Argus Analyst Asks: Do Women Want Coach?

Coach Inc's COH ambitious turnaround plan will cut costs and spruce up stores, but its success hinges on offering handbags that women want to own, an analyst said Monday.

The company posted a decline in North American same-store sales of 22 percent recently for its fiscal second quarter - an improvement from the 24 percent decline in the first quarter.

"We need to see sales traction against mid-priced competitors," Argus' Chris Graja said.

The analyst maintained a Hold rating on Coach but said his "bias is for raising" his rating based on the outlook for improving results.

Coach's recently unveiled restructuring is "is more comprehensive and more expensive than we initially imagined," Graja said.

The company expects charges of up to $300 million spread across 18 months to boost efficiency and close under-performing operations.

Coach also expects costs of $570 million over three years to redesign its stores.

Graja said the plan is part of a useful turnaround road map, but "we want to see that the product is resonating with customers," Graja added.

The analyst boosted his fiscal 2015 adjusted earnings estimate by more than 5 percent to $1.95 a share, although his latest forecast suggests a 37 percent drop in adjusted profit from 2014.

Coach posted second-quarter earnings that were 9 percent higher than expectations, although revenue was slightly less than forecast.

The company's shares were nearly unchanged Monday at $37.28.