Back to top

Analyst Blog

We reaffirm our long-term Neutral recommendation on Coach, Inc. (COH - Analyst Report) with a target price of $53.00 following the company’s soft second-quarter fiscal 2013 results that were offset by the company’s growth initiatives. The stock also retains a Zacks Rank #3 (Hold).

Why Reiterate?

Tough macroeconomic conditions and intense promotional strategies undertaken by competitors in the women’s handbag category muted Coach’s performance in North America that resulted in lower-than-expected second-quarter fiscal 2013 results. The quarterly earnings of $1.23 per share missed the Zacks Consensus Estimate of $1.29 but rose from $1.18 in the prior-year quarter.

Net sales of $1,503.8 million also came below the Zacks Consensus Estimate of $1,605 million but rose 4% year over year. International segment remained robust in the quarter with sales rising by 12%. China business sustained its strong performance as sales soared about 40% with a double-digit rate increase in comparable-store sales.

The rise in total sales was a positive indication for the luxury-goods market, battered by the recent economic upheaval. Coach’s sustained focus on store sales productivity, merchandising, and marketing and strategic pricing helped it remain afloat in a difficult consumer environment.

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. The company is also aggressively expanding its e-Commerce platform. Management expects to attain more than $600 million in sales worldwide from its Men’s business and at least $400 million in sales in China in fiscal 2013.

Store expansion strategy remains on the cards for Coach. In North America, Coach plans to open 25 net new stores. On the international front, it plans to add 30 new outlets in China and 10 net new stores in Japan. The company through distributor partners plans to augment business opportunities in Australia, Thailand, Vietnam, Indonesia, Brazil, Venezuela, Colombia, Panama, Chile, Peru and Kuwait. In Europe, the company expects to enhance its operations.

The company’s long-term growth drivers also include expansion of its global distribution model and venturing into under-penetrated markets. Moreover, a healthy balance sheet augurs well for future growth. However, we remain concerned about erratic consumer behavior and soft economic recovery.

Other Stocks Worth Considering

Other stocks worth considering in the textile, apparel industry are G-III Apparel Group, Ltd. (GIII - Snapshot Report), Hanesbrands Inc. (HBI - Analyst Report) and Gildan Activewear Inc. (GIL - Snapshot Report), all of which hold a Zacks Rank #2 (Buy). The stocks are expected to continue with their upbeat performances and sustain their positive earnings surprise trend.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SUPER MICRO… SMCI 27.00 +10.25%
CANADIAN SO… CSIQ 38.34 +8.18%
BANCO DO BR… BDORY 16.78 +8.05%
CENTURY ALU… CENX 26.97 +7.97%
WILLDAN GRO… WLDN 11.38 +5.86%