. Coach buys independently manufactured products from many countries, including China, Turkey, India, Costa Rica, Dominican Republic, Hungary, Indonesia, Italy, Korea, Philippines, Singapore, Spain, Taiwan and Thailand. Coach operates sourcing offices in Hong Kong, China and South Korea that work closely with our sourced vendors. Coach also operates a European sourcing and product development organization based in Florence, Italy that works closely with the New York design team. This broad-based multi-country manufacturing strategy is designed to optimize the mix of cost, lead times and construction capabilities. Coach carefully balances its commitments to a limited number of “better brand” partners with demonstrated integrity, quality and reliable delivery. No one vendor provides more than 15% of Coach’s total requirements. Before partnering with a vendor, Coach evaluates each facility by conducting a quality and business practice standards audit. Periodic evaluations of existing, previously approved facilities are conducted on a random basis. We believe that all of our manufacturing partners are in compliance with Coach’s integrity standards.

Distribution

      Coach operates a warehousing, distribution and repair facility in Jacksonville, Florida. This computerized, 560,000 square foot facility uses a bar code scanning warehouse management system. Coach’s distribution center employees use handheld optical scanners to read product bar codes, which allow them to more accurately process and pack orders, track shipments, manage inventory and generally provide better service to our customers. Coach’s products are primarily shipped via Federal Express and common carrier to Coach retail stores and wholesale customers and via Federal Express direct to consumers.

Management Information Systems

      The foundation of Coach’s information systems is its Enterprise Resource Planning system. This fully integrated system supports all aspects of finance and accounting, procurement, inventory control, sales and store replenishment. The system functions as a central repository for all of Coach’s transactional information, resulting in increased efficiencies, improved inventory control and a better understanding of consumer demand. This system is fully scalable to accommodate rapid growth.

      Complementing its Enterprise Resource Planning system are several other system solutions, each of which Coach believes is well-suited for its needs. The data warehouse system summarizes the transaction information and provides a single platform for all management reporting. The supply chain management system supports corporate sales and inventory functions, creating a monthly demand plan and reconciling production/ procurement with financial plans. Product fulfillment is facilitated by Coach’s highly automated warehouse management system and electronic data interchange system, while the unique requirements of Coach’s Internet and catalog businesses are supported by Coach’s order management system. Finally, the point-of-sale system supports all in-store transactions, distributes management reporting to each store, and collects sales and payroll information on a daily basis. This daily collection of store sales and inventory information results in early identification of business trends and provides a detailed baseline for store inventory replenishment. Updates and upgrades of these systems are made on a periodic basis in order to ensure that we constantly improve our functionality. All complementary systems are integrated with the central Enterprise Resource Planning system.

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Trademarks and Patents

      Coach owns all of the material trademark rights used in connection with the production, marketing and distribution of all of its products, both in the U.S. and in other countries in which the products are principally sold. Coach owns and maintains worldwide registrations for trademarks in all relevant classes of products in each of the countries in which Coach products are sold. Its major trademarks include Coach, Coach and lozenge design and Coach and tag design and it has applications pending for a proprietary “C” signature fabric design. Coach is not dependent on any one particular trademark or design patent although Coach believes that the Coach name is important for its business. In addition, several of Coach’s products are covered by design patents or patent applications. Coach aggressively polices its trademarks and trade dress, and pursues infringers both domestically and internationally. It also pursues counterfeiters domestically and internationally through leads generated internally, as well as through its network of investigators, the Coach hotline and business partners around the world.

      Coach’s trademarks in the United States will remain in existence for as long as Coach continues to use and renew them on their expiration date. Coach has no material patents.

Employees

      As of July 3, 2004, Coach employed approximately 4,200 people, about 50 of which were covered by collective bargaining agreements. Of the total, 2,400 are engaged in retail selling and administration positions, 400 are engaged in sourcing or distribution functions and 700 are employed through Coach Japan. The remaining employees are engaged in other aspects of the Coach business. Coach believes that its relations with its employees are good, and it has never encountered a strike or significant work stoppage.

Government Regulation

      Most of Coach’s imported products are subject to existing or potential duties, tariffs or quotas that may limit the quantity of products that Coach may import into the U.S. and other countries or may impact the cost of such products. Coach has not been restricted by quotas in the operation of its business and customs duties have not comprised a material portion of the total cost of its products. In addition, Coach is subject to foreign governmental regulation and trade restrictions, including U.S. retaliation against certain prohibited foreign practices, with respect to its product sourcing and international sales operations.

RISK FACTORS

      You should consider carefully all of the information set forth or incorporated by reference in this document and, in particular, the following risk factors associated with the Business of Coach and forward-looking information in this document. Please also see “Special Note on Forward-Looking Information” on page 3.

If Coach is unable to successfully implement its growth strategies or manage its growing business, its future operating results will suffer.

      Successful implementation of Coach’s strategies and initiatives will require it to manage its growth. To manage growth effectively, Coach will need to continue to increase its outsourced manufacturing while maintaining strict quality control. Coach will also need to continue to improve its operating systems to respond to any increased demand. It could suffer a loss of consumer goodwill and a decline in sales if its products do not continue to meet its quality control standards or if it is unable to adequately respond to increases in consumer demand for its products.

Coach’s inability to respond to changes in consumer demands and fashion trends in a timely manner could adversely affect its sales.

      Coach’s success depends on its ability to identify, originate and define product and fashion trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. Its products must appeal

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If Coach misjudges the demand for its products it may incur increased costs due to excess inventories.

      If Coach misjudges the market for its products it may be faced with significant excess inventories for some products and missed opportunities for other products. In addition, because Coach places orders for products with its manufacturers before it receives wholesale customers’ orders, it could experience higher excess inventories if wholesale customers order fewer products than anticipated.

Competition in the markets in which Coach operates is intense, and our competitors may develop products that are more popular with consumers.

      Coach faces intense competition in the product lines and markets in which it operates. Coach’s products compete with other brands of products within their product category and with private label products sold by retailers, including some of Coach’s wholesale customers. In its wholesale business, Coach competes with numerous manufacturers, importers and distributors of handbags, accessories and other products for the limited space available for the display of these products to the consumer. Moreover, the general availability of contract manufacturing allows new entrants easy access to the markets in which Coach operates, which may increase the number of competitors and adversely affect its competitive position and business. Finally, some of Coach’s competitors have achieved significant recognition for their brand names.

