Coach (COH, Financial), a leading design house of modern luxury accessories, recently released poor third-quarter results. The company, which specially deals in hand bags, lost market share on the back of a weak performance. It is failing to be competitive with its peers in this highly competitive market. However, management is undertaking aggressive strategies.
What gives
Coach’s quarterly revenue disappointed. The company reported that its quarterly revenue declined 7.4% to $1.1 billion. Coach’s sales have been hurt by a harsh winter weather. On the other hand, its peers did post some good results. On the earnings front, the company posted $0.64 per share as compared last year's EPS of $0.84 per share.
Coach’s sales were mainly impacted in North America by continued weakness in women’s bag and accessory business. Though the company saw good tailwinds in the men’s footwear business, yet the gains arising from this were offset by weakness in women’s and accessories segment. Due to stiff competition from peers such as Michael Kors and Kate Spade, sales of hand bags declined, which further hurt its store traffic.
Making a comeback
On the other hand, management is geared up for some new launches. Coach has lined up a new collection and is moving toward a more lifestyle-based offering to include apparel and other items beyond just handbags and accessories to its product portfolio.
Coach recently entered into a partnership with studio Sofield. With this partnership, Coach is focused on using William Sofield’s interior designing expertise to renovate the retail store building. With this move, the company is expecting to change the retail shopping experience, resulting in more customers turning up in its stores.
International growth
Despite weakness in North America, Coach saw growth on the international front. China was the biggest contributor to Coach’s revenue with a 25% rise in sales. Sales also grew internationally on the back of men’s footwear in Europe. Coach is expecting good sales in the international market to continue in the future as well.
In this competitive retail market, Coach is facing stiff competition from Michael Kors, which is a famous lifestyle brand that is moving aggressively in the market and continues to expand its brand. Moreover, Coach will also be working on cost effectiveness. Focusing on a particular price band might help Coach gain more customers.
Looking ahead, Coach is bullish about the prospects of its global men's business, and is targeting about $700 million in sales in fiscal year 2014, which will be a 20% increase from last year.
Conclusion
The lifestyle brand might be bullish about its prospects, but its valuation is weak. The company's earnings are expected to grow at a very slow 3.56% over the next five years. There is no doubt that Coach is seeing healthy growth in its men’s footwear segment, but with stiff competition, it looks like a stock to avoid. However, Coach can attract investors with its good dividend offering of 3.30%, but dividend alone is not enough to warrant an investment. So, Coach is not worth your dollars, while other peers such as Michael Kors can prove to be better buys.
