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Coach Reported Mixed Quarterly Results for Fiscal 2Q16

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Price movement of Coach

Coach (COH) rose by 14.2% to close at $37.05 per share at the end of the last week of January 2016. The stock’s price movements on a weekly monthly, and year-to-date (or YTD) basis are 14.3%, 12.3%, and 13.2%, respectively.

At times, the stock has broken the support of all of its moving averages. Currently, COH is trading 13.7% above its 20-day moving average, 16.4% above its 50-day moving average, and 14.4% above its 200-day moving average.

The ALPS Sector Dividend Dogs ETF (SDOG) invests 2.3% of its holdings in Coach. The ETF tracks an equal-weighted index of the five highest-yielding S&P 500 securities in each sector. The YTD price movement of SDOG is -6.8% as of January 28, 2016.

The market capitalizations of Coach’s competitors are as follows:

  • Estée Lauder Companies (EL) — $31.5 billion
  • Ralph Lauren (RL) — $9.5 billion
  • Michael Kors Holdings (KORS) — $7.3 billion
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Performance of Coach in fiscal 2Q16

Coach reported fiscal 2Q16 net sales of $1,273.8 million, a rise of 4.5% when compared to net sales of $1,219.4 million in fiscal 2Q15. The company’s cost of sales as a percentage of net sales and its gross profit rose by 6.5% and 2.3%, respectively, in fiscal 2Q16 compared to fiscal 2Q15.

Coach’s net income and EPS (earnings per share) fell to $170.1 million and $0.61, respectively, in fiscal 2Q16, compared to $183.5 million and $0.66, respectively, in fiscal 2Q15.

Meanwhile, its cash, cash equivalents, and short-term investments rose by 25.6%, and its inventories fell by 1.9% in fiscal 2Q16 compared to fiscal 2Q15. Its current ratio rose to 3.3 in fiscal 2Q16 compared to 2.7 in fiscal 2Q15.

The price-to-earnings and price-to-book value ratios of Coach are 28.1x and 4.0x, respectively, as of January 29, 2016.

Looking forward

The company has made the following projections for fiscal 2016:

  • Brand revenue to rise by low-single digits in constant currency. However, based on the current exchange rate, foreign currency is now expected to negatively impact revenue growth by 2.3%–2.5%.
  • Operating margin in the mid- to high-teens, with some shift between gross margin and expense ratio
  • Interest expense in the range of $30–$35 million
  • Tax rate of about 28%

This guidance excludes transformation-related charges of $50 million as well as Stuart Weitzman acquisition charges of around $30 million.

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