Being a leading American marketer of fine accessories and gifts, Coach Inc. (COH) boasts of a proven strategy of investing in stores to enhance store sales productivity through product innovation, compelling pricing strategy, new merchandise assortments, and a cost-effective global sourcing model, which should help drive comparable-store sales and operating margins in the long term.
Management remains confident of sustaining double-digit growth momentum in both top and bottom lines, after posting better-than-expected fourth-quarter 2011 results on the back of healthy sales in North America and China.
The quarterly earnings of 68 cents a share beat the Zacks Consensus Estimate of 65 cents, and came ahead of 64 cents earned in the prior-year quarter buoyed by strong top-line growth. Coach said that total net sales for the quarter came in at $1,031.7 million, up 8.5% from the year-ago quarter, and outdid the Zacks Consensus Estimate of $1,013 million.
Coach’s long-term growth drivers include expansion of its global distribution model and entry into under-penetrated markets. It is also investing in rapidly growing emerging markets, such as China, to increase its brand awareness.
Coach maintains a healthy balance sheet with significant cash balance and negligible debt load. The company also has been proactively managing its cash flows by making prudent capital investments and enhancing shareholders’ return. The company’s strong liquidity positions it to drive future growth.
The company ended fourth-quarter 2011 with cash, cash equivalents and short-term investments of $702 million and total long-term debt of $24.2 million with shareholders’ equity of $1,612.6 million. Coach also notified that it bought back approximately 6.3 million shares at a cost of $60.08 per share, aggregating $381 million during the quarter.
Coach sells products that are discretionary in nature. The company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.
Fashion obsolescence remains the main concern for Coach’s business model, which requires sustained focus on product and design innovation. The company’s pioneering position may be compromised by delays in its product launches.
Given the pros and cons, we prefer to have a long-term Neutral recommendation on the stock. However, Coach, which competes with Polo Ralph Lauren Corporation (RL), holds a Zacks #2 Rank that translates into a short-term Buy rating, and reflects the company’s optimistic attitude of accomplishing double-digit growth in both top and bottom lines going forward.
COACH INC (COH): Free Stock Analysis Report
RALPH LAUREN CP (RL): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment