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

Coach is a leading American marketer of fine accessories and gifts for women and men. Our product offerings include handbags, women's and men's accessories, footwear, jewelry, wearables, business cases, sunwear, travel bags, fragrance and watches. Coach operates in two segments: Direct-to-Consumer and Indirect. The Direct-to-Consumer segment includes sales to consumers through Company-operated stores in North America, Japan, Hong Kong, Macau and mainland China, the Internet and Coach catalog. The Indirect segment includes sales to wholesale customers and distributors in over 20 countries, including the United States, and royalties earned on licensed product. As Coach's business model is based on multi-channel international distribution, our success does not depend solely on the performance of a single channel or geographic area.

In order to sustain growth within our global framework, we continue to focus on two key growth strategies: increased global distribution, with an emphasis on North America and China, and improved store sales productivity. To that end we are focused on four key initiatives:

• Build market share in the North American women's accessories market. As part of our culture of innovation and continuous improvement, we have implemented a number of initiatives to accelerate the level of newness, elevate our product offering and enhance the in-store experience. These initiatives will enable us to continue to leverage our leadership position in the market.

• Continue to grow our North American retail store base primarily by opening stores in new markets and adding stores in existing markets. We believe that North America can support about 500 retail stores in total, including up to 30 in Canada. We currently plan to open approximately 20 new retail stores in fiscal 2010, of which 14 will be in new markets. The pace of our future retail store openings will depend upon the economic environment and reflect opportunities in the marketplace.

• Continue to expand market share with the Japanese consumer, driving growth in Japan primarily by opening new retail locations. We believe that Japan can support about 180 locations in total. We currently plan to open approximately 10 new locations in Japan in fiscal 2010.

• Raise brand awareness in emerging markets, notably in China, where our brand awareness is increasing and the category is developing rapidly. In September 2008, Coach successfully completed the first phase of our acquisition of our retail businesses in China, transitioning eight stores in Hong Kong and two stores in Macau. The acquisition of our retail business in mainland China was completed in April 2009, transitioning 15 stores. We currently plan to open approximately 15 new locations in China in fiscal 2010.

We believe the growth strategies outlined above will allow us to deliver long-term superior returns on our investments and drive increased cash flows from operating activities. However, the current macroeconomic environment has created a very challenging retail market in which it is difficult to achieve productivity gains. The Company believes long-term growth can still be achieved through a combination of expanded distribution, a focus on innovation to support productivity and disciplined expense control. Our multi-channel distribution model is diversified and includes substantial international and factory businesses, which reduces our reliance upon our full-price U.S. business. With an essentially debt-free balance sheet and significant cash position, we believe we are well positioned to manage through this economic downturn.

Items Affecting Comparability of Our Financial Results

The year-over-year comparisons of our financial results are affected by the
following items included in our reported results:

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                                                Fiscal Year Ended
                                   (dollars in millions, except per share data)
                             June 27,                June 28,                June 30,
                               2009                    2008                    2007
Operating income
Cost savings           $         (13.4 )       $             -         $           -
measures
Charitable
foundation                       (15.0 )                 (20.0 )                   -
contribution
Non-recurring                        -                   (12.1 )                   -
variable expense
Total Operating        $         (28.4 )       $         (32.1 )       $           -
income impact
Interest Income, net
Tax-related interest   $           2.0         $          10.7         $           -
adjustments
Total Interest         $           2.0         $          10.7         $           -
income, net impact
Provision for income
taxes
Cost savings           $          (5.1 )       $             -         $           -
measures
Charitable
foundation                        (5.7 )                  (7.8 )                   -
contribution
Tax adjustments                  (16.8 )                 (50.0 )                   -
Non-recurring                        -                    (4.7 )                   -
variable expense
Total Provision for    $         (27.6 )       $         (62.5 )       $           -
income taxes impact
Net income
Cost savings           $          (8.3 )       $             -         $           -
measures
Charitable
foundation                        (9.3 )                 (12.2 )                   -
contribution
Tax adjustments                   18.8                    60.6                     -
Non-recurring                        -                    (7.4 )                   -
variable expense
Total Net income       $           1.2         $          41.0         $           -
impact
Diluted earnings per
share
Cost savings           $         (0.03 )       $             -         $           -
measures
Charitable
foundation                       (0.03 )                 (0.03 )                   -
contribution
Tax adjustments                   0.06                    0.17                     -
Non-recurring                        -                   (0.02 )                   -
variable expense
Total Diluted
earnings per share     $          0.00         $          0.11         $           -
impact


