Coach Stock Getting Crushed Calling 2013 "Investment Year"
Coach (NYSE: COH) reported disappointing second quarter comparable store sales. A very lackluster 1.7 percent increase was far below consensus estimates of 6 percent and a long way from first quarter sales of 6.7 percent, further indicating the retrenchment of the consumer in the second quarter.
The luxury handbag maker announced that fiscal 2013 is to be an investment year. Coach will accelerate the acquisition of domestic-retail operations in key Asian markets.
Coach is currently getting hammered, down over 14 percent Tuesday morning and trading around $51.82.
Investors are bailing on consumer nondiscretionary stocks in the wake of weak consumer spending entering the second half of the year. Consumer spending released at 8:30 EST was flat. Looking back, Coach reported sales of $1.16 billion for its fourth fiscal quarter ending June 30, 2012, compared with $1.03 billion reported in the same period of the prior year, short of analyst's expectations of $1.2 billion.
Net income for the quarter totaled $251 million, with earnings per diluted share of $0.86. This compared to net income of $202 million and earnings per diluted share of $0.68 in the prior year's fourth quarter, increases of 24 percent and 27 percent, respectively.
Net sales rose 15 percent to $4.76 billion from the prior fiscal year. Net income increased 18 percent to $1.04 billion, up from last year's $881 million rise.
Coach Chairman and Chief Executive Officer Lew Frankfort said, “I'm pleased that we were able to once again achieve strong double-digit sales and earnings gains for our fiscal fourth quarter and full year.”
Despite strong sales abroad, (particularly in China), the U.S. consumer led to lower-than-expected growth in factory stores. Overall, the North American consumer has become far more cautious about their spending habits in recent years.
Coach shares, now trading below both the 50 and 200 day moving averages, are 25 percent below the 52 week high, which may seep in to other high end retailers as well.
Stocks that may trade in sympathy with Coach include: Tiffany & Co. (NYSE: TIF), Ann (NYSE: ANN), The Talbots (NYSE: TLB), Guess? (NYSE: GES) and Polo Ralph Lauren, (NYSE: RL). All high-end consumer discretionary stocks will be under pressure following the price action in Coach Tuesday morning.
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