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Can Coach Improve Same-Store Sales Trends in 4Q15?

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Revenue analysis for Coach (COH)

Coach (COH) will declare its 4Q15 and fiscal 2015 results on August 4. Consensus Wall Street analyst estimates project sales at $974 million in the quarter, down 14.3% over 4Q14. The company has fallen short of sales estimates in its last two quarters. Coach is projecting a sales decline in the low-double-digit range in 4Q15 in constant-currency terms.

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Same-store sales

Store comps are a critical variable affecting results for Coach and its cohorts. Coach has reported a decline in same-store sales in the last eight quarters. Despite the poor performance in the first three quarters of fiscal 2015, the company had projected an improvement in the back half of the year. But store comps actually came worse off in 3Q15 at 23% in North America from 22% in 3Q14.

Peer group performance

Coach has faced tough competition from peers Michael Kors (KORS), Tory Burch, and Kate Spade (KATE) in the last few years. Heavy discounting, together with the avalanche of lower-priced logo bags, had affected results. Being newer, KATE and KORS also enjoyed novelty value.

Rival Michael Kors (KORS) reported a 5.8% decline in store comps in the last quarter. This was the first-ever decline for KORS since going public in late 2011. While quarterly revenue increased 17.8% year-over-year for KORS, it was a result of an increase in store footprint. The fast-growing KORS had 121 additional stores in 4Q15 compared to 4Q14.

Kate Spade (KATE), however, reported a 9% increase in store comps last quarter, though the impact wasn’t felt on the bottom line. The company still reported an operating margin of -21.6% last quarter.

Coach makes up ~0.5% of the portfolio holdings in the First Trust Consumer Discretionary AlphaDEX (R) Fund (FXD) and ~0.1% of the holdings in the iShares Russell 1000 Value (IWD).

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