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How Will Coach Close Out Its Financial Year?

Coach is holding a conference call to report its fourth quarter and financial year 2016 earnings on August 9, 2016.

Factors To Consider:

1) Collaboration With Disney

  • Coach teamed up with Disney for range of handbags, t-shirts, and sneakers, featuring the world's most iconic mouse.
  • It debuted in New York and Paris on June 10th, followed by its other stores on June 17th.
  • Since the launch, several items have sold out online, including all four colors of the $395 kisslock handbags, designed in the shape of Mickey's ears, and $1,500 leather dolls and bean bags.
  • Such limited editions help prevent discounting in order to move inventory, which would result in lowering the brand value.

2) Reduced Spending On Handbags

  • Coach is heavily reliant on its handbags and handbag-related products, which constitute 80% of its sales.
  • If this category slows down, it would be hard for the company to turnaround its business.
  • According to a recent survey, 24% of consumers expect to spend less on handbags in 2016, higher than the percent expecting to spend less on other luxury items.
  • Coach also realizes 60% of its sales from outlets, which makes it hard to wean the company off discounting.

Highlights Of The Previous Quarter:

1) Turnaround of Coach's North American Business

  • Same-store sales at the retail stores were unchanged, after a number of quarters of negative comps, representing the fourth consecutive quarter of improvement.
  • While store and mall traffic were soft, due to increased internet sales, more was spent per customer versus a year prior.
  • Positive comps were seen in the renovated luxury concept retail outlets.
  • Low single-digit growth in the North American premium women's handbag and accessories market.
  • Higher premium handbag purchases, as compared to six months ago.
  • The above $400 price bracket rose in penetration, and forms ~40% of handbag sales, up from ~30% last year.
  • Handbag AUR (Average Unit Retail) has risen to over $300 in the quarter, for the first time since FY 2009.

2) Chinese Market And Chinese Tourists Driving International Sales

  • Greater China third quarter sales increased 2%.
  • This was driven by double-digit growth and positive comps on the Mainland, offset by weakened markets in Hong Kong and Macau due to a slowdown in inbound tourist traffic from the Mainland.
  • Annual sales forecast of $600M, reflecting continued softness in Hong Kong and Macau.
  • Decline in Chinese tourists to North America and Europe, notably France, affected performance there.
  • Growth in Chinese tourist spending in Japan, Korea, and Southeast Asia resulted in high growth.
  • Japan sales grew by 7% on a constant currency basis, benefiting from increased Chinese tourist traffic and a positive response to the new modern luxury stores.

Have more questions on Coach? See the links below:

  • What Will Be Coach's Revenue And EBITDA Breakdown In 2016?
  • How Will Coach Perform In 2016?
  • What Will Be The Impact of Coach's Collaboration With Disney?
  • How Has Coach's Revenue Per Square Foot Changed Over The Years?
  • What Percentage Of Coach's Stock Price Can Be Attributed To Growth?
  • Why Are We Bullish On Coach?
  • What Has Resulted In A Decline In North American Net Sales And A Rise in International Sales For Coach So Far In FY 2016?
  • Coach's Strong Presence In China To Help The Company In The Future
  • How Did the Different Segments Of Coach Perform In Q3 2016?
  • How Has The Transformation Plan Affected Coach's North American Retail Store Count?
  • Coach Q3 2016 Earnings And Revenue Beats Expectations
  • What To Expect From Coach In Q3 FY 2016?
  • Is Coach's Transformation Plan Working?
  • What Is The Breakdown Of The Charges Associated With Coach's Transformation Plan?
  • Coach: Year 2015 In Review
  • Is The Men's Segment Becoming Big Business For Coach?
  • How Will Coach's Revenue And EBITDA Change In The Next 3 Years?
  • What Is Coach's Fundamental Value Based On Expected 2016 Results?

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Coach .

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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 Nasdaq, Inc.


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

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