Factors That May Propel Coach (COH) To Achieve New Highs

Coach, Inc. (NYSE:COH) seems to be unfazed by tough retail scenario. Major chains are grappling with sluggish store and mall traffic as consumers choose to shop online from the comfort of their homes. But Coach looks much more disciplined in its approach to adapt to the changing retail landscape.

Despite the prevailing headwinds, shares of Coach have surged 19% in the past three months, and has comfortably outperformed the Zacks categorized Textile-Apparel Manufacturing industry that advanced 5.7%. This Zacks Rank #3 (Hold) stock is currently trading at its 52-week high of $47.87 which it touched yesterday, and we see no hindrances that can restrain it from attaining new highs. Further, the stock’s long-term earnings per share growth rate of 10.6% portray its inherent strength.

Catalysts

As one of the leading American marketers of fine accessories and gifts, Coach boasts a proven strategy of investing in stores to enhance 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 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. The recent agreement to acquire to Kate Spade & Company for $2.4 billion is another step taken in that direction. Additionally, it is aggressively expanding e-commerce platform.

The company’s strategic endeavors helped it post 13th straight quarter of positive earnings surprise when it reported third-quarter fiscal 2017 results. Moreover, Coach registered positive comparable-store sales at its North American segment for the fourth straight quarter. Moreover, it witnessed healthy growth across directly-operated Europe and Mainland China operations. 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

Due to strengthening of the U.S. dollar, management now envisions low-single digit increase in fiscal 2017 revenue. Third-quarter net sales came in at $995.2 million, down about 4% on a reported basis and 3% on a constant currency basis. Sales growth were hurt by 150 basis points 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 noted that the top line fell short of the Zacks Consensus Estimate of $1,018 million, marking the third straight quarter of revenue miss.

Given the pros and cons embedded, the stock currently carries a Zacks Rank #3 (Hold).

Interested in the Retail Space, Check These

If you are interested in the retail space you can consider stocks such as G-III Apparel Group, Ltd. (NASDAQ:GIII) , Tilly's, Inc. (NYSE:TLYS) and The Children's Place, Inc. (NASDAQ:PLCE) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel has a long-term earnings growth rate of 15%.

Tilly's delivered an average positive earnings surprise of 120.4% in the trailing four quarters and has a long-term earnings growth rate of 13%.

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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