Yahoo Finance Coach's (COH) Strategic Endeavors Bode Well for the Stock
Coach, Inc. COH has undertaken transformational initiatives revolving around products, stores and marketing to pull itself back on the growth trajectory and emerge as a multi-brand company.
Growth Drivers
As one of the leading American marketers of fine accessories and gifts, Coach boasts a proven strategy of investing in stores to enhance their sales output through product innovation, a compelling pricing strategy, new merchandise assortments and a cost-effective global sourcing model. We believe that these strategies will help drive comparable-store sales and operating margins in the long term. The company’s growth drivers include expansion of global distribution model and venturing into under-penetrated markets.
Coach, which shares space with Lululemon Athletica Inc. LULU, Columbia Sportswear Company COLM and Delta Apparel, Inc. DLA is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman has been accretive to performance and is being viewed as a significant step in its efforts toward becoming a multi-brand company. Further, it remains optimistic about dual-gender Legacy lifestyle collection, dedicated men's stores and international growth opportunities. Additionally, the company is aggressively expanding its eCommerce platform.
The company’s strategic endeavors helped it post 12th straight quarter of positive earnings surprise when it reported second-quarter fiscal 2017 results, wherein both the top line and bottom line grew year over year. Moreover, Coach registered positive comparable-store sales at its North American segment for the third straight quarter. Moreover, the company’s international operations witnessed robust growth. Management continues to project double-digit growth in earnings per share during fiscal 2017. Further, the company expects operating margin between 18.5% and 19% for the fiscal year.
In the past six months, the company’s shares have gained 3.3%, outperforming the Zacks categorized Textile-Apparel Manufacturing industry's decline of 20.2%.
Obstacles to Overcome
Due to strengthening of the U.S. dollar, management now envisions low-single digit increase in fiscal 2017 revenue, including an expected unfavorable impact of 50 basis points (bps) from foreign currency. Earlier, the company had projected low-to-mid single digits increase in revenue, including a favorable impact of 100–150 bps from foreign currency.
Coach expects third-quarter nominal revenue to be under pressure owing to adverse currency fluctuations; calendar shift in North America, with Easter falling in the fourth quarter this year compared with the third quarter in the last fiscal year; lowering promotional events and door closures with respect to North American wholesale channel. Further, the company anticipates to be impacted by an expected shift in Coach international wholesale shipment timing into the fourth quarter from the third quarter.
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