Argus Analysts Say Coach Shows Tangible Signs Of Improvement

Argus maintained its Hold rating on Coach Inc COH saying it's beginning to see tangible signs that consumers' perceptions of the Coach brand are improving.

Coach is working its way to restore its image as a designer of high-quality bags and accessories with fewer U.S. stores. In the third quarter, Coach reported an average handbag price above $300 for the first time since 2009, as comparable sales for bags priced over $400 continued to increase. Argus believes that at the end of fourth quarter, the company has stopped losing share.

"To become more bullish on the coach shares, we need to see sales gain traction against mid-priced competitors such as Michael Kors Holdings Ltd KORS and Kate Spade & Co KATE as well as Marc Jacobs and Tory Burch," analyst Christopher Graja wrote in a note.

The company is showing signs of stabilization with 2 percent rise in North American comparable sales for the Coach brand and reporting better-than-expected fourth quarter EPS.

Coach sees sales growth returning to category averages in FY17, with positive comps and operating margin of 20-25 percent. The company projects sales to grow at least as fast as the sector in FY19 and operating margin of about 30 percent.

Graja raised his FY17 earnings estimate to $2.15 per share from $2.13.

At time of writing, shares of Coach fell 1.23 percent to $40.00.