Is Coach’s Turnaround Winning?

Coach Inc. (NYSE: COH) reported its fiscal second-quarter financial results before the markets opened on Tuesday. The company said it had $0.68 in earnings per share (EPS) on $1.27 billion in revenue. That compares to Thomson Reuters’ consensus estimates of $0.66 in EPS on revenue of $1.28 billion. In the same period of the previous year, the company posted EPS of $0.72 and $1.22 billion in revenue.

In terms of guidance, the company is maintaining its fiscal 2016 constant currency revenue growth and operating margin outlook for the Coach brand, while raising its consolidated operating income outlook based on second-quarter results.

Coach brand revenues for fiscal 2016 are still expected to increase by low-single digits in constant currency. However, based on current exchange rates, foreign currency is now expected to negatively impact overall fiscal 2016 revenue growth by 225 to 250 basis points.

There are consensus estimates for fiscal 2016 that call for $1.87 in EPS on $4.48 billion in revenue.
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Victor Luis, CEO of Coach, commented on earnings:

We are very pleased with our second quarter performance, which was consistent with our expectations and reflected the most significant progress to date on our transformation plan despite the difficult retail environment globally. We drove further sequential improvement in our North America bricks and mortar business – led, as expected, by our retail stores, while our outlet store channel also strengthened against a backdrop of lower tourist traffic and a highly promotional environment. Our international businesses posted strong growth on a constant currency basis, highlighted by double-digit increases in Europe, and Mainland China, as well as sales gains in Japan. Overall, our results continue to give us confidence that the cumulative impact of our actions will result in a return to top line growth this fiscal year and positive North American comps by our fourth quarter.

So far in 2016, Coach is more or less in line with the broad markets, with the stock down over 7%, as of Monday’s close. Over the past 52 weeks, the stock is down 16%.

Shares of Coach were trading up 11% at $33.72 on Tuesday, with a consensus analyst price target of $37.55 and a 52-week trading range of $27.22 to $43.87.