Update: Coach Earnings

Aug.13.14 | About: Coach, Inc. (COH)

Summary

The company beat on the top and bottom lines.

The recent weakness by Kors and strength by Coach reaffirms our thesis that shares of Coach might be the best performer of the two in the interim.

We felt the company was poised for an earnings beat and note that it's on track with its China growth and men's business development.

Coach (NYSE:COH) managed to post fiscal 4Q earnings of $0.59 a share (beating consensus of $0.53) and revenues marginally beat consensus. The stock is up close to 5% since announcing earnings. 4Q North American sales were down 16% y/y and down 11% for all of fiscal 2014. Meanwhile, international sales were up 7% during the quarter and up 6% for the year. The big bright spot remains China, with sales in the region up 20% for 4Q and up 25% for the full year.

Its gross profit rate was 69.4%, which was well above what Kors has been managing. Its inventory was also only up 0.4% y/y, while Kors' inventory soared over 60% y/y for the same quarter. But overall, the quarter capped off a tough year for the stock. Full year fiscal 2014 revenues were down 5% y/y and EPS was down 17% y/y. Shares are down 25% since we covered Coach back in February and down 33% for the past year. As we noted in our earlier article,

Coach still resonates with customers based on its quality and brand name alone...I look for the company to accelerate the transition to a lifestyle brand by adding clothing and footwear. Lifestyle is a $30 billion business, with the footwear/outerwear market being as large as the handbag market...along those lines, Coach has launched its Legacy Lifestyle connection for men and women. With the help of this, the men's business should generate $700 million in fiscal 2014 and touch $1 billion in three years.

Management pointed out with 4Q earnings that its Men's business hit $700 million globally and it generated over $500 million in sales from China. The company also boasted its strong men's business, but believes it might be until fiscal 2017 that it generates $1 billion a year in sales.

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