A downturn in the economy may affect consumer purchases of discretionary luxury items, which could adversely affect Coach’s sales.

      Many factors affect the level of consumer spending in the handbag and luxury accessories industry, including, among others, general business conditions, interest rates, the availability of consumer credit, taxation and consumer confidence in future economic conditions. Consumer purchases of discretionary luxury items, such as Coach products, tend to decline during recessionary periods, when disposable income is lower. A downturn in the economies in which Coach sells its products may adversely affect Coach’s sales.

Coach’s business is subject to foreign exchange risk.

      Coach sells products to its international wholesale customers in U.S. dollars. However, those distributors sell Coach product in the relevant local currency. Currency exchange rate fluctuations could adversely affect the retail prices of the products and result in decreased international demand.

      The Company is exposed to market risk from foreign currency exchange rate fluctuations with respect to Coach Japan as a result of its U.S. dollar-denominated inventory purchases. In order to manage this risk, Coach Japan enters into forward exchange contracts that allow them to obtain dollars at a rate that is set concurrent with the requisition of inventory. These contracts meet the definition of a derivative under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”. As these contracts are entered into before the receipt of inventory, the contract rate may be higher or lower than market rates when the goods are received and the payment is completed. All contracts are fair valued at the end of the reporting period. If the derivative is designated as a cash flow hedge, effective subsequent changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the statement of operations when the hedged items affect earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings immediately. This non-cash charge or credit can result in fluctuations in the reported financial results.

      Coach consolidates the financial results of Coach Japan into its financial statements. The functional currency of Coach Japan is the Japanese yen. These operating results are converted to U.S. dollars based on the average exchange rate during the period and the balance sheet is converted to U.S. dollars based on the exchange rate at the end of the reporting period.

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If Coach loses key management or design personnel or is unable to attract and retain the talent required for its business, its operating results could suffer.

      Coach’s performance depends largely on the efforts and abilities of its senior management and design teams. These executives and employees have substantial experience and expertise in Coach’s business and have made significant contributions to its growth and success. Coach is a party to employment agreements with certain executives which provide for compensation and other benefits. The agreements also provide for severance payments under certain circumstances. The unexpected loss of services of one or more of these individuals could have an adverse effect on Coach’s business. As the business grows, Coach will need to attract and retain additional qualified personnel and develop, train and manage an increasing number of management-level, sales and other employees. Coach cannot guarantee that it will be able to attract and retain personnel as needed in the future.

Coach’s operating results are subject to seasonal and quarterly fluctuations, which could adversely affect the market price of its common stock.

      Because Coach products are frequently given as gifts, Coach has historically realized, and expects to continue to realize, higher sales and operating income in the second quarter of its fiscal year, which includes the holiday months of November and December. In addition, fluctuations in sales and operating income in any fiscal quarter are affected by the timing of seasonal wholesale shipments and other events affecting retail sales. However, over the past several years, we have achieved higher levels of growth in the non holiday quarters, which has reduced these seasonal fluctuations. We expect that these trends will continue and that we will continue to balance our year round business.

Coach’s gross profit may decrease if it becomes unable to obtain its products from, or sell its products in, other countries due to adverse international events that are beyond its control.

      In order to lower its sourcing costs and increase its gross profit, Coach has shifted its production to independent non-U.S. manufacturers in lower-cost markets. Coach’s international manufacturers are subject to many risks, including foreign governmental regulations, political unrest, disruptions or delays in shipments, changes in local economic conditions and trade issues. These factors, among others, could influence the ability of these independent manufacturers to make or export Coach products cost-effectively or at all or to procure some of the materials used in these products. The violation of labor or other laws by any of Coach’s independent manufacturers, or the divergence of an independent manufacturer’s labor practices from those generally accepted as ethical by Coach or others in the U.S., could damage Coach’s reputation and force it to locate alternative manufacturing sources. Currency exchange rate fluctuations could increase the cost of raw materials for these independent manufacturers, which they could pass along to Coach, resulting in higher costs and decreased margins for its products. If any of these factors were to render a particular country undesirable or impractical as a source of supply, there could be an adverse effect on Coach’s business, including its gross profit.

      Coach’s failure to continue to increase sales of its products in international markets could adversely affect its gross profit. International sales are subject to many risks, including foreign governmental regulations, foreign consumer preferences, political unrest, disruptions or delays in shipments to other nations, tourism and changes in local economic conditions. These factors, among others, could influence Coach’s ability to sell products successfully in international markets. Coach generally purchases products from international manufacturers in U.S. dollars and sells these products in the U.S. and to its international wholesale customers in U.S. dollars. However, Coach’s international wholesale customers sell Coach products in the relevant local currencies, and currency exchange rate fluctuations could adversely affect the retail prices of the products and result in decreased international consumer demand.

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Coach’s trademark and other proprietary rights could potentially conflict with the rights of others and it may be inhibited from selling some of its products. If Coach is unable to protect its trademarks and other proprietary rights, others may sell imitation brand products.

      Coach believes that its registered and common law trademarks and design patents are important to its ability to create and sustain demand for Coach products. Coach cannot assure you that it will not encounter trademark, patent or trade dress disputes in the future as it expands its product line and the geographic scope of its marketing. Coach also cannot assure that the actions taken by it to establish and protect its trademarks and other proprietary rights will be adequate to prevent imitation of its products or infringement of its trademarks and proprietary rights by others. The laws of some foreign countries may not protect proprietary rights to the same extent as do the laws of the U.S. and it may be more difficult for Coach to successfully challenge the use of its proprietary rights by other parties in these countries.

Provisions in Coach’s charter and bylaws, Maryland law or its “poison pill” may delay or prevent an acquisition of Coach by a third party.

      Coach’s charter and bylaws and Maryland law contain provisions that could make it harder for a third party to acquire Coach without the consent of Coach’s Board of Directors. Coach’s charter permits its Board of Directors, without stockholder approval, to amend the charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that Coach has the authority to issue. In addition, Coach’s Board of Directors may classify or reclassify any unissued shares of common stock or preferred stock and may set the preferences, rights and other terms of the classified or reclassified shares. Although Coach’s Board of Directors has no intention to do so at the present time, it could establish a series of preferred stock that could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for Coach’s common stock or otherwise be in the best interest of Coach’s stockholders.

