As one of the leading American marketers of fine accessories and gifts, Coach, Inc. (COH - Analyst Report) 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.
Coach’s growth drivers include expansion of its global distribution model and venturing into under-penetrated markets. The company 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. Additionally, it remains optimistic about its dual-gender Legacy lifestyle collection, dedicated men's stores and international growth opportunities. The company is also aggressively expanding its E-commerce platform.
Coach’s strategic endeavors helped it post the tenth straight quarter of positive earnings surprise when it reported fourth-quarter fiscal 2016 results, wherein both top and bottom lines grew year over year. Further, the company registered positive comparable-store sales at its North American segment for the first time in over three years. The company’s international operations also 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.
Hurdles to Overcome
Coach sells products that are discretionary in nature, and thus depends upon consumers’ disposable income, which is sensitive to macroeconomic factors. Moreover, fashion obsolescence remains the main concern for the company’s business model, which involves a sustained focus on product and design innovation.
Coach also 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. The 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 is likely to have an adverse impact on the demand for its products.
A prudent investment decision involves buying stocks that offer solid prospects and selling those that appear risky. Again, at times it is rational to hold certain stocks that have enough potential. These stocks rally as soon as the market enters into a correction mode. From the above discussion it is quite apparent that Coach is one such stock with a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Investors may consider favorably ranked stocks such as The Children's Place, Inc. (PLCE - Snapshot Report) , American Eagle Outfitters, Inc. (AEO - Analyst Report) and Urban Outfitters Inc. (URBN - Analyst Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Children's Place delivered an average positive earnings surprise of 33.1% over the trailing four quarters and has a long-term earnings growth rate of 10.3%.
American Eagle Outfitters delivered an average positive earnings surprise of 9.3% over the trailing four quarters and has a long-term earnings growth rate of 11.8%.
Urban Outfitters delivered an average positive earnings surprise of 6.7% over the trailing four quarters and has a long-term earnings growth rate of 15%.
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