Please ensure Javascript is enabled for purposes of website accessibility

Why the Market Is Rewarding Coach Inc. Today

By Bradley Seth McNew – Updated May 2, 2017 at 12:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The high-fashion brand got a lift today after its fiscal third-quarter earnings report. Management's confidence could also mean an imminent acquisition.

What happened

Shares of the high-end handbag and accessory maker Coach (TPR -4.17%) gained more than 11% in early-morning trading today after the company released its fiscal third-quarter results that included better-than-expected earnings. 

So what

For the quarter ended April 1, Coach reported sales of $995 million, down 4% year over year, but beat analyst estimates on profit. Earnings for the period grew about 7% to $0.43 per share as the company cut back on discounting, which helped its gross margin to expand. As Coach CEO Victor Luis said in the earnings release, "In a volatile and complex global environment, we delivered continued positive comparable store sales for the Coach brand in North America and gross margin expansion in each segment, while tightly controlling costs." 

A woman stands in front of a car holding a luxury coach handbag.

Image source: Coach Inc.

Now what

Gross margin for the quarter grew 190 basis points over the prior year -- no small feat for a high-end retailer feeling pressure from an increasingly competitive lower-end market -- ending at nearly 71%. As the company continues to try to gain back market share without cutting costs, its higher gross margin could mean increased earnings strength when full fiscal year earnings are announced in a few months. Earnings per share are up 15% for the last three quarters, year over year. 

Another reason to be watching this company closely is that its management team seems to be on the lookout for potential acquisitions. Talks for a potential merger with Kate Spade & Company (KATE) stalled in April when Kate Spade management said it needed more time to consider Coach's pending offer. Regardless of what happens with Kate Spade, however, there have been other rumored possible targets recently, such as the British fashion company Jimmy Choo.  

Seth McNew has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Coach. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tapestry, Inc. Stock Quote
Tapestry, Inc.
$29.66 (-4.17%) $-1.29
Kate Spade & Company Stock Quote
Kate Spade & Company

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.