      On May 3, 2001 Coach declared a “poison pill” dividend distribution of rights to buy additional common stock to the holder of each outstanding share of Coach’s common stock. Subject to limited exceptions, these rights may be exercised if a person or group intentionally acquires 10% or more of Coach’s common stock or announces a tender offer for 10% or more of the common stock on terms not approved by the Coach Board of Directors. In this event, each right would entitle the holder of each share of Coach’s common stock to buy one additional common share of Coach stock at an exercise price far below the then-current market price. Subject to certain exceptions, Coach’s Board of Directors will be entitled to redeem the rights at $0.001 per right at any time before the close of business on the tenth day following either the public announcement that, or the date on which a majority of Coach’s Board of Directors becomes aware that, a person has acquired 10% or more of the outstanding common stock. As of the end of fiscal 2004, there were no shareholders whose common stock holdings exceeded the 10% threshold established by the rights plan.

      Coach’s bylaws can only be amended by Coach’s Board of Directors. Coach’s bylaws also provide that nominations of persons for election to Coach’s Board of Directors and the proposal of business to be considered at a stockholders meeting may be made only in the notice of the meeting, by Coach’s Board of Directors or by a stockholder who is entitled to vote at the meeting and has complied with the advance notice procedures of Coach’s bylaws. Also, under Maryland law, business combinations, including issuances of equity securities, between Coach and any person who beneficially owns 10% or more of Coach’s common stock or an affiliate of such person are prohibited for a five-year period unless exempted in accordance with the statute. After this period, a combination of this type must be approved by two super-majority stockholder votes, unless some conditions are met or the business combination is exempted by Coach’s Board of Directors. Coach’s Board has exempted any business combination with us or any of our affiliates from the five-year prohibition and the super-majority vote requirements.

      These and other provisions of Maryland law or Coach’s charter and bylaws could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for Coach’s common stock or otherwise be in the best interest of Coach’s stockholders.

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      The following table sets forth the location, use and size of Coach’s distribution, corporate and product development facilities as of July 3, 2004, all of which are leased. The leases expire at various times through 2016, subject to renewal options.

      As of July 3, 2004, Coach also occupies 174 retail and 76 factory leased stores located in North America. Indirectly, through Coach Japan, Coach operates 100 department store shop-in-shops, and retail and factory store locations in Japan. Coach considers these properties to be in generally good condition and believes that its facilities are adequate for its operations and provide sufficient capacity to meet its anticipated requirements.

      Coach is involved in various routine legal proceedings as both plaintiff and defendant incident to the ordinary course of its business, including proceedings to protect Coach’s intellectual property rights, litigation instituted by persons alleged to have been injured upon premises within Coach’s control and litigation with present or former employees. As part of its policing program for its intellectual property rights, from time to time, Coach files lawsuits in the U.S. and abroad alleging acts of trademark counterfeiting, trademark infringement, patent infringement, trade dress infringement, trademark dilution and/or state or foreign law claims. At any given point in time, Coach may have one or more of such actions pending. These actions often result in seizure of counterfeit merchandise and/or out of court settlements with defendants. From time to time, defendants will raise as affirmative defenses or as counterclaims the invalidity or unenforceability of certain of Coach’s intellectual properties. Although Coach’s litigation with present or former employees is routine and incidental to the conduct of Coach’s business, as well as for any business employing significant numbers of U.S.-based employees, such litigation can result in large monetary awards when a civil jury is allowed to determine compensatory and/or punitive damages for actions claiming discrimination on the basis of age, gender, race, religion, disability or other legally protected characteristic or for termination of employment that is wrongful or in violation of implied contracts. Coach believes, however, that the outcome of all pending legal proceedings in the aggregate will not have a material adverse effect on Coach’s business or consolidated financial statements.

      None

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Executive Officers and Directors

      The following table sets forth information regarding each of Coach’s executive officers and directors serving as of July 3, 2004:

(1)	Coach’s executive officers serve indefinite terms and may be appointed and removed by Coach’s board of directors at any time. Coach’s directors are elected at the annual stockholders meeting and serve terms of one year.
(2)	Member of the audit committee.
(3)	Member of the human resources and governance committee.

      Lew Frankfort has been involved with the Coach business for 25 years. He has served as Chairman and Chief Executive Officer of Coach since November 1995. He has served as a member of Coach’s board of directors since June 1, 2000, the date of incorporation. Mr. Frankfort served as Senior Vice President of Sara Lee from January 1994 to October 2000. Mr. Frankfort was appointed President and Chief Executive Officer of the Sara Lee Champion, Intimates & Accessories group in January 1994, and held this position through November 1995. From September 1991 through January 1994, Mr. Frankfort held the positions of Executive Vice President, Sara Lee Personal Products and Chief Executive Officer of Sara Lee Accessories. Mr. Frankfort was appointed President of Coach in July 1985, after Sara Lee acquired Coach, and held this position through September 1991. Mr. Frankfort joined Coach in 1979 as Vice President of New Business Development. Prior to joining Coach, Mr. Frankfort held various New York City government management positions and served as Commissioner, New York City Agency for Child Development. Mr. Frankfort holds a Bachelor of Arts degree from Hunter College and an MBA in Marketing from Columbia University.

      Keith Monda was appointed President of Coach in May 2002 after serving as Executive Vice President and Chief Operating Officer of Coach from June 1998. He has served as a member of Coach’s board of directors since June 1, 2000, the date of incorporation. Prior to joining Coach, Mr. Monda served as Senior Vice President, Finance & Administration and Chief Financial Officer of Timberland Company from December 1993 until May 1996, and was promoted to, and held the position of, Senior Vice President, Operations from May 1996 until January 1998. From May 1990 to December 1993, Mr. Monda served as Executive Vice President, Finance and Administration of J. Crew. Mr. Monda holds Bachelor of Science and Master of Arts degrees from Ohio State University.

      Reed Krakoff was appointed President, Executive Creative Director in September 1999 after joining Coach as Senior Vice President and Executive Creative Director in December 1996. Prior to joining Coach,

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      Michael Tucci joined Coach as President, Retail Division, North America in January 2003. Mr. Tucci joined Coach from Gap, Inc., where he held the position of Executive Vice President, Gap, Inc. Direct from May 2002 until January 2003. He held the position of Executive Vice President of Gap Body from April 2000 until May 2002. From April 1999 to May 2000, Mr. Tucci served as Executive Vice President, Customer Store Experience, Gap Brand. Between May 1996 and April 1999, Mr. Tucci served as Executive Vice President for GAP Kids and Baby Gap. He had joined Gap in December 1994 as Vice President of Merchandising for Old Navy. Prior to joining Gap, he served as President of Aeropostale, a specialty store division of Macy’s, which culminated his twelve-year career with the company that included senior buying and merchandising roles. He joined Macy’s Executive Training Program from Trinity College, where he earned a Bachelor of Arts degree in English.

