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Analyst Blog

Coach, Inc. (COH - Analyst Report) appears to be in a difficult situation as the company’s shares have plunged 22.8% since it posted dismal third-quarter fiscal 2014 results. Moreover, its shares have tanked 36.5% year-to-date.

The disappointing results triggered a downtrend in the Zacks Consensus Estimate as analysts become less constructive on the stock’s future performance. Earnings estimates for fiscal 2014 and 2015 have dropped 3.2% and 40.2% to $3.05 and $2.05 per share, respectively, in the past 90 days.

The textile-apparel retailer lost momentum primarily due to soft sales, particularly in its North American segment that contributes the lion’s share to the top line. On the contrary, retailers like Michael Kors Holdings Ltd. (KORS - Analyst Report) and Kate Spade & Co. (KATE - Snapshot Report) have been filling their coffers with strong sales, thereby providing stiff competition to Coach.

In its last reported quarter, Coach’s sales declined 7% to $1,099.6 million and also fell short of the Zacks Consensus Estimate of $1,134 million. This is the second consecutive revenue decline for the company, following a 6% decrease in the previous quarter.

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

Additionally, this Zacks Rank #5 (Strong Sell) company witnessed lower footfall at its stores, while online results were unfavorably impacted by its 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 market share could be further affected by delays in product launches as it operates in the highly competitive premium handbag and accessories segment.

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

A better-ranked stock in the same industry that warrants a look includes Columbia Sportswear Co. (COLM - Snapshot Report), with a Zacks Rank #1 (Strong Buy).

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