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Leading up to 3Q15 Earnings, Coach Delivers Strong Returns

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May. 11 2015, Updated 3:05 a.m. ET

Shareholder returns

Coach (COH) stock has been a strong performer this year. COH has appreciated by over 13% year-to-date. And, the stock’s up by over 9% since the company’s last earnings release on January 29, 2015. Compared to its peers, Coach has also provided higher total year-to-date returns to its shareholders:

  • Coach – 14.5%
  • Kate Spade (KATE) – 6.1%
  • Louis Vuitton Moet Hennessy (LVMUY) – 13.7%
  • Michael Kors (KORS) – -15.6%

The consumer discretionary sector (XLY) (RXI) and the S&P 500 Index (SPY) (VOO) (IVV) have returned 7.9% and 3.5%, respectively, over the same period.[1. percentages calculated through April 24, 2015]

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Dividend payouts

As mentioned earlier in this series, Coach (COH) is currently in the midst of a transformation. It’s trying to revive brand appeal and generate positive store comps, or same-store sales. Despite its declining revenue and earnings, the company has maintained its dividend per share at ~$0.34 since 4Q13, and it’s confident it will meet its commitments thanks to its strong cash position.

Luxury peers PVH (PVH) and Ralph Lauren (RL) have also maintained dividends, paying $0.038 and $0.45 per share, respectively, in each of their last quarters. KATE and KORS haven’t paid a dividend yet.

Valuations

Due to the higher market expectations associated with its transformation, Coach’s stock is trading at higher valuations than its peers. The company’s guidance also states that it’s expecting positive store comps in fiscal 2016. At 22.8x forward earnings, the company’s trading at higher prices than the S&P Global Luxury Index, which is trading at 18.9x forward earnings. Coach valuations have risen by 8.7% since the release of 2Q15 earnings.

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