      Mike Devine has served as Senior Vice President and Chief Financial Officer of Coach since December 2001. Prior to Joining Coach, Mr. Devine served as Chief Financial Officer and Vice President-Finance of Mothers Work, Inc. from February 2000 until November 2001. From 1997 to 2000, Mr. Devine was Chief Financial Officer of Strategic Distribution, Inc., a Nasdaq-listed industrial store operator. Previously, Mr. Devine was Chief Financial Officer at Industrial System Associates, Inc. from 1995 to 1997, and for the prior six years he was the Director of Finance and Distribution for McMaster-Carr Supply Co. Mr. Devine holds a Bachelor of Science degree in Finance and Marketing from Boston College and an MBA degree in Finance from the Wharton School of the University of Pennsylvania.

      Carole Sadler has served as Senior Vice President, General Counsel and Secretary since May 2000. She joined Coach as Vice President, Chief Counsel in March 1997. From April 1991 until February 1997, Ms. Sadler was Vice President and Associate General Counsel of Saks Fifth Avenue. From September 1984 until March 1991, Ms. Sadler practiced law as a litigation associate in New York City, most recently at the firm of White & Case, and prior to that at Paskus Gordon & Mandel and Mound Cotton & Wollan. Ms. Sadler holds a Juris Doctor degree from American University, Washington College of Law, and a Bachelor of Arts degree, cum laude, in American Studies from Smith College.

      Felice Schulaner joined Coach as Senior Vice President, Human Resources in January 2000. Prior to joining Coach, Ms. Schulaner served as Senior Vice President, Human Resources of Optimark Technologies from February 1999 through December 1999 and as Senior Vice President, Human Resources of Salant Corporation from July 1997 through February 1999. Ms. Schulaner was Vice President, Worldwide Recruitment & Selection at American Express from July 1996 until June 1997. From 1990 through 1996, she served in various other human resources positions at American Express, including Vice President, Human Resources Reengineering, and, from 1986 until 1990, Ms. Schulaner held human resources positions at Macy’s Northeast in New York City. Ms. Schulaner holds a Bachelor of Arts degree from New College of the University of South Florida. In December 1998, Salant Corporation commenced bankruptcy proceedings, which concluded in April 1999.

      Joseph Ellis was elected to Coach’s Board of Directors in September 2000. Mr. Ellis has served as an Advisory Director of Goldman, Sachs & Co. since May 1999 and served as a Limited Partner of Goldman, Sachs from 1994 to May 1999, and a General Partner from 1986 to 1994. Mr. Ellis served as senior retail-industry analyst from 1970 through 1994. Before joining Goldman, Sachs in 1970, Mr. Ellis was Vice President and Investment Analyst with The Bank of New York. Mr. Ellis also serves as a Director of Waterworks, Inc. and as a trustee of the RARE Center for Tropical Conservation, and CARE. Mr. Ellis holds a Bachelor of Arts degree from Columbia University.

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      Sally Frame Kasaks was elected to Coach’s Board of Directors in November 2001. Ms. Kasaks has served as a marketing and retail consultant for ISTA Incorporated since January 1997. Prior to this, she served as Chairman and Chief Executive Officer of Ann Taylor Stores, Inc. from February 1992 until August, 1996. Ms. Kasaks was the President and Chief Executive Officer of Abercrombie and Fitch, a division of The Limited, Inc., from February 1989 through February 1992 and the Chairman and Chief Executive Officer of The Talbots, Inc., which was a specialty apparel retailing division of General Mills Co., from November 1985 through September 1988. Ms. Kasaks also serves as a Director of Pacific Sunwear of California, Inc., Cortefiel, S.A., Tuesday Morning, Inc., The Children’s Place, Inc. and Crane & Co. She holds a Bachelor of Arts degree from American University.

      Gary Loveman was elected to Coach’s Board of Directors in February 2002. Mr. Loveman has served as Chief Executive Officer and President of Harrah’s Entertainment, Inc. since January 2003; he had served as President of Harrah’s since April 2001 and as Chief Operating Officer of Harrah’s since May 1998. He was a member of the three-executive Office of the President of Harrah’s from May 1999 to April 2001 and was Executive Vice President from May 1998 to May 1999. From 1994 to 1998, Mr. Loveman was Associate Professor of Business Administration, Harvard University Graduate School of Business Administration, where his responsibilities included teaching MBA and executive education students, research and publishing in the field of service management, and consulting and advising large service companies. Mr. Loveman also serves as a Director of Harrah’s. He holds a Bachelor of Arts degree in Economics from Wesleyan University and a Ph.D. in Economics from the Massachusetts Institute of Technology.

      Irene Miller was elected to Coach’s Board of Directors in May 2001. Ms. Miller is Chief Executive Officer of Akim, Inc., an investment management and consulting firm and, until June 1997, was Vice Chairman and Chief Financial Officer of Barnes and Noble, Inc., the world’s largest bookseller. She joined Barnes & Noble in 1991, became Chief Financial Officer in 1993 and Vice Chairman in 1995. From 1986 to 1990, Ms. Miller was an investment banker at Morgan Stanley & Co. Incorporated. Ms. Miller also serves as a director on the Boards of Barnes & Noble, Inc., Oakley, Inc., Inditex, S.A. and The Body Shop International PLC. Ms. Miller holds a Master of Science degree from Cornell University and a Bachelor of Science degree from the University of Toronto.

      Michael Murphy was elected to Coach’s Board of Directors on September 12, 2000. From 1994 to 1997, Mr. Murphy served as Vice Chairman and Chief Administrative Officer of Sara Lee. Mr. Murphy also served as a director of Sara Lee from 1979 through October 1997. Mr. Murphy joined Sara Lee in 1979 as Executive Vice President and Chief Financial and Administrative Officer and, from 1993 until 1994, also served as Vice Chairman. Mr. Murphy is also a director of Bassett Furniture Industries, Inc., Civic Federation, Big Shoulders Fund, Metropolitan Pier and Exposition Authority, Chicago Cultural Center Foundation, GATX Corporation, Payless Shoe Source, Inc. and CNH Global N.V. He is also a member of the Board of Trustees of Northern Funds (a family of mutual funds). Mr. Murphy holds a Bachelor of Science degree in Business Administration from Boston College and an MBA degree from the Harvard Business School.

