Coach's Good Quarter Bucked The Tough Trends In Handbag Category

Coach Inc COH reported strong Q2 results, despite concerns around the handbag category. The company’s positive trends would likely continue for the balance of the fiscal year, ending June, Wedbush’s Morry Brown said in a report. He maintains a Neutral rating on the company, while raising the price target from $36 to $38.

Brown raised the EPS estimates for FY 2017, FY 2018 and FY 2019 from $2.13 to $2.15, from $2.38 to $2.40 and from $2.59 to $2.61, respectively.

High Quality Quarter

Coach reported its same-store sales, gross margins and EPS ahead of expectations. The Q2 beat was driven by slightly higher-than-expected top-line, solid gross margins and a lower tax rate.

“North America’s brick & mortar comp came in +4 percent, which appears likely to be a standout in the challenged handbag market, given poor channel checks throughout the quarter and commentary from the department stores post-Holiday (specifically calling out weakness in handbags),” Brown commented.

No Upside To Shares

Coach kept its full-year EBIT guidance unchanged, representing 18.5–19 percent, while lowering its revenue growth projection. Although the positive trends at the company would likely to continue for the remainder of the fiscal year, the expected comp growth in the low-single-digit range is “generally factored into the current share price,” the analyst mentioned. He added that for shares to move higher, Coach would need to generate mid-single-digit comps.

At last check in Wednesday's pre-market session, shares of Coach were up 1.58 percent at $37.94.