Despite the prevailing headwinds, Coach, Inc. COH has exhibited a bullish run in the index in the past one month. We noted that in the said period, the stock has not only outperformed the Zacks categorized Textile-Apparel Manufacturing industry but also the broader sector. In the said period, the stock has increased 7%, while the industry declined 6%. On the other hand, the broader Consumer Discretionary sector of which they are part of gained 3.9% in the same time frame.
Coach has undertaken transformational initiatives revolving around products, stores and marketing to pull itself back on the growth trajectory and emerge as a multi-brand company. The company’s long-term earnings growth rate of 10.6% also reflects its inherent potential.
Growth Drivers
As one of the leading American marketers of fine accessories and gifts, Coach boasts a proven strategy of investing in stores to enhance their sales output through product innovation, a compelling pricing strategy, new merchandise assortments and a cost-effective global sourcing model. We believe that these strategies will help drive comparable-store sales and operating margins in the long term. The company’s growth drivers include expansion of global distribution model and venturing into under-penetrated markets.
Coach is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman has been accretive to performance and is being viewed as a significant step in its efforts toward becoming a multi-brand company. Further, the company remains optimistic about its dual-gender Legacy lifestyle collection, dedicated men's stores and international growth opportunities. Additionally, the company is aggressively expanding its eCommerce platform.
The company’s strategic endeavors helped it post 12th straight quarter of positive earnings surprise when it reported second-quarter fiscal 2017 results, wherein both the top line and bottom line grew year over year. Moreover, Coach registered positive comparable-store sales at its North American segment for the third straight quarter. Moreover, the company’s international operations witnessed robust growth. Management continues to project double-digit growth in earnings per share during fiscal 2017. Further, the company expects operating margin between 18.5% and 19% for the fiscal year.
Obstacles to Overcome
Due to strengthening of the U.S. dollar, management now envisions low-single digit increase in fiscal 2017 revenue, including an expected unfavorable impact of 50 basis points from foreign currency. Earlier, the company had projected low-to-mid single digits increase in revenue, including a favorable impact of 100-150 basis points from foreign currency.