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Coach's Strategic Endeavors Bode Well: Should You Hold?

GPS PLCE BOOT COH

Trades from $3

A prudent investment decision involves buying or holding stocks that offer solid prospects and have enough potential for growth. Here we have discussed one such stock, Coach, Inc. (COH - Free Report) with an expected long-term earnings per share growth rate of 10.6%. The company 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. So far in the year, the stock has advanced roughly 16%.

Growth Drivers

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, the company 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.

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. Further, the company expects operating margin between 18.5% and 19% for the fiscal year.

COACH INC Price, Consensus and EPS Surprise

 

COACH INC Price, Consensus and EPS Surprise | COACH INC Quote

Obstacles 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. 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 may have an adverse impact on the demand for its products.

Given the pros and cons embedded, the stock currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Investors may consider other stocks such as Boot Barn Holdings, Inc. (BOOT - Free Report) , The Children's Place, Inc. (PLCE - Free Report) and The Gap, Inc. (GPS - Free Report) , all carrying the same rank as Foot Locker. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boot Barn Holdings has a long-term earnings growth rate of 14.5%.

The Children's Place delivered an average positive earnings surprise of 36.3% in the trailing four quarters and has a long-term earnings growth rate of 10.3%.

Gap has a long-term earnings growth rate of 9.4%.

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