What Drove Coach’s Fiscal 3Q17 Earnings?


May. 4 2017, Updated 10:36 a.m. ET

Coach’s margins improve in fiscal 3Q17

Coach (COH) reported a 5% YoY (year-over-year) rise in EPS (earnings per share) for fiscal 3Q17, registering $0.46 per share. The company outperformed the consensus EPS estimate by $0.02.

The company also reported a 190-point improvement in its gross margin to 70.9% of sales, driven by an improvement in the margins of all segments. The Coach brand’s gross margin scaled 180 basis points while Stuart Weitzman’s rose 390 basis points during the quarter.

To be sure, Coach has a best-in-class gross margin, as you can see in the graph. Its trailing-12-month gross margin of 69% is higher than those of Michael Kors (KORS) (59%), Kate Spade (KATE) (60%), and Ralph Lauren (RL) (55%).

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Lower SG&A expenses

For fiscal 3Q17, Coach’s SG&A (selling, general, and administrative) expenses fell 4% YoY, driven by a 5% YoY decline in Coach brand’s SG&A expenses. Its operating income stood at $151 million, or 13% higher than in fiscal 3Q16. The higher operating profit came as a result of a better operating margin for the Coach brand, which rose 250 basis points in fiscal 3Q17. The operating margin stood at 15.2%—an improvement of 220 basis points.

Notably, investors looking to invest in Coach through ETFs can choose to invest in the PowerShares S&P 500 High Dividend Low Volatility Portfolio (SPHD). Coach has a weight of ~2.3% in SPHD.

In the next and final part, we’ll discuss Coach’s other margin improvements and how its fiscal 3Q17 earnings beat has boosted its stock price.


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