The designer and marketer of fine accessories and gifts Coach, Inc. (NYSE:COH) hit a 52-week high of $47.30 on Jun 8 before closing at $46.49. In recent times, Coach has been keen on bringing itself back on the growth trajectory with varied transformation initiatives. Let’s now have a look at the company’s stock performance and how its ongoing strategic endeavors are articulating its path.
Coach has exhibited a bullish run in the index when compared with the Zacks categorized Textile-Apparel Manufacturing industry. In the last three months, the stock has increased 18.4%, while the industry advanced 2.1%. In the said time frame, the stock outperformed the broader Consumer Discretionary sector’s growth of 4.2%. The company’slong-term earnings growth rate of 10.6%, make us confident of its inherent strength.
Factors Impacting Performance
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 its performance and is being viewed as a significant step in the company’s efforts towards becoming a multi-brand company. The recent agreement to acquire Kate Spade & Company for $2.4 billion is another step taken in that direction.
The company’s transformation initiatives involve product innovation, compelling pricing strategy, new merchandise assortments and a cost-effective global sourcing model. We believe that these strategies will help drive comparable-store sales (comps) and operating margins in the long term. Coach is aggressively expanding its E-commerce platform for tapping new market opportunities.
These endeavors have helped Coach to post better-than-expected third-quarter fiscal 2017 bottom-line results, in spite of the tough retail environment, volatility in tourist spending and macroeconomic headwinds. With its third quarter fiscal 2017 results, Coach delivered 13th straight quarter of positive earnings surprise. The quarterly earnings also increased roughly 4.5% year over year. Coach registered positive comps at its North American segment for the fourth quarter in a row and witnessed healthy growth across directly-operated Europe and Mainland China operations. With these positives in mind, the company continues to anticipate double-digit growth in both net income and earnings per share for the fiscal year.
Although Coach has been flourishing with its bottom-line performance, the top-line depicts another story altogether. Sales for the third quarter went down 4% on a reported basis and 3% on a constant currency basis. Sales growth were hurt on account of management’s efforts to elevate the Coach brand’s positioning in the North American wholesale channel by lowering promotional events and door closures. We also noted that the top line fell short of the Zacks Consensus Estimate for the third consecutive quarter. (Read more: Coach Q3 Earnings Beat, Sales Miss, View Intact)
Nonetheless, Coach’s transformation plan and their carefully chalked out operational strategies are quite noteworthy. Investors need to wait and watch if these efforts facilitate sustaining its momentum amid a tough retail landscape.
Given the pros and cons embedded, the stock currently carries a Zacks Rank #3 (Hold).
Key picks
Investors may consider better-ranked stocks such as The Marcus Corporation (NYSE:MCS) , Big 5 sporting Goods Corporation (NASDAQ:BGFV) and The Children's Place, Inc. (NASDAQ:PLCE) all flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Marcus Corporation delivered an average positive earnings surprise of 15.4% in the trailing four quarters and has a long-term earnings growth rate of 15%.
Big 5 Sporting Goods delivered an average positive earnings surprise of 94.5% in the trailing four quarters and has a long-term earnings growth rate of 12%.
Children's Place delivered an average positive earnings surprise of 36.6% in the trailing four quarters and has a long-term earnings growth rate of 8%.
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