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The Zacks Analyst Blog Highlights: Coach, Polo Ralph Lauren, Lithia Motors, AutoNation and Penske Automotive Group

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For Immediate Release

Chicago, IL – July 27, 2012 – announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Coach, Inc. , Polo Ralph Lauren Corporation (RL - Free Report) , Lithia Motors (LAD - Free Report) , AutoNation Inc. (AN - Free Report) and Penske Automotive Group Inc. (PAG - Free Report) .


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Here are highlights from Thursday’s Analyst Blog:


Earnings Preview: Coach

Coach, Inc. , the designer and marketer of fine accessories and gifts and an S&P 500 company, is slated to report its fourth-quarter and fiscal 2012 financial results on July 30, 2012.


The current Zacks Consensus Estimate of 85 cents a share for the quarter reflects year-over-year growth of 25%. The estimates in the current Zacks Consensus range between a low of 82 cent and a high of 88 cents a share. The Zacks Consensus revenue estimate stands at $1,199 million for the fourth quarter.


Third Quarter Recap

Coach posted better-than-expected third-quarter 2012 results. Quarterly earnings of 77 cents a share beat the Zacks Consensus Estimate by a couple of cents, and increased 24% from 62 cents earned in the prior-year quarter, buoyed by strong top-line growth.


The New York based company reported net sales of $1,109 million in the quarter, up 16.6% year over year and ahead of the Zacks Consensus Estimate of $1,101 million.


Coach remains optimistic about its dedicated men's stores, and expects the Men’s business to increase two fold to more than $400 million in fiscal 2012 on a global basis. Moreover, management remains confident of sustaining double-digit growth in both top and bottom lines in fiscal 2012.


(Refer the article: Coach Beats, Ups Dividend)





Zacks Agreement & Magnitude


For fourth-quarter 2012, out of 21 estimates, one estimate was revised downwards over the last 7 and 30 days, whereas no upward revisions were noticed. For the fiscal year 2012, one estimate (out of 23) was lowered with no upward revision in the last 7 days. In the last 30 days, one estimate went up while two were trimmed.


For the to-be-reported quarter, the estimate remained constant at 85 cents over the last 7 and 30 days.


Positive Earnings Surprise History

With respect to earnings surprises, Coach has topped the Zacks Consensus Estimates over the last four quarters in the range of a low of 2.6% to a high of 4.6%, with the average at 3.6%. This implies that Coach has outperformed the Zacks Estimates by the same magnitude over the last four quarters and we believe that the company will continue to post better-than-expected results in the coming quarters.


Neutral on Coach

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


The company’s long-term growth drivers include expansion of its global distribution model and entry into under-penetrated markets. The company lays more emphasis on globalization and accelerated international distribution growth.


Coach maintains a healthy balance sheet with a significant cash balance and negligible debt load. The company also has been proactively managing its cash flows by making prudent capital investments and enhancing shareholder returns. The company’s strong liquidity positions it well to drive future growth.


However, Coach sells products that are discretionary in nature. Its customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability. Therefore, we remain concerned about erratic consumer behavior and a sluggish recovery in the economy.


Fashion obsolescence remains another concern for Coach’s business model, which requires sustained focus on product and design innovation. The company’s pioneering position may be compromised by delays in its product launches.


Coach, which competes with Polo Ralph Lauren Corporation (RL - Free Report) , carries Zacks #3 Rank, implying short-term Hold rating for the next 1-3 months. We maintain our long-term Neutral recommendation on the stock.



Lithia Profits Swell 41%

Lithia Motors (LAD - Free Report) posted its second-quarter 2012 earnings per share of 76 cents, up 41% from 54 cents in the comparable quarter of 2011 (excluding all special items). With this, it surpassed the Zacks Consensus Estimate by 12 cents.


In absolute terms, profits escalated 38% to $19.9 million from $14.4 million in the year-ago quarter. Meanwhile, reported earnings were $20.5 million or 78 cents per share compared with $14.7 million or 55 cents.

The company’s revenues for the quarter came in at $847.1 million, up 26% compared with $672.5 million in the year-ago quarter. The growth in revenues was driven by strong retail new vehicle sales and higher revenues from finance and insurance business. Revenues were higher than the Zacks Consensus Estimate of $773 million.

Revenues from new vehicle sales surged 35.3% to $470.4 million. New vehicle retail sales increased 34.3% to 14,406 units. However, revenues per vehicle increased marginally to $32,655.

On a same-store basis, revenues from new vehicles retailed went up 33.9% to $454.4 million. New vehicle retail sales went up 32.9% to 13,939 units, with revenues per vehicle increasing 0.7% to $32,602.

Revenues from used vehicles retailed went up 20.5% to $212.8 million and wholesale vehicles escalated 23.8% to $36.1 million. Used vehicle retail sales improved 18.2% to 11,923 units and wholesale vehicles boosted 22.7% to 4,621 units. Revenues per used vehicle retailed were $17,845 and revenues per used vehicle wholesaled were $7,808 during the quarter.

Same store revenues for used vehicles retailed were up 19.8% to $205.8 million and used vehicles wholesaled improved 23.5% to $34.8 million. Same store used vehicles retailed increased 17.3% to 11,546 units and wholesale vehicles grew 22.1% to 4,497 units.

Revenues from service body and parts went up 9.4% to $88.6 million. Meanwhile, the company’s finance and insurance business witnessed a 33.4% growth in revenues to $27.9 million.

Gross profit increased 18% to $138.2 million from $117.1 million in the year ago quarter. SG&A expenses hiked 16.2% to $96.2 million from $82.8 million a year ago. Gross profit per new vehicle retailed decreased 7.9% to $2,404 while gross profit per used vehicle retailed declined marginally to $2,662. However, finance and insurance gross profit per vehicle retailed rose 5.5% to $1,059.

Operating income swelled 27.3% to $37.8 million from $29.7 million recorded in the second quarter of 2011. However, operating margin went up marginally to 4.5% from 4.4% in the last year.

Share Repurchase

During the quarter, Lithia repurchased 741,092 shares of Class A common stock for $24.23 per share. During the last six months, the company has repurchased 823,092 shares for $24.17 each. The company’s Board of Directors authorized an additional repurchase of 1 million shares. The company has approximately 1,879,853 shares remaining for repurchase.

Financial Details

Lithia Motors had cash and cash equivalents of $16.2 million as of June 30, 2012, down from $20.9 million as of December 31, 2011. Total debt was $232.5 million as of June 30, 2012 compared with $286.9 million as of December 31, 2011.

The company had an operating cash outflow of $152.0 million in the first six months of 2012 compared to cash outflow of $17.2 million in the corresponding period of 2011.


Lithia Motors expects earnings in the range of 74 cents to 76 cents per share for the third quarter of 2012 and $2.69 to $2.75 for the full year 2012. The company expects revenues between $3.2 billion and $3.3 billion for 2012, with a 22% increase in new vehicle same store sales and a 16% rise in used vehicle same store sales. The company expects that capital expenditure will amount to $48 million for 2012.

Our Take

Lithia Motors is the ninth largest automotive retailer in U.S. With 85 stores in 11 states, the company provides 27 new vehicle brands along with all brands of used vehicle. It competes with AutoNation Inc. (AN - Free Report) and Penske Automotive Group Inc. (PAG - Free Report)

The acquisition of Chevrolet Cadillac store in Bellingham, Washington and GMC and Buick franchises in Fairbanks, Alaska, is expected to boost the company’s earnings in the future. Currently, Lithia retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.




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