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Coach Gains Despite Headwinds: Should You Hold the Stock?
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Despite the prevailing headwinds, Coach, Inc. has exhibited a bullish run in the index so far this year. We noted that in the said period, the stock has surged roughly 18% and comfortably outperformed the Zacks categorized Textile-Apparel Manufacturing industry, which declined 2.9%. We believe the stock will continue to rally, which is quite evident from its long-term earnings growth rate of 10.6%.
Coach has undertaken transformational initiatives revolving around its products, stores and marketing to pull itself back on the growth trajectory and emerge as a multi-brand company.
Hidden Catalyst
As one of the leading American marketers of fine accessories and gifts, Coach boasts a proven strategy of investing in stores to enhance their 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 its global distribution model and venturing into under-penetrated markets.
Coach is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman has been accretive to its performance and is being viewed as a significant step in its efforts toward becoming a multi-brand company. Further, it remains optimistic about its dual-gender Legacy lifestyle collection, dedicated men's stores and international growth opportunities. Additionally, it is aggressively expanding its eCommerce platform.
The company’s strategic endeavors helped it post 11th straight quarter of positive earnings surprise when it reported first-quarter fiscal 2017 results, wherein both the top and bottom-line grew year over year. Moreover, Coach registered positive comparable-store sales at its North American segment for the second-straight quarter. Further, the company’s international operations witnessed robust growth. Management now projects low-to-mid single digits increase in revenue and double-digit growth in earnings per share during fiscal 2017. Additionally, the company expects operating margin between 18.5% and 19% for the fiscal year.
Hurdles to Overcome
Coach sells products that are discretionary in nature and consequently depends upon consumers’ disposable income, which is sensitive to macroeconomic factors. Further, fashion obsolescence remains the main concern for the company’s business model, which involves a sustained focus on product and design innovation.
Furthermore, the company generates a significant amount of net sales outside the U.S. Due to high exposure to international markets the company remains susceptible to currency fluctuations. Weakening of foreign currencies against the U.S. dollar may require it to either raise prices or contract profit margins in locations outside the U.S. An increase in price may have an adverse impact on the demand for its products.
Given the pros and cons, the stock currently carries a Zacks Rank #3 (Hold).
Burlington Stores delivered an average positive earnings surprise of 25.6% in the trailing four quarters and has a long-term earnings growth rate of 19.9%.
Target delivered an average positive earnings surprise of 9.9% in the trailing four quarters and has a long-term earnings growth rate of 8%.
Ross Stores delivered an average positive earnings surprise of 5% in the trailing four quarters and has a long-term earnings growth rate of 11.4%.
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Coach Gains Despite Headwinds: Should You Hold the Stock?
Despite the prevailing headwinds, Coach, Inc. has exhibited a bullish run in the index so far this year. We noted that in the said period, the stock has surged roughly 18% and comfortably outperformed the Zacks categorized Textile-Apparel Manufacturing industry, which declined 2.9%. We believe the stock will continue to rally, which is quite evident from its long-term earnings growth rate of 10.6%.
Coach has undertaken transformational initiatives revolving around its products, stores and marketing to pull itself back on the growth trajectory and emerge as a multi-brand company.
Hidden Catalyst
As one of the leading American marketers of fine accessories and gifts, Coach boasts a proven strategy of investing in stores to enhance their 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 its global distribution model and venturing into under-penetrated markets.
Coach is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman has been accretive to its performance and is being viewed as a significant step in its efforts toward becoming a multi-brand company. Further, it remains optimistic about its dual-gender Legacy lifestyle collection, dedicated men's stores and international growth opportunities. Additionally, it is aggressively expanding its eCommerce platform.
The company’s strategic endeavors helped it post 11th straight quarter of positive earnings surprise when it reported first-quarter fiscal 2017 results, wherein both the top and bottom-line grew year over year. Moreover, Coach registered positive comparable-store sales at its North American segment for the second-straight quarter. Further, the company’s international operations witnessed robust growth. Management now projects low-to-mid single digits increase in revenue and double-digit growth in earnings per share during fiscal 2017. Additionally, the company expects operating margin between 18.5% and 19% for the fiscal year.
Hurdles to Overcome
Coach sells products that are discretionary in nature and consequently depends upon consumers’ disposable income, which is sensitive to macroeconomic factors. Further, fashion obsolescence remains the main concern for the company’s business model, which involves a sustained focus on product and design innovation.
Furthermore, the company generates a significant amount of net sales outside the U.S. Due to high exposure to international markets the company remains susceptible to currency fluctuations. Weakening of foreign currencies against the U.S. dollar may require it to either raise prices or contract profit margins in locations outside the U.S. An increase in price may have an adverse impact on the demand for its products.
Given the pros and cons, the stock currently carries a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Investors may consider stocks such as Burlington Stores, Inc. (BURL - Free Report) , flaunting a Zacks Rank #1 (Strong Buy); and Target Corporation (TGT - Free Report) and Ross Stores, Inc. (ROST - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Burlington Stores delivered an average positive earnings surprise of 25.6% in the trailing four quarters and has a long-term earnings growth rate of 19.9%.
Target delivered an average positive earnings surprise of 9.9% in the trailing four quarters and has a long-term earnings growth rate of 8%.
Ross Stores delivered an average positive earnings surprise of 5% in the trailing four quarters and has a long-term earnings growth rate of 11.4%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>