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We reaffirm our long-term Neutral recommendation on Coach, Inc. (COH - Analyst Report) with a target price of $52.00. The stock also retains a Zacks Rank #3 (Hold).

Why the Reiteration?

Being a leading American marketer of fine accessories and gifts, 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 in the long term.

However, tough macroeconomic conditions and intense promotional strategies undertaken by competitors are weighing upon the company’s performance, as evident from its 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.

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 from 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 its distributor partners plans to augment business opportunities in Australia, Thailand, Vietnam, Indonesia, Brazil, Venezuela, Colombia, Panama, Chile, Peru and Kuwait. The company expects to enhance its operations in Europe.

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 a soft economic recovery.

Stocks Worth Considering

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.

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