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Analyst Blog

Estimates for Coach, Inc. (COH - Analyst Report) have been portraying a downtrend since the company posted third-quarter fiscal 2014 results on Apr 29, 2014. It seems that analysts have become less constructive on stock's future performance, which has slipped about 8% since the earnings announcement.

This is evident from the movement witnessed in the Zacks Consensus Estimate that tumbled 2.9% to $3.06 for fiscal 2014 and 14.9% to $2.92 per share for fiscal 2015 in the past 30 days.

The New York-based company disappointed on the sales front that declined 7% to $1,099.6 million — after decreasing 6% during the second quarter — due to sluggishness in the North American market, and also fell short of the Zacks Consensus Estimate of $1,134 million.

Management stated that sluggishness in the 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 a shift in the Easter holiday also impacted the results. Coach witnessed lower footfall in stores, whereas online results were unfavorably impacted by the company’s decisions to eliminate third party events, and restrict the accessibility to factory flash site.

Fashion obsolescence remains a major concern for Coach’s business model, which involves a sustained focus on product and design innovation. The company’s pioneering position could be affected by delays in product launches. It is noteworthy that the company operates in the highly competitive premium handbag and accessories segment.

However, what is still providing some cushion to this Zacks Rank #3 (Hold) stock is the better-than-expected bottom-line result, wherein earnings of 68 cents a share beat the Zacks Consensus Estimate by 7.9% but tumbled 19% year over year.

We believe Coach’s focus on investing in stores to enhance store sales productivity through product innovation, a compelling pricing strategy and new merchandise assortments may act as catalysts. The company remains optimistic about its dual-gender Legacy lifestyle collection, dedicated men's stores and international growth opportunities to counter the soft consumer scenario.

Other Stocks Worth Considering

Other better-ranked retail stocks that look promising and are expected to continue with their upbeat performance include Columbia Sportswear Co. (COLM - Snapshot Report), Hanesbrands Inc. (HBI - Analyst Report) and V.F. Corp. (VFC - Analyst Report) all holding a Zacks Rank #2 (Buy).

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