Fiscal 2009 Items
Cost Savings Measures

During the third quarter of fiscal 2009, the Company recorded a charge of $13.4 million, related to cost savings initiatives. These initiatives included the elimination of approximately 150 positions from the Company's corporate offices in New York, New Jersey and Jacksonville, the closure of four underperforming retail stores and the closure of Coach Europe Services, the Company's sample-making facility in Italy.

Charitable Contribution and Tax Adjustments

During the fourth quarter of fiscal 2009, the Company decreased the provision for income taxes by $16.8 million and increased interest income by $2.0 million, primarily as a result of a favorable settlement of a multi-year tax return examination and other tax accounting adjustments. The Company used the net income favorability to contribute $15.0 million to the Coach Foundation.

Fiscal 2008 Items
Charitable Contribution and Tax Adjustments

During the fourth quarter of fiscal 2008, the Company decreased the provision for income taxes by $50.0 million and increased interest income by $10.7 million, primarily as a result of a favorable settlement of a tax return examination. The Company used the net income favorability to create the Coach Foundation. The Company recorded an initial contribution to the Coach Foundation in the amount of $20.0 million.

Non-Recurring Variable Expenses

As a result of the higher interest income, net and lower income tax provision, the Company incurred additional incentive compensation expense of $12.1 million, as a portion of the Company's incentive compensation plan is based on net income and earnings per share.

Non-GAAP Measures

The Company's reported results are presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). The reported selling, general, and administrative expenses, operating income, interest income, net, provision for income taxes, income from continuing operations, net income and earnings per diluted share from continuing operations reflect certain items which affect the comparability of our results. These metrics are also reported on a non-GAAP basis to exclude the impact of these items. The Company believes these non-GAAP financial measures are useful to investors in evaluating the Company's ongoing operating and financial results and understanding how such results compare with the Company's historical performance. The non-GAAP financial measures should be considered in addition to, and not in lieu of, U.S. GAAP financial measures.

Fiscal 2009

The key metrics of fiscal 2009 were:

• Earnings per diluted share fell 11.9% to $1.91. Excluding items affecting comparability in fiscal 2009 and fiscal 2008, earnings per diluted share decreased 7.2% to $1.91 per diluted share.

• Net sales increased 1.6% to $3.23 billion.

• Direct-to-consumer sales rose 6.6% to $2.73 billion.

• Comparable sales in Coach's North American stores declined 6.8%, primarily due to the challenging retail environment which resulted in decreased traffic in our full-priced stores.

• Coach Japan sales, when translated into U.S. dollars, rose 11.1%. This increase in sales reflects an 11.8% increase due to currency translation.

• In North America, Coach opened 33 net new retail stores and nine new factory stores, bringing the total number of retail and factory stores to 330 and 111, respectively, at the end of fiscal 2009. We also expanded 11 retail stores and nine factory stores in North America.

• Coach Japan opened six net new locations, bringing the total number of locations at the end of fiscal 2009 to 155. In addition, we expanded three locations.

