Despite a tough retail environment, volatility in tourist spending and macroeconomic headwinds, Coach, Inc. (COH - Analyst Report) posted better-than-expected first-quarter fiscal 2017 bottom-line results. The company's adjusted earnings of 45 cents a share beat the Zacks Consensus Estimate by a penny, thereby resulting in a positive earnings surprise of 2.3% and marking the 11th straight quarter of earnings beat. The quarterly earnings also increased roughly 10% year over year.

Net sales of this New York-based company came in at $1,037.6 million, up about 1% year over year but short of the Zacks Consensus Estimate of $1,065 million. On a constant currency basis, sales of this designer and marketer of fine accessories and gifts as well as house of lifestyle brands decreased at an equivalent rate.

Coach registered the second consecutive quarter of positive comparable-store sales at its North American segment. The company’s international operations witnessed robust growth.

The company is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman has been accretive to its performance, and is being viewed as a significant step in its efforts toward becoming a multi-brand company. Management highlighted that net sales for the Coach brand aggregated $950 million, while that of Stuart Weitzman brand totaled $88 million for the quarter.

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Behind the Headline

Total North American Coach brand sales declined 3% on both reported and constant currency basis to $545 million. Direct sales remained even on a dollar basis. Total North American bricks and mortar comparable store sales jumped about 4%, while aggregate North American comparable store sales grew approximately 2%, including the adverse impact of E-commerce on account of the decline in the company’s eOutlet flash sale business. On both POS and net sales basis, North American department stores sales plunged approximately 30%.

International Coach brand sales increased 7% to $395 million from the year-ago quarter figure. On a constant currency basis, International sales advanced approximately 3%. Sales in Greater China remained flat in dollar terms but rose 5% on a constant currency basis, with double-digit increase and positive comparable-store sales on the Mainland offset by sustained sluggishness across Hong Kong and Macau.

Sales in Japan advanced 11% in dollar terms but fell 7% on a constant currency basis. Sales for the rest of the direct operations in Asia witnessed low-single digits increase in dollars and on a constant currency basis, while in Europe sales remained sturdy, marching at a double-digit rate.

Consolidated gross profit grew 3% to $715 million, whereas, gross profit margin expanded 120 basis points to 68.9%. Adjusted operating income came in at $177 million, up 7% from the prior-year quarter figure, while operating margin increased 100 basis points to 17%. Management continues to expect operating margin in the band of 18.5% to 19% for fiscal 2017.

Store Update

During the quarter, Coach closed 1 location in North America, thereby taking the count to 431. In Japan, total number of locations decreased to 191 due to the closing of 4 stores. In Greater China, the addition of 8 new locations and the closing of 5 stores during the quarter increased the total count to 188. Across Asia (Other), store count remained at 103 owing to the opening and closing of 1 store each. In Europe, the store count remained at 39 following the opening and closing of 1 store each. There were 77 Stuart Weitzman stores at the end of the quarter following the opening of 3 stores and closing of 1 location.

Other Financial Details

Coach ended the quarter with cash, cash equivalents and short-term investments of $1,533.2 million, long-term debt of $591.4 million and shareholders' equity of $2,728.5 million.

COACH INC Price, Consensus and EPS Surprise

COACH INC Price, Consensus and EPS Surprise | COACH INC Quote

Guidance

Management continues to project low-to-mid single digits increase in fiscal 2017 revenue, including a favorable impact of 100-150 basis points from foreign currency. The company anticipates double-digit growth in both net income and earnings per share for the fiscal year. Interest expense is expected to be about $25 million for the fiscal year.

Zacks Rank

Currently, Coach carries a Zacks Rank #3 (Hold). Investors interested in the retail space may consider some better-ranked stocks such as American Eagle Outfitters, Inc. (AEO - Analyst Report), DSW Inc. (DSW - Snapshot Report) and Boot Barn Holdings, Inc. (BOOT - Snapshot Report), all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Eagle Outfitters delivered an average positive earnings surprise of 9.3% over the trailing four quarters and has a long-term earnings growth rate of 11.8%.

DSW delivered an average positive earnings surprise of 24% over the trailing four quarters and has a long-term earnings growth rate of 8.3%.

Boot Barn Holdings has a long-term earnings growth rate of 14.5%.