) posted lower-than-expected second-quarter fiscal 2013 results.
The quarterly earnings of $1.23 per share fell short of the Zacks
Consensus Estimate of $1.29 but rose from $1.18 earned in the
The news was not welcomed by the market, as the shares of this
Zacks Rank #3 (Hold) designer and marketer of fine accessories
and gifts nosedived 15.6% or $9.48 to $51.20 during pre-market
Management cited that the challenging macroeconomic conditions
and intense promotional strategies undertaken by competitors in
the women's handbag category muted the company's performance in
North America. However, international results remained a bright
spot in the quarter.
The New York-based Coach said that net sales for the quarter
came in at $1,503.8 million, up 4% from the year-ago quarter but
came below the Zacks Consensus Estimate of $1,605 million. On a
constant currency basis, sales increased 5%.
Behind the Headline
Total North American sales inched up 1% to $1.08 billion.
Direct-to-consumer sales increased 2% but comparable-store sales
declined 2%. At POS, North American department stores sales
remained marginally below compared with prior-year quarter,
whereas shipments into department stores dropped.
International sales surged 12% year-over-year to $411 million.
China business sustained its strong performance as sales soared
about 40% with a double-digit rate increase in comparable-store
sales. International wholesale shipments fell marginally, whereas
sales trends across POS remain sturdy. Sales in Japan edged down
2%, excluding foreign currency translation, whereas in dollar
terms, sales tumbled 7% from the year-ago quarter.
The rise in total sales was a positive indication for the
luxury-goods market, battered by the recent economic upheaval.
Coach's sustained focus on store sales productivity,
merchandising, and marketing and strategic pricing have helped it
remain afloat in a difficult consumer environment.
Going forward, the company remains optimistic about its unisex
Legacy lifestyle collection, dedicated Men's stores and
international growth opportunities to counter the soft consumer
scenario. Management expects to attain more than $600 million in
sales worldwide from its Men's business and at least $400 million
in sales in China in fiscal 2013.
Gross profit jumped 4% to $1,085.4 million spurred by top-line
growth; however, gross profit margin remained flat but robust at
72.2%. Adjusted operating income rose 1% to $526.6 million but
operating margin contracted 100 basis points to 35%.
As a part of its strategy to directly control certain Asian
markets, Coach is now directly operating domestic retail
businesses in Singapore and Taiwan. The company also had acquired
its Malaysian and Korean retail business.
During the quarter, Coach opened 15 factory stores, including
4 Men's factory stores, and 2 retail stores, thereby taking the
total to 189 factory stores and 356 retail stores in North
America. In Japan, the company opened 5 net outlets bringing the
total number of locations at 193.
In China, an addition of 13 new locations during the quarter
took the total to 117. As a result of the acquisitions of retail
businesses in Singapore, Taiwan, Malaysia and Korea, the company
now operates 7, 27, 10 and 48 locations, respectively.
Other Financial Details
Coach, which competes with
Ralph Lauren Corporation
), maintains a healthy balance sheet with a significant cash
balance and a negligible debt load. The company also has been
proactively managing its cash flows by making prudent capital
investments and enhancing shareholders' return. The company's
strong liquidity, positions it to drive future growth.
The company ended the quarter with cash, cash equivalents and
short-term investments of $858.7 million and total long-term debt
of $22.7 million with shareholders' equity of $2,082.3
Coach also notified that it bought back approximately 4
million shares at a cost of $56.63 per share, aggregating $225
million during the quarter. At the end of the quarter, the
company still has approximately $1.4 billion at its disposal
under its share repurchase authorization.
Other Stocks Worth Considering
Other stocks worth considering in the textile, apparel,
footwear industry are
G-III Apparel Group, Ltd.
) holding a Zacks Rank #1 (Strong Buy) and
) holding a Zacks Rank #2 (Buy). We expect both the stocks to
continue with their upbeat performance.
COACH INC (COH): Free Stock Analysis Report
G-III APPAREL (GIII): Free Stock Analysis
HANESBRANDS INC (HBI): Free Stock Analysis
RALPH LAUREN CP (RL): Free Stock Analysis
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