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Coach, Inc. (COH - Analyst Report) posted third-quarter fiscal 2014 earnings of 68 cents a share that beat the Zacks Consensus Estimate of 63 cents but tumbled 19% from 84 cents delivered in the prior-year quarter.

New York-based Coach said that net sales for the quarter came in at $1,099.6 million, down about 7% from the year-ago quarter and also fell short of the Zacks Consensus Estimate of $1,134 million due to softness in the North American market. On a constant currency basis, sales decreased 5%.

Management stated that sluggishness in North American women’s bag and accessories business offset sturdy growth witnessed in men’s, footwear and strong results across Asian and European markets. Adverse weather conditions and shift in Easter holiday also impacted the results.

Investors do not appear impressed with Coach’s results, thus shares of this designer and marketer of fine accessories and gifts fell 4.5% or $2.27 to $48.15 during pre-market trading hours.

Behind the Headline

Total North American sales fell 18% to $648 million. Direct-to-consumer sales decreased 18%, while comparable-store sales dropped 21%. At POS, North American department stores sales remained marginally below the prior-year quarter, whereas shipments into department stores also dropped.

International sales rose 14% to $441 million over the year-ago quarter. On a constant currency basis, International sales jumped approximately 20%. China business sustained its strong performance as sales surged over 25% with a double-digit rate increase in comparable-store sales. In China, the company remains on track to generate sales more than $540 million for the year.

International wholesale shipments increased considerably, whereas sales trends across POS remained strong. Sales in Japan grew 10% on a constant currency basis, whereas in dollar terms, sales tumbled 2% from the year-ago quarter due to softer yen.

Gross profit fell 11.2% to $781.3 million, whereas gross profit margin contracted 300 basis points to 71.1%. Operating income came in at $262.7 million, down 24.6% from the prior-year quarter, however, operating margin expanded 240 basis points to 47.2%.

Store Update

During the quarter, Coach, a maker of handbags, wallets, shoes and other accessories, closed 13 stores in North America, thereby taking the count to 543. In Japan, total number of locations increased to 199 due to the opening of 3 stores.

In China, addition of 5 new locations during the quarter took the total to 147. Across Asia (Other), the company closed 2 locations taking the total to 96. Coach also acquired the remainder stake in the company’s European joint venture, and opened 2 stores resulting in a total count of 26 stores.

Other Financial Details

Coach maintains a healthy balance sheet with a significant cash balance. The company also has been proactively managing its cash flows by making prudent capital investments and enhancing shareholders’ return.

The company ended the quarter with cash, cash equivalents and short-term investments of $774.9 million and current debt of $210.5 with shareholders’ equity of $2,389.3 million.

During the quarter, the company bought back 3.6 million shares at a cost of $47.99 per share, aggregating $175 million. The company still has approximately $835 million remaining at its disposal under its current share buyback program.

Other Stocks Worth Considering

Currently, Coach holds a Zacks Rank #4 (Sell). Other stocks worth considering in the retail sector are V.F. Corporation (VFC - Analyst Report), Hanesbrands Inc. (HBI - Analyst Report) and J. C. Penney Company, Inc. (JCP - Analyst Report), all sporting a Zacks Rank #2 (Buy).

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