Fiscal 2009 Compared to Fiscal 2008

The following table summarizes results of operations for fiscal 2009 compared to
fiscal 2008:

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                                                                               Fiscal Year Ended
                                   June 27, 2009                                 June 28, 2008                                    Variance
                                                                  (dollars in millions, except per share data)
                          Amount                  % of                  Amount                  % of                   Amount                    %
                                                Net Sales                                     Net Sales
Net sales           $         3,230.5               100.0 %       $         3,180.8               100.0 %       $          49.7                   1.6 %
Gross profit                  2,322.6                71.9                   2,407.1                75.7                   (84.5 )                (3.5 )
Selling, general
and                           1,350.7                41.8                   1,260.0                39.6                    90.7                   7.2
administrative
expenses
Operating income                971.9                30.1                   1,147.1                36.1                  (175.2 )               (15.3 )
Interest income,                  5.2                 0.2                      47.8                 1.5                   (42.7 )               (89.2 )
net
Provision for                   353.7                10.9                     411.9                13.0                   (58.2 )               (14.1 )
income taxes
Income from
continuing                      623.4                19.3                     783.0                24.6                  (159.7 )               (20.4 )
operations
Income from
discontinued                        -                 0.0                       0.0                 0.0                    (0.0 )              (100.0 )
operations, net
of taxes
Net income                      623.4                19.3                     783.1                24.6                  (159.7 )               (20.4 )
Net Income per
share:
Basic:
Continuing          $            1.93                             $            2.20                             $         (0.28 )               (12.5 )%
operations
Discontinued                        -                                          0.00                                       (0.00 )              (100.0 )
operations
Net income                       1.93                                          2.20                                       (0.28 )               (12.5 )
Diluted:
Continuing          $            1.91                             $            2.17                             $         (0.26 )               (11.9 )%
operations
Discontinued                        -                                          0.00                                       (0.00 )              (100.0 )
operations
Net income                       1.91                                          2.17                                       (0.26 )               (11.9 )

Net Sales

The following table presents net sales by operating segment for fiscal 2009
compared to fiscal 2008:

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                                                                     Fiscal Year Ended
                                     Net Sales                                                           Percentage of
                                                                        Rate of                         Total Net Sales
                          June 27,              June 28,               Increase                June 27,                June 28,
                            2009                  2008                                           2009                    2008
                               (dollars in millions)                (FY09 vs. FY08)
Direct-to-Consumer   $         2,726.9     $         2,557.9                 6.6 %                  84.4 %                  80.4 %
Indirect                         503.6                 622.9               (19.2 )                  15.6                    19.6
Total net sales      $         3,230.5     $         3,180.8                 1.6 %                 100.0 %                 100.0 %

In connection with the acquisitions of the retail businesses in Hong Kong, Macau and mainland China, the Company evaluated the composition of its reportable segments and concluded that sales in these regions should be included in the Direct-to-Consumer segment. Accordingly, fiscal 2008 and fiscal 2007 comparable sales have been reclassified to conform to the current year presentation.

Direct-to-Consumer - Net sales increased 6.6% to $2.73 billion during fiscal 2009 from $2.56 billion during fiscal 2008, driven by sales from new and expanded stores, partially offset by a decline in comparable store sales. Comparable store sales measure sales performance at stores that have been open for at least 12 months. Coach excludes new locations from the comparable store base for the first year of operation. Similarly, stores that are expanded by 15.0% or more are also excluded from the comparable store base until the first anniversary of their reopening. Stores that are closed for renovations are removed from the comparable store base.

In North America, net sales increased 5.4% as sales from new and expanded stores were partially offset by a 6.8% decline in comparable store sales and a decline in Internet sales. During fiscal 2009, Coach opened 33 net new retail stores and nine net new factory stores, and expanded 11 retail stores and nine factory stores in North America. In Japan, net sales increased 11.1% driven by an approximately $70.2 million or 11.8% positive impact from foreign currency exchange. During fiscal 2009, Coach opened six net new locations and expanded three locations in Japan. The remaining change in net sales is attributable to Coach China, primarily as a result of the acquisitions of our retail businesses in Hong Kong, Macau and mainland China.

Indirect - Net sales decreased 19.2% driven primarily by a 20.8% decrease in U.S. wholesale as the Company reduced shipments into U.S. department stores in order to manage customer inventory levels due to a weaker sales environment. International shipments also declined 6.7% as strong retail sales at locations targeting the domestic customer were offset by a decrease in retail sales at locations serving international tourists. Licensing revenue of approximately $19.5 million and $27.1 million in fiscal 2009 and fiscal 2008, respectively, is included in Indirect sales.

