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Coach Raises Guidance on Upbeat Results from Stuart Weitzman

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Stuart Weitzman’s results bucked the trend

Stuart Weitzman’s results were one of the brightest spots in Coach’s (COH) fiscal 2Q16 earnings release. The premium footwear brand reported better-than-expected results for both revenue and operating income. Results also went against the trend that most retailers (XRT) (XLY) have seen in the 2015 holiday season. The brand experienced higher sales of boots,[1. Based on comments by Victor Luis, CEO of Coach] a category that’s been seeing lower sales and higher discounting due to the unseasonably warmer weather. Wholesale channels such as Macy’s (M) had a challenging holiday season, partly due to the slow uptake in the category.

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Acquisition update

Coach acquired Stuart Weitzman from private equity firm Sycamore Partners last May. The company paid $530 million in cash and is expected to make $44 million in contingent payments over the next three years.

Fiscal 2Q16 performance highlights and raised outlook

Stuart Weitzman earned an adjusted operating income of $22 million[2. On a non-GAAP (generally accepted accounting principles) basis and excludes $30 million of acquisition-related charges] in fiscal 2Q16, on net sales of $94 million. Stuart Weitzman’s sales came in at $313 million in calendar 2014. Coach added four new Stuart Weitzman stores in the quarter.

The brand beat Coach’s estimate on both revenue and operating income on the strong holiday performance. Due to this, Coach raised the expected contribution from Stuart Weitzman for fiscal 2016 results. Coach now expects the brand to clock sales of $340 million, up from the $325 million estimated earlier.

Coach also raised its EPS (earnings per share) outlook based on the performance. EPS is now expected to rise by $0.12 in fiscal 2016 due to the inclusion of Stuart Weitzman, up from $0.09 estimated earlier.

Peers expect healthy category growth

Coach’s footwear competitor Michael Kors (KORS) also expects footwear to be a key driver for its fiscal 2016 growth in both North America and Europe. Caleres (CAL) is expecting sales from its brand portfolio to rise by mid-single digits in the current fiscal year.

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