Coach (COH) Q4 Earnings Beat, Sales Miss, Provides FY18 View

Despite tough retail landscape and volatility in macroeconomic environment, Coach, Inc. (COH - Free Report) posted better-than-expected fourth-quarter fiscal 2017 bottom-line results. The adjusted earnings of 50 cents a share beat the Zacks Consensus Estimate by a penny, thereby resulting in a positive earnings surprise of 2% and marking the 14th straight quarter of earnings beat. The quarterly earnings also increased roughly 11.1% year over year. Lower SG&A expenses and improved operating margin provided cushion to the bottom line.

Net sales of this New York-based company came in at $1,133.8 million, down about 1.8% year over year. However, excluding the extra week in fiscal 2016, net sales rose 6% on a reported basis, while 7% on a constant currency basis. Sales growth were hurt by 60 basis points on account of management’s efforts to elevate the Coach brand’s positioning in the North American wholesale channel by lowering promotional events and door closures.

Coach registered positive comparable store sales at its North American segment. The company witnessed healthy growth across directly-operated Europe and Mainland China operations. The company is undergoing a brand transformation and is introducing modern luxury concept stores in key markets. The acquisition of Stuart Weitzman and Kate Spade & Company 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 $1.05 billion, while that of Stuart Weitzman brand totaled $88 million for the quarter. However, we noted that the total sales fell short of the Zacks Consensus Estimate of $1,146 million for the fourth successive quarter.

Coach’s shares are down about 9% during pre-market trading hours. Nevertheless, in the last six months, the stock has gained 26.2% compared with the industry's growth of 17.6%.

Behind the Headline 

Total North American Coach brand sales came in at $586 million down from $606 million reported in the last year. Excluding the additional week in fiscal 2016, total brand sales jumped 4%, while direct sales rose 5% on a dollar basis and 6% on a constant currency basis. Both North American aggregate and bricks and mortar comparable store sales increased about 4%.

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