Zacks Investment Research downgraded Coach, Inc. (COH) to a Zacks Rank #5 (Strong Sell) on Jun 24, 2014, following the company’s dismal third-quarter fiscal 2014 performance. Shares of this designer and marketer of fine accessories and gifts have dropped 25% since the earnings announcement on Apr 29.
Why the Downgrade?
Estimates for Coach have been portraying a downtrend since the company delivered third-quarter results. The New York-based company disappointed on the sales front that declined 7% to $1,099.6 million — after decreasing 6% during the second quarter — due to sluggishness in the North American market. Sales also fell short of the Zacks Consensus Estimate of $1,134 million.
Management stated that torpidity in the North American women’s bag and accessories business offset sturdy growth witnessed in men’s, footwear and strong results across Asian and European markets. Adverse weather conditions and a shift in the Easter holiday also impacted results. Coach witnessed lower footfall in stores, while online results were unfavorably impacted by the company’s decision to eliminate third party events and restrict the access to factory flash site.
Fashion obsolescence remains a major concern for Coach’s business model, which involves a sustained focus on product and design innovation. The company’s pioneering position could be affected by delays in product launches as it operates in the highly competitive premium handbag and accessories segment.
However, what is still providing some cushion is the better-than-expected bottom-line result, wherein earnings of 68 cents a share beat the Zacks Consensus Estimate by 7.9% but tumbled 19% year over year.
The Zacks Consensus Estimate has been portraying a downtrend as analysts became less constructive on the stock’s future performance. Estimates for fiscal 2014 and 2015 dropped 3.2% and 19.5% to $3.05 and $2.76 per share, respectively.
Other Stocks to Consider
Other better-ranked retail stocks that look promising and are expected to continue with their upbeat performance include Columbia Sportswear Company (COLM), Hanesbrands Inc. (HBI) and V.F. Corporation (VFC) all holding a Zacks Rank #2 (Buy).
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