Coach Stock Climbs On Improved Comps, Revenue & Profit

Coach Inc.’s share price gained nearly 6 percent in midday trading Tuesday following the release of the company’s Q1 earnings.

The firm’s revenues rose 3 percent year-over-year on a constant-currency basis, though they declined 1 percent on a reported basis. While the numbers fell below Wall Street’s forecasts, market watchers said they signal a solid improvement for the company — which has been feeling the heat of competing handbag and luxury leather-goods companies such as Kate Spade & Co., Michael Kors and Tory Burch — compared with previous quarters.

Total North American Coach brand sales decreased 11 percent on a reported basis for the quarter, to $561 million, from $634 million last year, and 10 percent on a constant-currency basis, “reflecting sequential improvement,” the company said.

Net sales for the Stuart Weitzman brand totaled $87.5 million, with gross profit at $50.6 million (on a non-GAAP basis).

“We are pleased with our first-quarter performance, which was consistent with our plan and reflected continued progress on our transformation journey. We drove further sequential improvement in our North America brick-and-mortar business — led, as expected, by our retail stores — with this momentum continuing into the second quarter,” CEO Victor Luis said in a release. “Our international businesses posted moderate growth on a constant-currency basis, highlighted by double-digit increases in Europe and Mainland China, as well as sales gains in Japan. Overall, our results underscore our confidence that the cumulative impact of our actions will result in a return to top-line growth in FY16 and positive North American comps by the end of the year.”

Net Income: Profit for the first quarter, ending Sept. 26, 2015, totaled $96.4 million — including a contribution of $5 million, or 2 cents per share, by Stuart Weitzman — a 19.1 percent decline from the same period last year, when earnings totaled $119.1 million.

EPS: Earnings per diluted share were 35 cents per share, down 18.6 percent from diluted EPS of 43 cents in the comparable quarter.

Net Revenue: Revenues totaled $1.03 billion, a 1 percent decline (reported) over the prior year’s revenues of $1.04 billion.

Hit, Miss or Beat: The earnings missed market watchers’ estimates for revenues and diluted EPS. Analysts polled by Yahoo Finance had predicted revenues of $1.04 billion and diluted EPS of 40 cents. (Coach’s non-GAAP diluted EPS of 41 cents beat market watcher’s estimates).

Executive Insights: “We’ve also been pleased with the Stuart Weitzman integration into the Coach family. During the quarter, Stuart Weitzman performance was 
consistent with our annual guidance. We continue to see Stuart 
Weitzman gain traction internationally, notably in Asia, where the 
brand is still nascent but has significant long-term potential.”
— Luis on Stuart Weitzman, during Q1 conference call.

Looking Ahead: The company is maintaining the FY16 outlook it outlined in August.

Analyst Insights: “We were encouraged that Coach hit our expectation for store comps to accelerate in a category that was decelerating at the end of the June quarter — amid very sluggish trends in the broader U.S. softlines category in the September quarter. While we expect a slow recovery, we think F1Q results continue to support a path to positive [North America] comps by F4Q. Maintain Buy rating.”
— UBS Investment Bank analyst Michael Binetti

“1Q results were solid as [North America] comps of [down] 9.5 percent were in line with Cowen’s [estimates of a 9 percent decline] and beat Street’s [estimates of a 10 percent decline], plus margins solid on in-line gross margin and better SG&A. We also like management reaffirming FY16 guidance.” —Cowen & Co. analyst Oliver Chen

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