We reaffirm our long-term Neutral recommendation on
) with a target price of $53.00 following the company's soft
second-quarter fiscal 2013 results that were offset by the
company's growth initiatives. The stock also retains a Zacks Rank
Tough macroeconomic conditions and intense promotional
strategies undertaken by competitors in the women's handbag
category muted Coach's performance in North America that resulted
in lower-than-expected second-quarter fiscal 2013 results. The
quarterly earnings of $1.23 per share missed the Zacks Consensus
Estimate of $1.29 but rose from $1.18 in the prior-year
Net sales of $1,503.8 million also came below the Zacks
Consensus Estimate of $1,605 million but rose 4% year over year.
International segment remained robust in the quarter with sales
rising by 12%. China business sustained its strong performance as
sales soared about 40% with a double-digit rate increase in
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 helped it
remain afloat in a difficult consumer environment.
The company remains optimistic about its dual-gender Legacy
lifestyle collection, dedicated men's stores and international
growth opportunities to counter the soft consumer scenario. The
company is also aggressively expanding its e-Commerce platform.
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.
Store expansion strategy remains on the cards for Coach. In
North America, Coach plans to open 25 net new stores. On the
international front, it plans to add 30 new outlets in China and
10 net new stores in Japan. The company through distributor
partners plans to augment business opportunities in Australia,
Thailand, Vietnam, Indonesia, Brazil, Venezuela, Colombia,
Panama, Chile, Peru and Kuwait. In Europe, the company expects to
enhance its operations.
The company's long-term growth drivers also include expansion
of its global distribution model and venturing into
under-penetrated markets. Moreover, a healthy balance sheet
augurs well for future growth. However, we remain concerned about
erratic consumer behavior and soft economic recovery.
Other Stocks Worth Considering
Other stocks worth considering in the textile, apparel
G-III Apparel Group, Ltd.
Gildan Activewear Inc.
), all of which hold a Zacks Rank #2 (Buy). The stocks are
expected to continue with their upbeat performances and sustain
their positive earnings surprise trend.
COACH INC (COH): Free Stock Analysis Report
G-III APPAREL (GIII): Free Stock Analysis
GILDAN ACTVWEAR (GIL): Free Stock Analysis
HANESBRANDS INC (HBI): Free Stock Analysis
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