A month has gone by since the last earnings report for Coach, Inc. . Shares have added about 8.3% in that time frame, outperforming the market .
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Coach Q3 Earnings Beat, Sales Miss, View Intact
Despite tough retail environment, volatility in tourist spending and macroeconomic headwinds, Coach, Inc. posted better-than-expected third-quarter fiscal 2017 bottom-line results. The adjusted earnings of $0.46 per share beat the Zacks Consensus Estimate by a couple of cents, thereby resulting in a positive earnings surprise of 4.5% and marking the 13th straight quarter of earnings beat. The quarterly earnings also increased roughly 4.5% year over year.
Net sales of this New York-based company came in at $995.2 million, down about 4% on a reported basis and 3% on a constant currency basis. Sales growth were hurt by 150 basis points on account of management’s efforts to elevate the Coach brand’s positioning in the North American wholesale channel by lowering promotional events and door closures. We noted that the top line fell short of the Zacks Consensus Estimate of $1,018 million.
Coach registered fourth consecutive quarter of positive comparable-store sales at its North American segment. The company witnessed healthy growth across directly-operated Europe and Mainland China operations.
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. Management highlighted that net sales for the Coach brand aggregated $915 million (down 4%), while that of Stuart Weitzman brand totaled $80 million (up 1%) for the quarter.
Behind the Headline
Total North American Coach brand sales declined 5% on both reported and constant currency basis to $474 million. Direct sales fell 2%. In spite of the adverse impact of the shift in timing of Easter, both North American aggregate and bricks and mortar comparable store sales jumped about 3%. On both POS and net sales basis, North American department stores sales plunged approximately 40%.
International Coach brand sales decreased 4% to $430 million from the year-ago quarter figure. Sales in Greater China fell 2% in dollar terms but jumped 2% on a constant currency basis attributable to positive comparable store sales and sturdy performance in Mainland China, offset by continued sluggishness witnessed across Hong Kong and Macau.
Sales in Japan advanced 2% in dollar terms but fell 1% on a constant currency basis. Sales for the rest of the direct operations in Asia witnessed low-double digits decline on a reported and constant currency basis, while sales in the directly operated channels in Europe remained sturdy, marching at a double-digit rate on a constant currency basis.
Consolidated gross profit declined 1% to $705.7 million, however, gross margin increased 190 basis points to 70.9%. Adjusted operating income came in at $162 million, up 7% from the prior-year quarter figure, while operating margin expanded 160 basis points to 16.3%. Management continues to expect operating margin in the band of 18.5% to 19% for fiscal 2017.
Store Update
During the quarter, Coach closed 10 locations in North America, thereby taking the count to 424. In Japan, total number of locations was reduced to 184 due to the closure of 7 locations. In Greater China, the addition of 7 new locations and the closing of 1 increased the total count to 197. Across Asia (Other), store count decreased to 103 owing to the opening of 1 store and closing of 2 stores. In Europe, the store count jumped to 47 following the opening of 7 stores. There were 82 Stuart Weitzman stores at the end of the quarter.
Other Financial Details
Coach ended the quarter with cash, cash equivalents and short-term investments of $1,891.9 million, long-term debt of $591.8 million and shareholders' equity of $2,891.9 million.
Guidance
Management continues to envision low-single digits increase in fiscal 2017 revenue, including the impact of currency translation. The company continues to anticipate double-digit growth in both net income and earnings per share for the fiscal year. Interest expense is expected to be about $20 million for the fiscal year.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to six lower. While looking back an additional 30 days, we can see even more downside. There have seven downward revisions in the last two months.
Coach, Inc. Price and Consensus
VGM Scores
At this time, Coach's stock has an average Growth Score of 'C'. However, its Momentum is doing a bit better with a 'B'. The stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
Image: Bigstock
Coach, Inc. (COH) Up 8.3% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Coach, Inc. . Shares have added about 8.3% in that time frame, outperforming the market .
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Coach Q3 Earnings Beat, Sales Miss, View Intact
Despite tough retail environment, volatility in tourist spending and macroeconomic headwinds, Coach, Inc. posted better-than-expected third-quarter fiscal 2017 bottom-line results. The adjusted earnings of $0.46 per share beat the Zacks Consensus Estimate by a couple of cents, thereby resulting in a positive earnings surprise of 4.5% and marking the 13th straight quarter of earnings beat. The quarterly earnings also increased roughly 4.5% year over year.
Net sales of this New York-based company came in at $995.2 million, down about 4% on a reported basis and 3% on a constant currency basis. Sales growth were hurt by 150 basis points on account of management’s efforts to elevate the Coach brand’s positioning in the North American wholesale channel by lowering promotional events and door closures. We noted that the top line fell short of the Zacks Consensus Estimate of $1,018 million.
Coach registered fourth consecutive quarter of positive comparable-store sales at its North American segment. The company witnessed healthy growth across directly-operated Europe and Mainland China operations.
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. Management highlighted that net sales for the Coach brand aggregated $915 million (down 4%), while that of Stuart Weitzman brand totaled $80 million (up 1%) for the quarter.
Behind the Headline
Total North American Coach brand sales declined 5% on both reported and constant currency basis to $474 million. Direct sales fell 2%. In spite of the adverse impact of the shift in timing of Easter, both North American aggregate and bricks and mortar comparable store sales jumped about 3%. On both POS and net sales basis, North American department stores sales plunged approximately 40%.
International Coach brand sales decreased 4% to $430 million from the year-ago quarter figure. Sales in Greater China fell 2% in dollar terms but jumped 2% on a constant currency basis attributable to positive comparable store sales and sturdy performance in Mainland China, offset by continued sluggishness witnessed across Hong Kong and Macau.
Sales in Japan advanced 2% in dollar terms but fell 1% on a constant currency basis. Sales for the rest of the direct operations in Asia witnessed low-double digits decline on a reported and constant currency basis, while sales in the directly operated channels in Europe remained sturdy, marching at a double-digit rate on a constant currency basis.
Consolidated gross profit declined 1% to $705.7 million, however, gross margin increased 190 basis points to 70.9%. Adjusted operating income came in at $162 million, up 7% from the prior-year quarter figure, while operating margin expanded 160 basis points to 16.3%. Management continues to expect operating margin in the band of 18.5% to 19% for fiscal 2017.
Store Update
During the quarter, Coach closed 10 locations in North America, thereby taking the count to 424. In Japan, total number of locations was reduced to 184 due to the closure of 7 locations. In Greater China, the addition of 7 new locations and the closing of 1 increased the total count to 197. Across Asia (Other), store count decreased to 103 owing to the opening of 1 store and closing of 2 stores. In Europe, the store count jumped to 47 following the opening of 7 stores. There were 82 Stuart Weitzman stores at the end of the quarter.
Other Financial Details
Coach ended the quarter with cash, cash equivalents and short-term investments of $1,891.9 million, long-term debt of $591.8 million and shareholders' equity of $2,891.9 million.
Guidance
Management continues to envision low-single digits increase in fiscal 2017 revenue, including the impact of currency translation. The company continues to anticipate double-digit growth in both net income and earnings per share for the fiscal year. Interest expense is expected to be about $20 million for the fiscal year.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to six lower. While looking back an additional 30 days, we can see even more downside. There have seven downward revisions in the last two months.
Coach, Inc. Price and Consensus
Coach, Inc. Price and Consensus | Coach, Inc. Quote
VGM Scores
At this time, Coach's stock has an average Growth Score of 'C'. However, its Momentum is doing a bit better with a 'B'. The stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.