PART II

      Refer to the information regarding the market for Coach’s Common Stock and the quarterly market price information appearing under the caption “Market and Dividend Information” included herein.

      The selected historical financial data presented below as of and for each of the fiscal years in the five-year period ended July 3, 2004 have been derived from Coach’s audited Consolidated Financial Statements. The financial data should be read in conjunction with “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the Consolidated Financial Statements and Notes thereto and other financial data included elsewhere herein.

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(1)	Coach’s fiscal year ends on the Saturday closest to June 30. Fiscal year 2004 was a 53-week year, while fiscal years 2003, 2002, 2001 and 2000 were 52-week years.
(2)	During fiscal 2001, Coach committed to and completed a reorganization plan involving the complete closure of its Medley, Florida, manufacturing operation. These actions, intended to reduce costs, resulted in the transfer of production to lower cost third-party manufacturers and the consolidation of all of its distribution functions at the Jacksonville, Florida, distribution center. During fiscal 2002, Coach committed to and completed a

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	reorganization plan involving the complete closure of its Lares, Puerto Rico, manufacturing operation. These actions, also intended to reduce costs, resulted in the transfer of production to lower cost third-party manufacturers.
(3)	The two-for-one stock splits in August 2003 and July 2002 have been retroactively applied to all prior periods.

      The following discussion of Coach’s financial condition and results of operations should be read together with Coach’s financial statements and notes to those statements included elsewhere in this document.

Executive Overview

      Founded in 1941, Coach is a designer and marketer of high-quality, modern American classic accessories. Coach’s primary product offerings include handbags, women’s and men’s accessories, business cases, weekend and travel accessories, outerwear and related accessories.

      Coach generates revenue by selling its products directly to consumers, indirectly through wholesale customers and Coach Japan, and by licensing its brand name to select manufacturers. Direct-to-consumer sales consist of sales of Coach products through its 174 Company-operated North American retail stores, 76 Company-operated North American factory stores, its on-line store and its catalogs. Indirect sales consist of sales of Coach products to nearly 1,100 department store locations in the United States, 115 international department store, retail store, factory store and duty-free shop locations in 17 countries and 100 department store shop-in-shops, and retail and factory store locations managed by its joint venture, Coach Japan, Inc. Coach generates additional wholesale sales through business-to-business programs, in which companies purchase Coach products to use as gifts or incentive rewards. Licensing revenues consist of royalties paid to Coach under licensing arrangements with select partners for the sale of Coach branded watches, footwear, eyewear and office furniture. Net sales were $1,321.1 million, $953.2 million and $719.4 million, in fiscal 2004, 2003 and 2002, respectively, representing a 38.6% increase in fiscal 2004 as compared to fiscal 2003 and a 32.5% increase in fiscal 2003 as compared to fiscal 2002. These net sales increases were driven by growth across all distribution channels.

      Coach’s cost of sales consists of the costs associated with the sourcing of its products. 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, and fluctuations in material costs. These factors, among others, may cause gross profit to fluctuate from quarter to quarter. Gross profit increased to $990.1 million in fiscal 2004, from $677.4 million in fiscal 2003 and $483.4 million in fiscal 2002. Gross margin increased to 74.9% in fiscal 2004, as compared to 71.1% in fiscal 2003 and 67.2% in fiscal 2002, representing an increase of 380 basis points in fiscal 2004 as compared to fiscal 2003 and 390 basis points in fiscal 2003 as compared to fiscal 2002. These increases were primarily driven by the factors discussed above.

      Selling, general and administrative expenses comprise four categories: selling; advertising, marketing and design; distribution and customer service; and administration and information services. Selling expenses include store employee compensation, store occupancy costs, store supply costs, wholesale account administration compensation and all Coach Japan operating expenses. These expenses are affected by the number of Coach and Coach Japan operated stores 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 customer services expenses include warehousing, order fulfillment, shipping and handling, customer service and bag repair costs. Administration and information services expenses include compensation costs for the executive, finance, human resources, legal and information systems departments, as well as consulting and software expenses. Selling, general and administrative expenses increase as Coach and Coach Japan operate more stores, although an increase in the number of stores generally results in the fixed portion of selling, general and administrative expenses being spread over a larger sales base.

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      As part of Coach’s transformation from a manufacturer to a marketer, in April 2002, Coach ceased production at its Lares, Puerto Rico, manufacturing facility. This reorganization, intended to reduce costs by transferring production to lower cost third-party manufacturers, involved the termination of 394 manufacturing, warehousing and management employees at the Lares facility.

      Operating income was $444.5 million, $243.8 million and $133.6 million in fiscal 2004, 2003, and 2002, respectively. The 82.3% increase in fiscal 2004 from fiscal 2003 and 82.4% increase in fiscal 2003 from fiscal 2002 were both driven by the increases in net sales and gross profit discussed previously, partially offset by increases in selling, general and administrative expenses.

      Net income was $261.7 million, $146.6 million and $85.8 million in fiscal 2004, 2003 and 2002, respectively. In all fiscal years, the increases in net income were primarily attributable to the increases in operating income, discussed above, partially offset by higher provisions for income taxes and higher minority interest charges.

      Coach’s fiscal year ends on the Saturday closest to June 30. Fiscal 2004 was 53-weeks, whereas fiscal 2003 and 2002 were each 52-week periods. The 53rd week in fiscal 2004 contributed approximately $19.5 million of additional net sales.

      The following is a discussion of the results of operations for fiscal 2004 compared to fiscal 2003 and fiscal 2002 as well as a discussion of the changes in financial condition during fiscal 2004.

Results Of Operations

      Consolidated statements of income for fiscal 2004, 2003 and 2002 are as follows:

(1)	53-week fiscal year

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      Net sales by business segment for fiscal 2004 compared to fiscal 2003 and fiscal 2002 are as follows:

(1)	53-week fiscal year

     Fiscal 2004 Compared to Fiscal 2003

      Coach excludes new locations from the comparable store base for the first year of operation. Similarly, stores that are expanded by more than 15% 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 fiscal 2004, 53 weeks of sales were reported and compared to the equivalent 53-week period.

