Earnings Preview: Coach

Coach Inc. (COH - Analyst Report), the designer and marketer of fine accessories and gifts, is scheduled to report its fourth quarter 2010 financial results on Tuesday, August 3, 2010. The current Zacks Consensus Estimate for the quarter is 56 cents a share.
 
Third-Quarter 2010, a Synopsis
 
Coach posted better-than-expected third-quarter 2010 results on April 20, 2010 on the heels of strong top-line growth and competitive pricing. The quarterly earnings of 50 cents a share beats the Zacks Consensus Estimate of 46 cents, and rose 31.3% from 38 cents delivered in the prior-year quarter.
 
Total net sales climbed 12.3% year over year to $830.7 million. Direct-to-consumer sales jumped 15% to $726 million, driven by a 5.1% rise in the North American comparable-store sales and strong growth in China business, which showed a double-digit rate increase in comparable-store sales. Indirect sales dropped marginally by 1% to $105 million due to lower shipments to U.S. department stores.
 
The rise in total sales was a positive indication for the luxury-goods designer, battered by the recent economic downturn. Coach lowered prices on some of its merchandise, and introduced new styles to improve sales as consumers cut spending.
 
Fourth-Quarter Consensus
 
Analysts surveyed by Zacks, expect Coach, the maker of handbags, wallets, shoes and other accessories, to post fourth quarter 2010 earnings of 56 cents a share, reflecting an increase of 33.3% from 42 cents earned in the prior-year quarter. The current Zacks Consensus Estimate has remained stagnant with only one out of the 17 analysts covering the stock has revised his/her estimates upwards in the last 7 and 30 days.
 
The estimates in the current Zacks Consensus for the fourth quarter range from a low of 53 cents to a high of 59 cents a share.
 
Earnings Surprise History
 
With respect to earnings surprises, Coach has traversed across a wide range of earnings expectations over the last four quarters from a negative 2.3% to a positive 12.8%. The average remained positive at 5.8%. This suggests that Coach has beaten the Zacks Consensus Estimate by an average of 5.8% in the last four quarters.
 
Coach in Neutral Lane

Coach boasts a proven strategy of investing in stores to enhance store sales productivity through product innovation, compelling pricing strategy, new merchandise assortments, and a cost-effective global sourcing model, which should help drive comparable-store sales and operating margins over the long term.

The company’s long-term growth drivers include expansion of its global distribution model and venturing into under-penetrated markets. It is also investing in rapidly growing emerging markets, such as China to increase its brand awareness, with targeted sales of $250 million during fiscal 2012.

However, increasing competition, fashion obsolescence and unfavorable macro-economic factors affecting consumer spending may weigh upon the company’s top and bottom line results.
 
We have a Neutral rating on Coach. However, the stock holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ recommendation.

Read the full analyst report on COH