Coach (COH) Q4 Earnings Outshine Estimates, Guides FY17

Despite a tough retail environment, volatility in tourist spending and macroeconomic headwinds, Coach, Inc. COH posted better-than-expected fourth-quarter fiscal 2016 results. The adjusted earnings of 45 cents a share beat the Zacks Consensus Estimate of 40 cents, thereby resulting in a positive earnings surprise of 12.5% and marking the tenth straight quarter of earnings beat. The quarterly earnings also increased 45.2% year over year.

Net sales of this New York-based company came in at $1,154.6 million, up 15% year over year, and almost in line with the Zacks Consensus Estimate of $1,154 million. On a constant currency basis, sales of this designer and marketer of fine accessories and gifts grew at an equivalent rate.       

Coach registered positive comparable-store sales at its North American segment buoyed by an increase in online sales. The company’s international operations witnessed robust growth on the back of double-digit increases in Europe and Mainland China, along with sales gains across directly operated operations in Southeast Asia.

Moreover, the company is undergoing a brand transformation and introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman has been accretive to its performance, and is being viewed as a significant step in its efforts toward becoming a multi-brand company. Management highlighted that net sales for the Coach brand aggregated $1.07 billion, while that of the Stuart Weitzman brand totaled $84 million for the quarter.

The 53rd week generated approximately $84 million in sales ($77 million in Coach brand and $7 million in Stuart Weitzman) and increased earnings by 7 cents a share.

Coach Inc. (COH) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Behind the Headlines

Total North American Coach brand sales jumped 9% on both reported and constant currency basis to $606 million. Direct sales climbed 10% on a dollar basis and 11% on a constant currency basis, while comparable-store sales grew 2%. At POS, North American department stores sales dropped at a mid-teens rate, while net sales into department stores fell in high single digits.

International Coach brand sales surged 15% to $450 million from the year-ago quarter figure. On a constant currency basis, International sales advanced approximately 13%. Sales in Greater China rose 10% on a constant currency basis, while in dollar terms the same jumped 5% with double-digit increase and positive comparable-store sales on the Mainland, partly offset by sustained sluggishness across Hong Kong and Macau.

Sales in Japan advanced 7% in dollar terms but fell 5% on a constant currency basis. Sales for the rest of the direct operations in Asia witnessed low-single digits increase in dollars and robust growth on a constant currency basis, while Europe sales remained sturdy, marching at a double-digit rate.

Consolidated gross profit grew 13% to $783 million. However, gross profit margin contracted 120 basis points to 67.8%. Adjusted operating income came in at $175 million, up 39% from the prior-year quarter figure, while operating margin expanded 250 basis points to 15.1%. Management expects operating margin in the band of 18.5% to 19% for fiscal 2017.

Store Update

During the quarter, Coach opened 1 store and closed 15 locations in North America, thereby taking the count to 432. In Japan, total number of locations decreased to 195 due to the closing of 1 store.

In Greater China, the addition of 8 new locations and the closing of 4 stores during the quarter increased the total count to 185. Across Asia (Other), store count decreased to 103 owing to the opening of 2 stores and closing of 4 stores. In Europe, the store count jumped to 39 following the opening of 2 stores. There were 75 Stuart Weitzman stores at the end of the quarter following the opening of 15 stores and closing of 1 location.

COACH INC Price, Consensus and EPS Surprise

COACH INC Price, Consensus and EPS Surprise | COACH INC Quote

Other Financial Details

Coach ended the quarter with cash, cash equivalents and short-term investments of $1,319.4 million, long-term debt of $861.2 million and shareholders' equity of $2,682.9 million.

Guidance

Management envisions low-to-mid single digits increase in fiscal 2017 revenue, including a favorable impact of 100-150 basis points from foreign currency. The company anticipates double-digit growth in both net income and earnings per share for the fiscal year.

Zacks Rank

Currently, Coach carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include American Eagle Outfitters, Inc. AEO, The Children's Place, Inc. PLCE and DSW Inc. DSW all carrying a Zacks Rank #2 (Buy).

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