      Direct. Net sales increased 29.8% to $726.5 million during fiscal 2004 from $559.5 million in fiscal 2003, driven by increased comparable store sales, new store sales and expanded store sales in our North American retail and factory stores divisions. This net sales increase was also driven by an additional week of sales, which represented approximately $11.6 million of the total. Sales growth in comparable stores was 21.9% for retail stores and 10.3% for factory stores. Comparable store sales growth for the entire North American store chain was 16.9%, which accounted for $95.7 million of the net sales increase. Since the end of fiscal 2003, Coach has opened 19 retail stores and two factory stores. Sales from these new stores, as well as the noncomparable portion of sales from stores opened during fiscal 2003, accounted for $53.0 million of the net sales increase. Since the end of fiscal 2003, Coach also expanded nine retail stores. Sales from these expanded stores, as well as the noncomparable portion of sales from stores expanded during fiscal 2003, accounted for $15.3 million of the net sales increase. Sales growth in the Internet business accounted for the remaining sales increase. These increases were slightly offset by a decline in the direct marketing channel and store closures. Since the end of fiscal 2003, Coach has closed one retail store and two factory stores.

      Indirect. Net sales increased 51.0% to $594.6 million in fiscal 2004 from $393.7 million during fiscal 2003. The increase was primarily driven by growth at our Japanese joint venture, Coach Japan, Inc. in which net sales increased $100.4 million over the comparable period of the prior year, including $4.1 million of sales during the additional week of the fiscal year. Since the end of fiscal 2003, we have opened eight locations in Japan. Sales from these new stores, as well as the noncomparable portion of sales from stores opened during fiscal 2003, accounted for $44.0 million of the net sales increase. Our Japan locations experienced double-digit comparable net sales gains from the prior year, which represented $33.3 million of the net sales increase. Since the end of fiscal 2003, we have also expanded 16 locations in Japan, which accounted for $7.3 million of the net sales increase. Finally, the impact of foreign currency exchange rates resulted in an increase in reported net sales of $21.7 million. These net sales increases were slightly offset by store closures. Since the end of fiscal 2003, Coach Japan has closed one location. The increase in indirect net sales was also driven by growth in the U.S. wholesale, international wholesale and business-to-business divisions, which contributed increased sales of $37.5 million, $33.5 million and $22.0 million, respectively, as compared to the same period in the prior year. The remaining net sales increase is attributable to increases in other indirect channels.

     Gross Profit

      Gross profit increased 46.2% to $990.1 million in fiscal 2004 from $677.4 million in fiscal 2003. Gross margin increased 380 basis points to 74.9% in fiscal 2004 from 71.1% in fiscal 2003. This improvement was driven by: a shift in channel mix, as our higher gross margin channels grew faster than the business as a whole,

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      The following chart illustrates the gross margin performance we have experienced over the last 12 quarters:

     Selling, General and Administrative Expenses

      Selling, general and administrative expenses increased 25.8% to $545.6 million in fiscal 2004 from $433.7 million in fiscal 2003. The dollar increase was caused primarily by increased variable expenses related to Coach Japan, increased variable expenses to support increased net sales, and increased store operating expenses attributable to new stores opened both domestically and in Japan, as compared to the prior year. As a percentage of net sales, selling, general and administrative expenses during fiscal 2004 were 41.3% compared to 45.5% during fiscal 2003. This improvement was due to leveraging our expense base on higher sales.

      Selling expenses increased 31.0% to $386.2 million, or 29.2% of net sales, in fiscal 2004 from $294.9 million, or 30.9% of net sales, in fiscal 2003. The dollar increase in these expenses was primarily due to an increase in operating expenses associated with Coach Japan and operating expenses associated with North American stores that were opened during and after the end of fiscal 2003. The increase in Coach Japan expenses was $42.8 million, driven by new stores operating expenses, increased variable expenses related to higher sales, and the nonrecurrence of a $3.4 million favorable fair value adjustment for open foreign currency forward contracts. In addition, the impact of foreign currency exchange rates increased reported expenses by $10.0 million. Domestically, Coach has opened 19 new retail stores and two new factory stores since the end of fiscal 2003. Expenses from these new stores, as well as the noncomparable portion of expenses from stores opened in fiscal 2003, increased total expenses by $16.2 million. The remaining increase in selling expenses was due to increased variable expenses to support sales growth.

      Advertising, marketing, and design costs increased by 10.8% to $63.5 million, or 4.8% of net sales, in fiscal 2004, from $57.3 million, or 6.0% of net sales, in fiscal 2003. This dollar increase was primarily due to increased staffing costs and increased design expenditures.

      Distribution and customer service expenses increased to $32.4 million in fiscal 2004 from $29.7 million in fiscal 2003. The dollar increase in these expenses was primarily due to higher sales volumes. However, efficiency gains at the distribution and customer service facility resulted in an improvement in the ratio of these expenses to net sales from 3.1% in fiscal 2003 to 2.5% in fiscal 2004.

      Administrative expenses increased 22.6% to $63.5 million, or 4.8% of net sales, in fiscal 2004 from $51.8 million, or 5.5% of net sales, in fiscal 2003. The dollar increase in these expenses was primarily due to increased compensation costs as well as increased professional and consulting fees. These increases were offset by an increase in business interruption proceeds of $1.2 million, related to our World Trade Center location.

     Interest Income, Net

      Net interest income was $3.2 million in fiscal 2004, as compared to $1.1 million in fiscal 2003. This dollar change was due to increased positive cash balances during fiscal 2004 as well as higher returns on investments. During fiscal 2004, Coach began investing in marketable securities with maturities greater than 90 days, which yielded greater rates of return.

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     Provision for Income Taxes

      The effective tax rate increased to 37.5% in fiscal 2004 compared with the 37.0% recorded in fiscal 2003.

     Minority Interest

      Minority interest expense, net of tax, increased to $18.0 million, or 1.4% of net sales, in fiscal 2004 from $7.6 million, or 0.8% of net sales, in fiscal 2003. This increase was due to increased profits from the operations of Coach Japan and the impact of a stronger yen.

     Fiscal 2003 Compared to Fiscal 2002

      Direct. Net sales increased 25.1% to $559.5 million during fiscal 2003, from $447.1 million in fiscal 2002. Comparable store sales growth for retail stores and factory stores open for one full year was 24.6% and 5.0%, respectively. Comparable store growth for the entire domestic store chain was 15.2%, which represented approximately $62 million of the net sales increase. Since the end of fiscal 2002, Coach opened 20 retail stores and three factory stores, expanded four retail and five factory stores and had wrap from fiscal 2002 openings, which accounted for approximately $45 million of the increase in net sales. The Internet and direct marketing businesses accounted for the remaining sales increase. The increase in net sales was partially offset by the two retail stores and one factory store that were closed since the end of fiscal 2002.

