Coach Earnings Preview: Double-Digit Revenue Growth Expected
Coach (NYSE: COH), shares of which have dropped about 26 percent in the past six months, is scheduled to report its fiscal first-quarter 2013 results Tuesday, October 23, before the opening bell. Investors will be looking to see, among other things, if can continues its three-quarter streak of double-digit year-over-year profit and revenue growth.
Analysts on average predict Coach to report that its revenue rose more than 10 percent year-over-year to $1.16 billion. Per-share earnings are expected to come to $0.76 for the quarter, up from $0.73 per share in first quarter of last year. The consensus EPS estimate has ticked up in the past 60 days from $0.75. Wall Street has underestimated Coach's EPS in the past 12 quarters, though the positive surprises have been by less than three percent recently.
Coach attributed fourth-quarter earnings growth to robust international sales. It also expressed optimism about its recently launched dual-gender Legacy lifestyle collection and about the planned acquisition of domestic retail operations of key Asian distributors. In addition, the company said it repurchased and retired about 10.7 million shares during the fiscal year. But shares tumbled about 18 percent after the report due to the sales miss and an analyst downgrade, but it had regained much of that ground within a week.
Both EPS and revenue are expected to increase sequentially and year-over-year in the current quarter, which includes the holiday shopping season.
New York-based Coach is a luxury American leather goods company best known for ladies handbags, as well as luggage, briefcases, wallets and other accessories. It is a component of the S&P 500 and its market capitalization is almost $16 billion. The company was founded in 1941, and Lew Frankfort has been the chairman and chief executive since 1995.
The nearest competitors include Guess (NYSE: GES), Michael Kors (NYSE: KORS) and Ralph Lauren (NYSE: RL). Guess posted declining profit and revenue in its most recent quarterly report due in part to lower traffic at stores in the United States and higher costs in Europe. But Michael Kors reported a 71% increase in total revenue and 185% growth in net income in its most recent report. Ralph Lauren is expected to report earnings and sales smaller than a year ago when is shares its fiscal second-quarter results at the end of this month.
During the three months that ended in September, Coach added an eighth director to its board and Jim Cramer flagged the stock as a "best of breed" likely to bounce back.
Coach's long-term EPS growth forecast is near 16 percent and the return on equity is more than 57 percent. The price-to-earnings (P/E) ratio is higher than those of Michael Kors or Ralph Lauren. The dividend yield is about 2.1 percent. Short interest is more than five percent of the float. Of 32 analysts surveyed by Thomson/First Call who follow the stock, 21 recommend buying shares and none recommend selling. The analysts' mean price target signals more than 16 percent potential upside.
However, despite an increase of nearly three percent in the past week, the stock is more than four percent lower than 90 days ago, and down more than six percent year to date. The share price has been below the 200-day moving average since June and is now below the 50-day moving average. Over the past six months, the stock has underperformed the competitors mentioned above and the broader markets.
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