Filed Under:
Tickers in this Article: COH, JWN, LIZ
Earnings season looks bleak as many companies report record losses, lay off employees, and see their stocks plummet. For Coach (NYSE:COH), however, the outlook isn't so grim. If the company's first quarter earnings offer any indication, consumer appetite for the beloved Coach handbag and the company's other high-end accessories remains hearty, despite the economic downturn.

Coach Paints A Pretty Picture
In the period ended September 27, the New York-based retailer earned $145.8 million or 44 cents per share. Given that Coach turned a profit in the amount of $154.8 million or 41 cents per share during the same period last year, this quarter's earnings may not seem so spectacular. However, Coach's earnings are in line with expectations and its outlook going forward appears strong. Thus, Coach's overall financial picture looks pretty good.

With that said, Coach isn't a renegade company that is totally immune to macroeconomic trends. In fact, its first quarter earnings release states: "While we're excited about the strength of the product we're introducing for the holiday season, our enthusiasm is tempered by the weak traffic trends in our North American retail stores and department store locations. We expect this very difficult retail environment will make productivity comparisons challenging for the balance of the fiscal year." (For more on macroeconomic trends, read Macroeconomic Analysis.)

Caution aside, Coach shares rose more than 9% to $20.37 on Tuesday October 21, a day when the DJIA was down more than 230 points. Further, Coach estimated that its second quarter earnings would come in at 77 cents per share and that the company would generate approximately $1.05 billion in sales. The EPS estimate probably comes as a sigh of relief to investors because it exceeds the hopes of Wall Street. However, while analysts had predicted 75 cents per share, Wall Street reportedly held out hopes for $1.09 billion in sales. (To learn more about analyst expectations, read Analyst Recommendations: Do Sell Ratings Exist?.)

Coach said that it "expects to achieve sales growth of about 10%" in fiscal 2009, which is down from the 13% it had called for back in July in conjunction with its fourth quarter results. However, its press release went on to state: "The company is maintaining its earnings per share guidance of about $2.25, an increase of about 10%." (Explore the controversies that can surround companies' forward-looking expectations in Can Earnings Guidance Accurately Predict The Future?.)

Coach's willingness to come out so early in the game and offer positive second quarter and full-year numbers is a big sign of management confidence. Also, the fact that the stock can be purchased for a little more than $20 makes it quite attractive. In the days ahead, look for the analyst community to deem Coach a favorable stock and for upbeat research results to circulate. Perhaps high-end retailers Nordstrom (NYSE:JWN) and Liz Claiborne (NYSE:LIZ) (which sports the Kate Spade brand) will be able to take solace in Coach's forecast, too,

Buyback Speaks Volumes
During the period ended September 27, Coach opened its purse strings and bought back just over 10.5 million shares at an average cost of $28.53. According to its earnings statement, Coach indicated that the company had more than $800 million remaining under the authorization.

Coach's willingness to pony up big bucks for its stock in this economic environment speaks volumes about what company management and the board think the stock is worth. In addition, if the company gets hit by some tax-loss selling, a real possibility given that the shares are trading at the lower end of the company's 52-week range, investors can be hopeful that Coach will step up to repurchase additional shares in an effort to soak up some of that supply.

The Flip Side
Coach's forward-looking statement is pretty attractive. But if the company's performance fails to live up to expectations, its stock could get whacked like a piñata at a children's birthday party.

Bottom Line
Coach's first quarter numbers are impressive and its forward-looking expectations and share buyback indicate strength. Therefore, look for Coach stock to head higher.

comments powered by Disqus

Trading Center