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Coach, Inc. (COH - Analyst Report) posted first-quarter fiscal 2014 earnings of 77 cents a share that came in line with the Zacks Consensus Estimate, and also remained flat with the prior-year quarter.

The New York-based Coach said that net sales for the quarter came in at $1,150.8 million, down about 1% from the year-ago quarter and also fell short of the Zacks Consensus Estimate of $1,191 million due to softness in North American market. However, on a constant currency basis, sales increased 2%.

Investors do not appear impressed with Coach’s results, thus shares of this designer and marketer of fine accessories and gifts fell 3.7% or $1.98 to $52.20 during pre-market trading hours.

Behind the Headline

Total North American sales fell 1% to $778 million. Direct-to-consumer sales decreased 1%, while comparable-store sales dropped 6.8%. At POS, North American department stores sales remained below compared with prior-year quarter, whereas shipments into department stores also fell marginally.

International sales declined marginally to $365 million from $367 million in the year-ago quarter. However, on a constant currency basis, International sales jumped approximately 9%.

China business sustained its strong performance as sales surged over 35% with a double-digit rate increase in comparable-store sales. International wholesale shipments dropped, whereas sales trends across POS increased. Sales in Japan dipped 2% on a constant currency basis, whereas in dollar terms, sales tumbled 22% from the year-ago quarter due to softer yen.

Gross profit fell 2% to $826.6 million, whereas gross profit margin contracted 100 basis points to 71.8%. Operating income came in at $321.6 million, down 3% from the prior-year quarter, while operating margin shriveled 70 basis points to 27.9%.

Store Update

During the quarter, Coach, the maker of handbags, wallets, shoes and other accessories, opened 4 stores in North America, thereby taking the count to 548. In Japan, the company opened 5 outlets bringing the total number of locations at 196.

In China, addition of 6 new locations during the quarter took the total to 132. Across Asia (Other) the company opened 2 locations taking the total to 94. Coach also acquired the remainder stake in the company’s European joint venture, and gained direct control of 18 locations in the U.K., Spain, Ireland, Portugal, France and Germany. Moreover, 2 wholesale locations in Printemps also came under the direct control.

Other Financial Details

Coach maintains a healthy balance sheet with a significant cash balance and a negligible debt load. The company also has been proactively managing its cash flows by making prudent capital investments and enhancing shareholders’ return. The company’s strong liquidity, positions it to drive future growth.

The company ended the quarter with cash, cash equivalents and short-term investments of $854.7 million and total long-term debt of $985,000 with shareholders’ equity of $2,378.6 million.

During the quarter, the company bought back 3.3 million shares at a cost of $53.17 per share, aggregating $175 million. The company still has approximately $1.2 billion remaining at its disposal under its current share buyback program.

Other Stocks Worth Considering

Currently, Coach holds Zacks Rank #4 (Sell). Other stocks worth considering in the retail sector are Hanesbrands Inc. (HBI - Analyst Report) holding a Zacks Rank #1 (Strong Buy), and V.F. Corp. (VFC - Analyst Report) and Ralph Lauren Corp. (RL - Analyst Report) both sporting Zacks Rank #2 (Buy).

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