Operating Income

Operating income decreased 15.3% to $971.9 million in fiscal 2009 as compared to $1.15 billion in fiscal 2008. Excluding items affecting comparability of $28.4 million and $32.1 million in fiscal 2009 and fiscal 2008, respectively, operating income decreased 15.2% to $1.00 billion in fiscal 2009 as compared to $1.18 billion in fiscal 2008. Operating margin decreased to 30.1% as compared to 36.1% in the prior year, as gross margin declined while selling, general, and administrative expenses increased. Excluding items affecting comparability, operating margin was 31.0% and 37.1% in fiscal 2009 and fiscal 2008, respectively.

Gross profit decreased 3.5% to $2.32 billion in fiscal 2009 from $2.41 billion in fiscal 2008. Gross margin was 71.9% in fiscal 2009 as compared to 75.7% during fiscal 2008. The change in gross margin was driven primarily by promotional activities in Coach-operated North American factory stores and channel mix. Gross margin was also negatively impacted by our sharper pricing initiative, in which retail prices on handbags and women's accessories have been reduced in response to consumers' reluctance to spend, and an increase in average unit cost. Coach's gross profit is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, foreign currency exchange rates and fluctuations in material costs. These factors among others may cause gross profit to fluctuate from year to year.

Selling, general and administrative ("SG&A") expenses are comprised of four categories: (1) selling; (2) advertising, marketing and design; (3) distribution and consumer service; and (4) administrative. Selling expenses include store employee compensation, store occupancy costs, store supply costs, wholesale account administration compensation and all Coach Japan and Coach China operating expenses. These expenses are affected by the number of Coach-operated stores in North America, Japan, Hong Kong, Macau and mainland China open during any fiscal period and the related proportion of retail and wholesale sales. Advertising, marketing and design expenses include employee compensation, media space and production, advertising agency fees, new product design costs, public relations, market research expenses and mail order costs. Distribution and consumer service expenses include warehousing, order fulfillment, shipping and handling, customer service and bag repair costs. Administrative expenses include compensation costs for the executive, finance, human resources, legal and information systems departments, corporate headquarters occupancy costs, and consulting and software expenses. SG&A expenses increase as the number of Coach-operated stores increase, although an increase in the number of stores generally results in the fixed portion of SG&A expenses being spread over a larger sales base.

During fiscal 2009, SG&A expenses increased 7.2% to $1.35 billion, compared to $1.26 billion in fiscal 2008, driven primarily by an increase in selling expenses partially offset by a decrease in administrative expenses. As a percentage of net sales, SG&A expenses were 41.8% and 39.6% during fiscal 2009 and fiscal 2008, respectively. Excluding items affecting comparability of $28.4 million and $32.1 million in fiscal 2009 and fiscal 2008, respectively, SG&A expenses were $1.32 billion and $1.23 billion, respectively, representing 40.9% and 38.6% of net sales, respectively.

Selling expenses were $981.5 million, or 30.4% of net sales, in fiscal 2009 compared to $865.2 million, or 27.2% of net sales, in fiscal 2008. Excluding items affecting comparability during fiscal 2009 of $5.0 million related to the closure of four underperforming stores, selling expenses were $976.5 million, representing 30.2% of net sales. The dollar increase in selling expenses was primarily due to an increase in operating expenses of North American stores, the newly formed Coach China and Coach Japan. The increase in North American store expenses was primarily attributable to expenses from new and expanded stores opened during fiscal 2009 and the incremental expense associated with having a full year of expenses related to stores opened in the prior year. Fiscal 2009 includes operating expenses of Coach China, which consisted of investments in stores, marketing, organization and infrastructure. The increase in Coach Japan operating expenses was driven primarily by the impact of foreign currency exchange rates which increased reported expenses by approximately $29.1 million.

