Coach, Inc. Can't Get It Together

The problem can be summed up in one sentence: Coach, Inc.  (NYSE: COH  ) is falling out of fashion in North America. Yesterday's first-quarter results included another steep decline in comparable sales, following on the heels of last quarter's drop. Coach's competitors -- Michael Kors (NYSE: KORS  ) and Kate Spade (NYSE: KATE  ) -- are laughing all the way to the trendy bank, while Coach is scrambling to find anything that looks like a solution.

Coach's investors have taken a beating over the last 12 months, with shares falling over 20%. After a high in early 2012, it's been all bad news for the luxury bag maker, as diversification and expansion have failed to ease its homegrown woes. Is there anything left in the Coach tank or is it destined to be an also-ran, lost in the luxury silhouette cast by Kors and Kate?

Why Coach can't get America right
If there's one thing Americans love, it's being part of the trend. We watch the same shows, eat the same food, shop at the same stores, and wear the same clothes. When Thanksgiving rolls around, we'll blitz mall workers and store owners just to be part of the crowd getting the best deal. So when a new trendy name pops into the spotlight, there's little a business can do to keep out of the shadows.

Coach's earnings per share for the first nine months of its fiscal year have fallen over 10%. In the third quarter, North American comparable sales were down 21% and yet CEO Victor Luis said that the company "[remains] confident in [its] brand vision." 

Compare that overly optimistic attitude to the actual success that Kors has been having since... well, forever, really. In its last quarter, it announced a comparable-sales increase of 24% in North America. Margins are up, income is up, worldwide sales grew at an even faster rate, and, generally speaking, Michael Kors did everything that Coach has failed to do.

Kate Spade is in a similar situation, with comparable sales up 30% in its last reported quarter. Kate has the benefit of a new lease on life, having been freed from the drag of Juicy Couture, and the middle-of-the-road performance of Lucky Jeans, over the last year. Sales have climbed through the roof, though the company's heavy investment has put a damper on bottom-line growth.

Can Coach still bounce back?
It's getting harder and harder to find someone truly optimistic about Coach's future. The stock has been downgraded to hold by many analysts. Coach has announced an investors' day in June to try to explain its grand plan and get some support back on the Street. Much of that plan is going to be reliant on steady growth from outside the U.S.

While Coach has failed its core demographic, it's done wonders for new customers. Men's apparel and international sales have both done well over the past year. In this most recent quarter, international sales grew 14%. Those businesses have to keep ticking over if Coach is going to see anything like a comeback.

In the U.S., things don't look so rosy. Kate Spade and Michael Kors are simply taking the market away from Coach. Add in up-and-coming Tory Burch, and there's little of the market left for Coach to try to sink its teeth into. If it is going to experience a resurgence, Coach needs to find a way to make its brand mean something. It's so far failed to do so, even in the face of falling sales and fleeing customers. I've yet to see anything that leads me to believe that it will do so in the future. Keep an eye out for June's presentation, but don't get your hopes up.

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