Coach Inc Q4 Earnings: Profit Doubles, But Shares Fall

Large cap upscale accessories retailer Coach Inc (NYSE: COH) reported FY17 Q4 and year end earnings before the market opened on Tuesday with shares falling off in premarket trading despite profit doubling. Q4 net sales totaled $1.13 billion versus $1.15 billion in the prior year. Excluding the additional week included in fiscal 2016 results, net sales increased 6% on a reported basis and 7% on a constant currency basis. The earnings release noted that as planned, the Companys strategic decision to elevate the Coach brands positioning in the North American wholesale channel through a reduction in promotional events and door closures negatively impacted sales growth by approximately 60 basis points in the quarter. Net income was $152 million versus net income of $82 million.

For fiscal year 2017, net sales totaled $4.49 billion versus $4.49 billion in the prior year. Excluding the additional week included in fiscal 2016 results, net sales increased 2% on both a reported and constant currency basis. Net income totaled $591 million on a reported basis versus reported net income of $461 million.

The CEO made extensive comments:

Our strong fourth quarter results in which we achieved mid-single-digit North America comparable store sales for the Coach brand and drove solid growth at Stuart Weitzman – capped an excellent FY17 performance for the company. For the year, we posted a double-digit increase in net income as we continued to make progress on our brand and company transformation plan. We generated positive Coach brand North American comps in each quarter, while driving solid international Coach brand sales gains, notably in Europe and Mainland China. Importantly, the Coach brand evolved across the key consumer pillars of product, stores and marketing, with strategic actions including a broader 1941 collection, dual gender runway shows, the execution of a differentiated store concept and new collaborations and campaigns further elevating brand perception.

We were also very pleased with the overall contribution of the Stuart Weitzman brand as we invested in the brand, both in stores and most significantly in people, bringing in the key leadership and design talent to drive performance in both growing the global footwear category and in their nascent accessories business.

We also took a major step in our corporate transformation with the acquisition of Kate Spade & Company, which closed in July, becoming the first New York-based house of modern luxury lifestyle brands. Kate Spade brings a new, unique brand attitude and an additional consumer segment to the Coach, Inc. portfolio and we expect that this acquisition will enhance our position in the attractive and growing $80 billion global premium handbag and accessories, footwear and outerwear market.

Three years ago we laid out an ambitious plan to transform the Coach brand, with a goal of increasing relevancy and improving consumer perceptions. During this time, weve done just that, by making the necessary and significant investments across all aspects of the Coach brand and business. We are extremely pleased with the progress weve made, having largely attained our strategic goals, in spite of the impact of the volatile retail and macroeconomic environment on our core category. Today, after the successful integration of Stuart Weitzman and the acquisition of Kate Spade, we are at an exciting and pivotal moment in our journey. In an unpredictable environment, we are evolving to drive our long-term success by reinventing ourselves, moving from a single-brand, specialty retailer, to a true house of emotional, desirable brands built on our unique values. We are transforming into an entirely different, truly multi-brand company, creating a more agile organization and infrastructure to support a new corporate structure, while making certain each brand has the resources in place to innovate and drive its distinct personality.

Naturally, we are focused on driving top and bottom-line growth for Coach, Inc., but we are also committed to taking the right steps to achieve sustainable long-term profitability through the health of our brands, by making the appropriate investments and carefully managing our distribution channels. This balance is critical to informing our strategic plan as we move forward into the next chapter as the first New York-based house of modern luxury lifestyle brands.

A technical chart for Coach Incgenerally shows an uptrend with some volatility:

A long term performance chart shows Coach Incin somewhat of an uptrend for almost two yearsnow while small capVera Bradley, Inc (NASDAQ: VRA) and mid capMichael Kors Holdings Ltd (NYSE: KORS) have largely fallen off during that time, but have moved a bit higher in recent months:

Finally, here is a quick recap of large cap Coach Incs recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page going into the current earnings report:

Earnings History6/29/20169/29/201612/30/20163/30/2017
EPS Est. 0.41 0.45 0.74 0.44
EPS Actual 0.45 0.45 0.75 0.46
Difference 0.04 N/A 0.01 0.02
Surprise % 9.80% N/A 1.40% 4.50%
EPS TrendCurrent Qtr. (Jun 2017)Next Qtr. (Sep 2017)Current Year (2017)Next Year (2018)
Current Estimate 0.49 0.5 2.15 2.49
7 Days Ago 0.49 0.5 2.15 2.48
30 Days Ago 0.49 0.49 2.15 2.38
60 Days Ago 0.49 0.49 2.15 2.38
90 Days Ago 0.49 0.49 2.15 2.37

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