As retail consumer spending in the U.S. is on the surge, it is expected that retailers will find more customers in their stores. Also, people, especially the affluent ones, seem to be spending a lot on the premium retail products, such as specialty retail. Competition in this space has increased after Michael Kors (NYSE:KORS) made its debut some time back.
Therefore, customers are now more attracted to Michael Kors’ products rather than Coach (NYSE:COH). Coach’s performance has declined since then. The marketer of apparel and accessories is slated to report its fourth quarter results next week. Let us take a quick look as to what analysts are expecting from this company.
According to Yahoo Finance, analysts estimate that Coach’s revenue should be at $1.09 billion, 10.5% lower than last year. Earnings too are expected to drop significantly to $0.53 per share as against $0.89 per share in the previous year’s quarter. The retailer was able to meet the estimates in 3 out of the last 4 reported quarters. Also, its PEG ratio is much higher, at 3.99, when compared to the industry average of 1.42.
- Warning! GuruFocus has detected 7 Warning Signs with COH. Click here to check it out.
- COH 15-Year Financial Data
- The intrinsic value of COH
- Peter Lynch Chart of COH
Even in the previous quarter, Coach delivered lackluster numbers. Its top line tanked 7% to $1.10 billion over the prior year as it witnessed a decline in same store sales, especially in North America. However, sales in China grew 25% as it witnessed higher demand in the region. The company was impacted by factors such as severe weather conditions and a shift in the Easter holiday. Further, the retailer’s earnings dropped 19% to $0.68 per share over last year.
On the other hand, peer Michael Kors has been a show stealer with amazing numbers for its latest quarter. Its revenue jumped 53.6% in its fourth quarter, helped by same store sales growth of 26.2%. Also, its earnings per share climbed 63.5%, surprising the investors largely. Also, it added 101 new stores in the last one year, which contributed to the growth in the top line.
One of the key reasons why Kors is doing better than Coach is that it manages to offer great designs and quality products at a comparatively reasonable price. Hence, it fits in middle class customers’ pockets. Also, celebrity endorsements help in promoting the brand. Further, it has been expanding its presence, resulting in growing revenue.
The drawbacks of Coach
Coach, on the contrary, has been suffering a lot, mainly because of some missteps such as, offering discounts to customers on a regular basis. If you find Coach at a 40% sale, quite often, you would rather lose interest in the brand. This has indeed cheapened the brand. Also, closed displays in various department stores have been a turn off for customers.
Coach stores have been closed for quite some time, in Macy’s and other department stores, for remodelling purpose. This has resulted in loss of sales for the retailer.
However, Coach plans to overcome these hurdles by expanding its presence in the Asian region. Demand for premium products has been on the rise in Asia and Coach is already witnessing growth in this region. Hence, this move is expected to benefit the company. Also, Coach plans to expand its men’s business, which grew by 50% in FY 2013, in all parts of the world.
Coach has indeed seen a difficult time with lackluster numbers in each quarter. Also, it faces stiff competition from other players, especially Kors. However, the apparel retailer’s efforts to expand its men’s segment and expanding into the Asian market should be fruitful. But this will take time. Investors should wait till the company starts showing the effects of its expansionary moves.