Earnings Preview: Coach - Analyst Blog

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Coach, Inc. ( COH ), the designer and marketer of fine accessories and gifts and an S&P 500 company, is slated to report its first-quarter 2013 financial results on October 23, 2012.

The current Zacks Consensus Estimate of 75 cents a share for the quarter reflects a year-over-year growth of 2.7%. The estimates in the current Zacks Consensus range between a low of 71 cents and a high of 81 cents a share. Revenue, as per the Zacks Consensus Estimate, is $1,159 million for the quarter.

Fourth Quarter 2012, a Recap


Coach's fourth-quarter 2012 earnings of 86 cents a share beat the Zacks Consensus Estimate by a penny, and increased 27% from 68 cents earned in the prior-year quarter buoyed by healthy top-line growth on the back of strong sales in China.

The New York based company reported net sales for the quarter at $1,155.2 million, up 12% from the year-ago quarter, but below the Zacks Consensus Estimate of $1,197 million.

Management remains confident of sustaining double-digit growth in both top and bottom lines in fiscal 2013.The company remains optimistic about its unisex Legacy lifestyle collection, dedicated Men's stores and international growth opportunities to counter the soft consumer scenario in North America and sluggish economic environment.

Coach's Men's business grew more than $400 million in fiscal 2012 on a global basis. Management anticipates Men's business to be a major growth driver, with 25% or more of the company's growth coming from it in the upcoming years.

(Refer the article: Coach Beats by a Penny )

Estimate Revisions Trend

Agreement

We do not see any major estimate revisions at this point. Only one out of 24 analysts covering the stock revised the estimate downwards in the last 7 and 30 days, and none raised the same for the first quarter of 2013. For fiscal 2013, one analyst moved up the estimate and 2 analysts lowered the same in the last 30 days. None of the analysts revisited their estimates in the last 7 days.    

Magnitude

No movement was noticed in the Zacks Consensus Estimates for the first quarter as well as for fiscal 2013 either in the last 7 or 30 days, and remained constant at 75 cents and $3.85 respectively. Most of the analysts remained constructive on the stock based on the company's growth prospects and kept their estimates intact, in the absence of any major news having a direct or an indirect impact on the stock.

Positive Earnings Surprise History

With respect to earnings surprises, Coach topped the Zacks Consensus Estimates over the last four quarters in the range of a low of 1.2% to a high of 4.3%, with an average of 2.7%. 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.

Our Take

Coach boasts of 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.

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 pioneer position may be compromised by delays in its product launches.

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



COACH INC (COH): Free Stock Analysis Report

RALPH LAUREN CP (RL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: COH , RL

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