Advertising, marketing, and design costs were $163.6 million, or 5.1% of net sales, in fiscal 2009, compared to $147.7 million, or 4.6% of net sales, during fiscal 2008. The increase was primarily due to design expenditures and development costs for new merchandising initiatives.

Distribution and consumer service expenses were $52.2 million, or 1.6% of net sales, in fiscal 2009, compared to $47.6 million, or 1.5%, in fiscal 2008. The increase was primarily the result of an increase in fixed occupancy costs related to the expansion of our distribution center that was completed in August 2008.

Administrative expenses were $153.4 million, or 4.7% of net sales, in fiscal 2009 compared to $199.5 million, or 6.3% of net sales, during fiscal 2008. Excluding items affecting comparability of $23.4 million and $32.1 million in fiscal 2009 and fiscal 2008, respectively, expenses were $130.0 million and $167.4 million, respectively, representing 4.0% and 5.3% of net sales. The decrease in administrative expenses was primarily due to a decrease in performance-based compensation expense and lower rent expense as a result of the purchase of our corporate headquarters building.

Interest Income, Net

Net interest income was $5.2 million in fiscal 2009 compared to $47.8 million in fiscal 2008. Excluding items affecting comparability of $2.0 million and $10.7 million in fiscal 2009 and fiscal 2008, respectively, net interest income was $3.2 million and $37.2 million. This decrease is attributable to lower returns on our investments due to lower interest rates and lower average cash balances.

Provision for Income Taxes

The effective tax rate was 36.2% in fiscal 2009 compared to 34.5% in fiscal 2008. In the fourth quarter of fiscal 2009 and fiscal 2008, the Company recorded a benefit of $16.8 million and $50.0 million, respectively, primarily related to favorable settlements of tax return examinations and certain other tax accounting adjustments. Excluding these benefits, the effective tax rates were 38.0% and 39.0%.

Income from Continuing Operations

Income from continuing operations was $623.4 million in fiscal 2009 compared to $783.0 million in fiscal 2008. Excluding items affecting comparability of $1.2 million and $41.0 million in fiscal 2009 and fiscal 2008, respectively, income from continuing operations was $622.1 million and $742.0 million in fiscal 2009 and fiscal 2008, respectively. This decrease was primarily due to a decline in operating income and interest income, net, partially offset by a lower provision for income taxes.

Fiscal 2008 Compared to Fiscal 2007

The following table summarizes results of operations for fiscal 2008 compared to
fiscal 2007:

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                                                                               Fiscal Year Ended
                                   June 28, 2008                                 June 30, 2007                                    Variance
                                                                  (dollars in millions, except per share data)
                          Amount                  % of                  Amount                  % of                   Amount                    %
                                                Net Sales                                     Net Sales
Net sales           $         3,180.8               100.0 %       $         2,612.5               100.0 %       $         568.3                    21.8 %
Gross profit                  2,407.1                75.7                   2,023.0                77.4                   384.1                    19.0
Selling, general
and                           1,260.0                39.6                   1,029.6                39.4                   230.4                    22.4
administrative
expenses
Operating income              1,147.1                36.1                     993.4                38.0                   153.7                    15.5
Interest income,                 47.8                 1.5                      41.3                 1.6                     6.5                    15.9
net
Provision for                   411.9                13.0                     398.1                15.2                    13.8                     3.5
income taxes
Income from
continuing                      783.0                24.6                     636.5                24.4                   146.5                    23.0
operations
Income from
discontinued                      0.0                 0.0                      27.1                 1.0                   (27.1 )                (100.0 )
operations, net
of taxes
Net income                      783.1                24.6                     663.7                25.4                   119.4                    18.0
Net Income per
share:
Basic:
Continuing          $            2.20                             $            1.72                             $          0.48                    27.8 %
operations
Discontinued                     0.00                                          0.07                                       (0.07 )                (100.0 )
operations
Net income                       2.20                                          1.80                                        0.41                    22.6
. . .