Coach, Inc. (COH) posted second-quarter fiscal 2015 earnings of 72 cents a share that came ahead of the Zacks Consensus Estimate of 65 cents thus providing much impetus to the stock that rose 4.2% during pre-market trading hours. The company is undergoing a brand transformation and is introducing modern luxury concept stores in key markets.
However, what came as a drawback was that the earnings per share plunged 32.1% from the year-ago quarter hurt by fall in net sales. Net sales of this New York-based company came in at $1,219.4 million that fell short of the Zacks Consensus Estimate of $1,230 million, and also declined 14.1% year-over-year.
On a constant currency basis, sales of this designer and marketer of fine accessories and gifts decreased 12%. North American business remained sluggish, however, comparable-store sales portrayed a sequential improvement. Coach is underway to streamline its North American operations. Also, the company inked a deal to acquire luxury footwear brand Stuart Weitzman to diversify its business.
Behind the Headline
Total North American sales fell 20% to $785 million. Direct-to-consumer sales also decreased at an equivalent rate, while comparable-store sales dropped 22% following a 24% decline in the first quarter. At POS, North American department stores sales fell at a high-teens rate, whereas shipments into department stores also decreased.
International sales edged down 1% to $421 million over the year-ago quarter. On a constant currency basis, International sales jumped approximately 5%. China business continued its strong performance as sales surged 13% on a constant currency basis and 12% in dollar terms with an increase in comparable-store sales.
International wholesale shipments and sales across POS rose. Sales in Japan fell 7% on a constant currency basis, whereas in dollar terms, sales dropped 18% from the year-ago quarter due to a soft yen. Sales for the remainder direct operations in Asia increased marginally on a constant currency basis, while Europe remained sturdy marching at a double digit rate.
Adjusted gross profit fell 14.4% to $841 million, whereas gross profit margin contracted 20 basis points to 69%. Adjusted operating income came in at $299 million, down 31.4% from the prior-year quarter, while operating margin fell 620 basis points to 24.5%.
Store Update
During the quarter, Coach closed 8 stores in North America, thereby taking the count to 532. In Japan, total number of locations increased to 200 due to the opening of 1 store.
In China, the addition of 6 new locations during the quarter took the total to 161. Across Asia (Other), store count remained 97. Coach also acquired the remainder of the stake in the company's European joint venture, and opened 3 stores, resulting in a total count of 31 stores.
Other Financial Details
Coach ended the quarter with cash, cash equivalents and short-term investments of $1,064.9 million, current debt of $20 million and shareholders' equity of $2,518 million.
Zacks Rank
Currently, Coach holds a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include G-III Apparel Group, Ltd. (GIII) with a Zacks Rank #1 (Strong Buy), as well as L Brands, Inc. (LB) and Lululemon Athletica Inc. (LULU) with a Zacks Rank #2 (Buy).
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