Coach Tops Estimates; Shares Flop on Soft Guidance

Luxury retailer Coach Inc. reported strong gains in its net income and revenue in its recent quarter (F1Q08), driven by strong sales of its fall handbag line. The company topped consensus analyst estimates for both EPS and sales, but shares dropped 6.4% in pre-market trading (as of 7:48 AM ET) on soft forward guidance. By the numbers, net income rose 23% to $154.8 million, good for EPS of $0.41, versus $0.34 a year ago. Sales climbed 28% to $676.7 million, versus $529.4 million in the previous-year period. Consensus estimates were for EPS of $0.40 on sales of $658.6 million. U.S. same-store sales rose 19.3%; Coach opened 13 new North American retail locations, as well as three new factory stores. CEO Lew Frankfort was enthusiastic about his company's latest performance: "Our excellent quarterly performance against a weakening retail landscape reflects the strength of our brand and consumers' embrace of our new products." However, the company added it saw weak traffic in its U.S. retail stores during the last several weeks. Looking toward the holiday season, Frankfort expressed concern with "recent traffic trends in our North American retail stores reflecting the retail environment and the unusually difficult comparisons with last year." Thus, Coach has decided "it's prudent to be more conservative in our comparable store sales guidance for the balance of the fiscal year." To that end, Coach sees F2Q08 sales of $970 million on EPS of $0.68; Wall Street expects, on average, EPS of $0.70 on sales of $984 million during the current quarter. The earnings call is scheduled for 8:30 AM ET Tuesday (full transcript later today).

Sources: Press Release, Wall Street Journal, Bloomberg, Reuters, AP
Commentary: Coach Calls a Time-Out for the Aspirational American Consumer • The Short Case on Coach • Cramer on COH
Stocks to watch: COH. ETFs: PEZ, XGC
Earnings call transcript: Coach F4Q07 (Qtr End 6/30/07)

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