Can Coach Continue Its Positive Earnings Surprise Streak?

October 31st, 2016 by Trefis Team
COH: Coach logo
COH
Coach

Coach (NYSE:COH) is expected to announce its first quarter earnings on November 1, 2016. The company is undergoing a massive business transformation, and is in the process of converting many of its stores into a modern luxury concept. The acquisition of the Stuart Weitzman brand has also proved to be successful. These efforts are likely to have a positive impact in the quarter, with expectations of a close to 4% increase in revenue and an almost 10% rise in the EPS, as compared to the same quarter last year.

Coach Pre Q3 Earnings - 1 Coach Pre Q3 Earnings - 2

See our complete analysis for Coach here

The biggest news to come out of Coach’s Q4 and FY 2016 results was the return to positive comparable sales in its North American segment. This was for the first time since the third quarter of 2013, representing the seventh sequential improvement since the transformation plan was implemented by the company. This was driven by growth in the direct business, and actions to elevate the brand positioning and streamline the distribution, given the highly promotional nature of its department store channel. The company’s 1941 collection and its Disney collaboration resonated well with consumers, and revenue in the women’s segment reaped its benefits, along with the company’s leather goods. A majority of the renovated luxury concept stores’ comparable sales exceeded those of its other stores, with a further 165 converted in the quarter, taking the total up to 300 for the financial year and 450 overall. The company also noted a low single digit increase in the North American premium women’s handbag and accessories market, with Coach attaining a share of 16%, down from 17% a year ago. The company’s above $400 price bracket rose in penetration, and constituted 40% of its handbag sales, up from 30% last year.

NA Comps- Coach

Coach teamed up with Disney for a range of handbags, t-shirts, and sneakers, featuring the world’s most iconic mouse. This collection debuted in New York and Paris on June 10th, followed by its other stores on June 17th. Such limited editions help prevent discounting in order to move inventory, which would otherwise lower the brand value. One of the reasons for a successful third quarter was the positive response to its Coach X Peanuts collaboration, also called the Snoopy collection. During the third quarter conference call, Victor Luis, Coach’s CEO, mentioned the “exceptional response to the snoopy fashion vignette,” implying a positive reaction by customers to the company’s innovation and novelty. While Peanuts and Snoopy are well-liked, their level of popularity can’t be compared with that of Mickey Mouse. Hence, we can expect the Disney collaboration to give a boost to the top line in FY 2017, which began in July of this year.

 

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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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