Coach (NYSE:COH) and Kate Spade & Company (NYSE:KATE) have fallen victims to the same tough retail environment that has taken a toll on the earnings of many fashion designers. While Michael Kors Holdings (NYSE:KORS) has successfully weathered the storm, most of these companies have had to revamp their business strategies.
Let's take a detailed look at Coach and see what the future holds.
Second quarter result
In the second quarter, Coach's per-share earnings plunged 22% to $1.06 per share, down from $1.23 a share in the comparable period last year. Revenue fell to $1.42 billion from $1.50 billion in the year-ago quarter. Both earnings and sales took a hit because of weak performance in North America.
What is Coach up to?
A recent article from Bloomberg identified the growing scope of luxury accessories in China. As per Bain & Company, Chinese consumers account for approximately 25% of money spent on luxury goods worldwide. This means China has huge growth potential for U.S. brands like Coach, Michael Kors, and Kate Spade, as these retailers offer luxury accessories at lower prices. But up until now, U.S. retailers haven't been able to benefit from the Chinese market to the fullest because of their weak distribution network in the region.
In an effort to develop the company's next generation retail concept, Coach has once again partnered with the world famous creative firm Studio Sofield. The first store under this collaboration will be inaugurated at Beverly Hill, CA, in fall 2014, which will be followed by another store at the Time Warner Center in New York City. In addition, the company will open a new location in Tokyo as well.
According to Coach, the new retail concept will create more brand value for the company. Stuart Vevers, Coach's executive creator director, had this to say: "As we continue on the path of transformation, I want our new store environment to organically trigger a significant change in the perception of our brand. A space that feels authentic to Coach, confident, modern and inviting, with honest construction and rich, warm materials."
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Zahid Waheed has no position in any stocks mentioned. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach and Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.