Coach, Inc.'s Drab Quarter Wasn't All Bad

Another quarter, another top-line disappointment from Coach, Inc. (NYSE: COH  ) .

This morning, the iconic fashion apparel specialist announced that fiscal third-quarter revenue fell 7% year over year to $1.10 billion. Once again, the primary culprit was weak North American sales, which fell 18% over the same period to $648 million. Analysts, on average, were looking for overall fiscal third-quarter sales of $1.13 billion.

Coach is still stumbling in North America.

But the news wasn't all bad. Coach also turned in quarterly net income of $191 million, or $0.68 per diluted share, which handily exceeded analysts' expectations for earnings of just $0.61 per share. For that, investors can partially thank Coach's share repurchase program, under which it spent $175 million during the quarter to buy back and retire 3.6 million shares.

That also brings Coach's year-to-date total to $525 million, and leaves $835 million remaining under its current repurchase authorization. With shares now sitting right around 13.6 times next year's estimated earnings, you can bet Coach will be putting more of its remaining authorization to work.

Meanwhile, Coach's global business continues to thrive, with international sales increasing 14% -- or 20% on a constant currency basis -- to $441 million. That includes 25% growth in China -- a region now on course to deliver 2014 sales of over $540 million. For reference, that's $10 million higher than Coach expected from the region just three months ago.

All eyes on September
Once again, however, investors are rightly disappointed with Coach's weak performance in its bread-and-butter North American segment, where fast-growing competitors like Michael Kors (NYSE: KORS  ) have steadily chipped away market share.

Michael Kors isn't set to announce its own quarterly results for another several weeks. But last quarter it put on an absolute clinic, adding 98 new retail locations over the previous year to help revenue increase 59% to $1 billion. That included 51% growth in North America as comparable-store sales popped an impressive 24%. Now with the holiday quarter complete, analysts still expect Michael Kors to turn in quarterly revenue of $816.29 million, or an increase of nearly 37%, over the same year-ago period.

If you're wondering how Coach can stem the bleeding, look no further than the September launch of the inaugural collection from its new executive creative director, Stuart Vevers. In fact, when Vevers' edgy, streetwise work made its debut at the New York Fashion Show in February, the feedback from the fashion industry was overwhelmingly positive. If everyday North American consumers respond similarly to Coach's new lineup when it hits shelves this fall, it could be just what the 73-year-old brand needs to turn the tide back in its favor.

In the meantime, as Coach continues to repurchase shares and thrive overseas, I'm more than happy to collect its 2.7% dividend while I wait.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 29, 2014, at 7:03 PM, FrankoJames wrote:

    COH might have some problems with KORS and KATE just like GOGO currently has with T.

  • Report this Comment On April 29, 2014, at 7:13 PM, TMFSymington wrote:

    @Franko1000, KORS is definitely taking market share in from COH the U.S., but comparing it to GOGO (the operating scope for which is wildly narrower) is like apples and oranges.

    Basically assumes there's no room in this world for two fashion apparel companies to succeed, esp. as fashion trends are ever shifting. COH is hurting right now, but I still think short-sighted investors are underestimating the power of its brand.

    -

    Steve (@TMFSymington)

  • Report this Comment On April 29, 2014, at 7:15 PM, TMFSymington wrote:

    And by *two*, I mean *multiple* ;-)

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