Coach's Earnings Miss Estimate - Analyst Blog
Coach, Inc. ( COH ) posted second-quarter fiscal 2014 earnings of $1.06 per share that missed the Zacks Consensus Estimate of $1.11, and tumbled 13.8% from $1.23 delivered in the prior-year quarter.
The New York-based Coach said that net sales for the quarter came in at $1,419.6 million, down about 6% from the year-ago quarter and also fell short of the Zacks Consensus Estimate of $1,501 million due to softness in North American market. On a constant currency basis, sales decreased 3%.
Management stated that sluggishness in North American women's bag and accessories business offset sturdy growth witnessed in Men's, footwear and strong results across Asian and European markets.
Investors do not appear impressed with Coach's results, thus shares of this designer and marketer of fine accessories and gifts fell 6.8% or $3.55 to $49.00 during pre-market trading hours.
Behind the Headline
Total North American sales fell 9% to $983 million. Direct-to-consumer sales decreased 8%, while comparable-store sales dropped 13.6%. At POS, North American department stores sales remained marginally below compared with prior-year quarter, whereas shipments into department stores also dropped.
International sales rose 2% to $425 million in the year-ago quarter. On a constant currency basis, International sales jumped approximately 11%. China business sustained its strong performance as sales surged about 25% with a double-digit rate increase in comparable-store sales.
In China, the company remains on track to meets its sales guidance of about $530 million for the year. International wholesale shipments increased considerably, whereas sales trends across POS rose marginally. Sales in Japan dipped 2% on a constant currency basis, whereas in dollar terms, sales tumbled 21% from the year-ago quarter due to softer yen.
Gross profit fell 9.5% to $982.7 million, whereas gross profit margin contracted 300 basis points to 69.2%. Operating income came in at $435.9 million, down 17.2% from the prior-year quarter, while operating margin shriveled 430 basis points to 30.7%.
During the quarter, Coach, the maker of handbags, wallets, shoes and other accessories, opened 8 stores in North America, thereby taking the count to 556. In Japan, total number of locations remained at 196.
In China, addition of 10 new locations during the quarter took the total to 142. Across Asia (Other) the company opened 4 locations taking the total to 98. Coach also acquired the remainder stake in the company's European joint venture, and opened 4 stores resulting in total count of 24 stores.
Other Financial Details
Coach 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 $798.8 million and current portion of long-term debt of $485,000 with shareholders' equity of $2,430.7 million.
During the quarter, the company bought back 3.3 million shares at a cost of $52.99 per share, aggregating $175 million. The company still has approximately $1 billion remaining at its disposal under its current share buyback program.
Other Stocks Worth Considering
Currently, Coach holds Zacks Rank #4 (Sell). Other stocks worth considering in the retail sector are G-III Apparel Group, Ltd. ( GIII ) holding a Zacks Rank #1 (Strong Buy), and Columbia Sportswear Co. ( COLM ) and Gildan Activewear Inc. ( GIL ) both sporting Zacks Rank #2 (Buy).
COACH INC (COH): Free Stock Analysis Report
COLUMBIA SPORTS (COLM): Free Stock Analysis Report
G-III APPAREL (GIII): Free Stock Analysis Report
GILDAN ACTVWEAR (GIL): Free Stock Analysis Report
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