      Indirect. Net sales increased 44.6% to $393.7 million in fiscal 2003 from $272.3 million during fiscal 2002. The increase was primarily driven by Coach Japan, in which net sales increased $89.4 million over the prior year. We opened 14 locations in Japan since the end of fiscal 2002, which represented approximately $42 million of the increase. Our Japan locations experienced double-digit net sales gains in comparable locations over the prior year, which represented approximately $30 million of the increase. In addition, fiscal 2002 only included 11 months of Coach Japan operations, while fiscal 2003 included a full year. In the third quarter of fiscal 2002, Coach Japan acquired the distribution rights and assets of J. Osawa. The effect of the incremental month of operations and acquisition of J. Osawa locations represented approximately $19 million of the increase in net sales. These increases were partially offset by the closure of four locations since the end of fiscal 2002. This decrease was approximately $2 million. The U.S. wholesale and business-to-business divisions contributed increased sales of $21.3 million and $8.3 million, respectively. The increase in net sales was partially offset by decreased net sales in the international wholesale division of $1.3 million. The remaining change in net sales was due to increases in other indirect channels.

     Gross Profit

      Gross profit increased 40.1% to $677.4 million in fiscal 2003 from $483.4 million in fiscal 2002. Gross margin increased 390 basis points to 71.1% in fiscal 2003 from 67.2% in fiscal 2002. This improvement was primarily driven by a shift in product mix reflecting the continued diversification into new and successful fabric and leather collections, which contributed approximately 140 basis points. There were sourcing cost initiatives, which contributed approximately 120 basis points. In addition, there was a shift in channel mix, which contributed approximately 100 basis points. The remaining improvement was driven primarily by the consolidation of Coach Japan.

     Selling, General and Administrative Expenses

      Selling, general and administrative expenses increased 25.2% to $433.7 million in fiscal 2003 from $346.4 million in fiscal 2002. The dollar increase was caused primarily by increased operating expenses in Coach Japan and the U.S. stores. These increased expenses were due to new stores and variable expenses to support increased net sales. Fiscal 2002 selling, general and administrative expenses included 11 months of Coach Japan, while fiscal 2003 included a full year. As a percentage of net sales, selling, general and administrative expenses during fiscal 2003 were 45.5% compared to 48.1% during fiscal 2002. This improvement was due to leveraging our expense base on higher sales.

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      Selling expenses increased by 28.6% to $294.9 million in fiscal 2003 from $229.3 million in fiscal 2002. The dollar increase in these expenses was primarily due to the operating costs associated with Coach Japan and operating costs associated with new retail and factory stores. Fiscal 2002 expenses included 11 months of Coach Japan, while fiscal 2003 included a full year. The increase in Coach Japan expenses was $34.6 million. Included in the current year costs was a $3.4 million favorable fair value adjustment for foreign currency forward contracts, compared to a $3.3 million unfavorable fair value adjustment in fiscal 2002. Domestically, Coach opened 20 new retail stores and three new factory stores since the end of fiscal 2002. The increase in the U.S. stores expense was $28.1 million. The remaining increase to selling expenses was due to increased variable expenses to support comparable store growth. As a percentage of net sales, selling expenses improved from 31.9% in fiscal 2002 to 30.9% in fiscal 2003. The decline was due to leveraging higher sales in the domestic stores division.

      Advertising, marketing, and design costs increased by 10.8% to $57.3 million, or 6.0% of net sales, in fiscal 2003, from $51.7 million, or 7.2% of net sales, in fiscal 2002. The dollar increase was primarily due to increased staffing costs and increased design expenditures.

      Distribution and customer service expenses increased to $29.7 million in fiscal 2003 from $26.9 million in fiscal 2002. The dollar increase in these expenses was primarily due to higher sales volumes. However, efficiency gains at the distribution and customer service facility resulted in a decline in the ratio to net sales from 3.7% in fiscal 2002 to 3.1% in fiscal 2003.

      Administrative expenses increased by 34.5% to $51.8 million, or 5.5% of net sales, in fiscal 2003 from $38.5 million, or 5.4% of net sales, in fiscal 2002. The absolute dollar increase in these expenses was due in part to increased total compensation cost of approximately $8 million. The increase was due primarily to increased base salary and employment agreements with certain executives, which accounted for $9 million of the increase. The increase was partially offset by decreased temporary employee costs. There were higher occupancy costs of approximately $2 million associated with the full year impact of acquiring additional space in our New York City headquarters. Insurance settlement proceeds decreased approximately $2 million due to the nonrecurrence of store inventory and fixed asset recoveries relating to our World Trade Center location.

     Reorganization Costs

      In March 2002, Coach ceased production at its Lares, Puerto Rico, manufacturing facility. This reorganization involved the termination of 394 manufacturing, warehousing and management employees and the disposition of the fixed assets at the Lares facility. These actions were intended to reduce costs by the resulting transfer of production to lower cost third-party manufacturers. Coach recorded a reorganization cost of $3.4 million. The reorganization cost included $2.2 million for worker separation costs, $0.7 million for lease termination costs and $0.5 million for the write-down of long-lived assets to net realizable value.

     Interest Income, Net

      Net interest income was $1.1 million in fiscal 2003, as compared to an expense of $0.3 million in fiscal 2002. The dollar change was due to reduced borrowings and positive cash balances during fiscal 2003.

     Provision for Income Taxes

      The effective tax rate increased to 37.0% in fiscal 2003 compared with the 35.5% recorded in fiscal 2002. This increase was due in part to the closure of our facility in Lares, Puerto Rico and the elimination of related tax benefits.

     Minority Interest

      Minority interest, net of tax, increased to $7.6 million, or 0.8% of net sales, in fiscal 2003 from $0.2 million in fiscal 2002. The dollar change was due to increased profitability in Coach Japan coupled with a stronger yen.

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FINANCIAL CONDITION

      Net cash provided from operating activities was $448.6 million in fiscal 2004 compared to $221.6 million in fiscal 2003. This $227.0 million increase was primarily the result of increased earnings of $115.1 million and increased tax benefit from the exercise of stock options of $65.0 million.

      Net cash used in investment activities was $369.4 million in fiscal 2004 compared to $57.1 million in fiscal 2003. The increase in net cash used in investment activities is primarily attributable to the $301.7 million purchase of investments. During fiscal 2004, Coach began investing in marketable securities with maturities greater than 90 days, in order to maximize the rate of return on our investments. In addition, capital expenditures also increased by $10.6 million, which related primarily to new and renovated retail stores in the United States and Japan as well as technology enhancements. Coach’s future capital expenditures will depend on the timing and rate of expansion of our businesses, new store openings, store renovations and international expansion opportunities.

      Net cash used in financing activities was $45.7 million in fiscal 2004 compared to $29.3 million in fiscal 2003. The $16.4 million increase in cash used resulted from an additional $17.1 million of repayments related to Coach Japan’s credit facilities and an additional $5.0 million of funds expended to repurchase common stock, offset by an additional $5.7 million of proceeds received from the exercise of stock options.

      On October 16, 2003, Coach, certain lenders and Fleet National Bank (“Fleet”), as primary lender and administrative agent, renewed the $100 million senior unsecured revolving credit facility (the “Fleet facility”), extending the facility expiration to October 16, 2006. At Coach’s request, the Fleet facility can be expanded to $125 million, and, during the first two years of its term, the expiration can be extended for one additional year, to October 16, 2007. Indebtedness under this revolving credit facility bears interest calculated, at Coach’s option, at either a rate of LIBOR plus a margin or the prime rate announced by Fleet. This facility is available for seasonal working capital requirements or general corporate purposes. The facility may be prepaid without penalty or premium.

      During fiscal 2004 and fiscal 2003 there were no borrowings under the Fleet facility. As of July 3, 2004, there were no outstanding borrowings under the Fleet facility.

      Under this revolving credit facility, Coach pays a commitment fee of 12.5 to 30 basis points, based on the Company’s fixed charge coverage ratio, on any unused amounts of the revolving credit facility. The initial commitment fee was 30 basis points. At July 3, 2004, the commitment fee was 15 basis points. The initial LIBOR margin under the facility was 125 basis points. At July 3, 2004, the LIBOR margin was 62.5 basis points, reflecting an improvement in our fixed-charge coverage ratio.

      The Fleet facility contains various covenants and customary events of default. Coach has been in compliance with all covenants since its inception.

      To provide funding for working capital and general corporate purposes, Coach Japan entered into credit facilities with several Japanese financial institutions. These facilities allow a maximum borrowing of 8.6 billion yen or approximately $79 million at July 3, 2004. Interest is based on the Tokyo Interbank rate plus a margin of up to 50 basis points.

      During fiscal 2004 and fiscal 2003, the peak borrowings under the Japanese credit facilities were $36.1 million and $43.4 million, respectively. At July 3, 2004 and June 28, 2003, outstanding borrowings under the Japanese facilities were $1.7 million and $26.5 million, respectively.

      These Japanese facilities contain various covenants and customary events of default. Coach Japan has been in compliance with all covenants since their inception. These facilities include automatic renewals based on compliance with the covenants. Coach, Inc. is not a guarantor on these facilities.

      The Coach Board of Directors has authorized the establishment of a common stock repurchase program. Under this program, up to $180 million may be utilized to repurchase Coach’s outstanding common stock. Purchases of Coach stock may be made from time to time, subject to market conditions and at prevailing

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      During fiscal 2004 and fiscal 2003, Coach repurchased 1.5 million and 3.9 million shares, respectively, of common stock, at an average cost of $36.36 and $12.95 per share, respectively. As of July 3, 2004, Coach had approximately $65 million remaining in the stock repurchase program.

      On August 12, 2004, the Coach Board of Directors approved a $200 million increase to the Company’s existing common stock repurchase program and extended the duration of this program through August 2006.

      During August 2004, the Company repurchased 2.4 million shares of common stock at an average cost of $39.06 per share. These stock repurchases of approximately $95 million were financed from cash on hand. As of September 4, 2004, Coach had expended approximately $210 million of the $380 million authorized to date under the stock repurchase program.

      In fiscal 2004, total capital expenditures were $67.7 million. Coach opened 19 new retail and two new factory stores in North America, which represented $19.5 million of capital expenditures, as well as expanded nine stores, which represented $11.8 million of capital expenditures. Spending on department store renovations and distributor locations was $3.9 million. In addition, $16.5 million was used for information systems and corporate facilities. These investments were financed from internally generated cash flows and on hand cash. In Japan, we invested $16.0 million, primarily for the opening of eight new locations, store expansions and information systems. These investments were financed by using funds from our Japanese revolving credit facilities and operating cash flow.

      Coach experiences significant seasonal variations in its working capital requirements. During the first fiscal quarter Coach builds inventory for the holiday selling season, opens new retail stores and generates higher levels of trade receivables. In the second fiscal quarter its working capital requirements are reduced substantially as Coach generates consumer sales and collects wholesale accounts receivable. In fiscal 2004, Coach purchased approximately $349 million of inventory, which was funded by on hand cash, operating cash flow and by borrowings under the Japanese revolving credit facilities.

      Management believes that cash flow from operations and on hand cash will provide adequate funds for the foreseeable working capital needs, planned capital expenditures and the common stock repurchase program. Any future acquisitions, joint ventures or other similar transactions may require additional capital. There can be no assurance that any such capital will be available to Coach on acceptable terms or at all. Coach’s ability to fund its working capital needs, planned capital expenditures and scheduled debt payments, as well as to comply with all of the financial covenants under its debt agreements, depends on its future operating performance and cash flow, which in turn are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond Coach’s control.

      Currently, Sara Lee is a guarantor or a party to many of Coach’s leases. Coach has agreed to make efforts to remove Sara Lee from all of its existing leases, and Sara Lee is not a guarantor or a party to any new or renewed leases. Coach has obtained a letter of credit for the benefit of Sara Lee in an amount approximately equal to the annual minimum rental payments under leases transferred to Coach by Sara Lee, but for which Sara Lee retains contingent liability. Coach is required to maintain this letter of credit until the annual minimum rental payments under the relevant leases are less than $2.0 million. The initial letter of credit had a face amount of $20.6 million, and we expect this amount to decrease annually as Coach’s guaranteed obligations are reduced. As of July 3, 2004, the letter of credit was $16.8 million. We expect that we will be required to maintain the letter of credit for at least 10 years.

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      As of July 3, 2004, the scheduled maturities of Coach’s long-term contractual obligations are as follows: