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What's in Store for Coach's Earnings

By Dan Caplinger - Apr 20, 2013 at 1:50PM

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Can the luxury retailer bounce back from recent challenges?

On Tuesday, Coach (TPR 1.42%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Coach has a strong reputation for its luxury handbags and accessories. But economic weakness throughout the world has led to questions about whether it can sustain its growth pace, especially in formerly red-hot areas like China. Let's take an early look at what's been happening with Coach over the past quarter and what we're likely to see in its quarterly report.

Stats on Coach

Analyst EPS Estimate

$0.81

Change From Year-Ago EPS

5.2%

Revenue Estimate

$1.18 billion

Change From Year-Ago Revenue

6.8%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Coach bounce back this quarter?
Analysts have reduced their expectations about Coach in recent months, cutting their earnings-per-share estimates for the just-ended quarter by a nickel and reducing full-year fiscal 2013 estimates by $0.17 per share. The stock has also struggled, losing 16% of its value since mid-January.

Until recently, Coach had managed to avoid the downdrafts that tough economic times had caused for many other retailers, gaining a reputation as one of America's best companies. Coach's luxury focus and emphasis on the rapidly growing Asian market helped shelter it somewhat from sluggish conditions in the U.S. during the recovery from the financial crisis.

But over the past year, the threat of a slowing economy in China and other former hotbeds of growth have caused a crisis of confidence for Coach. Rival Michael Kors (CPRI -2.27%) has been able to sustain growth in other areas of the world, and it has also become especially popular in China, having topped a study of brand demand among consumers searching for products like handbags. By contrast, Coach is much more concentrated in China and therefore stands more to lose from a slowdown there.

Still, many believe that Coach's stock has been hit too hard. Beyond China and the rest of Asia, the retailer has plenty of other international expansion opportunities, with Latin America and Europe being obvious targets for long-term growth. Moreover, its strong customer loyalty and lifetime customer satisfaction help the company hang onto repeat business, boosting total revenue over the long run.

In Coach's quarterly report, look closely to make sure that the company has continued to defend its brand by avoiding the temptation to discount its goods through promotions. Tiffany (TIF) made the mistake of watering down its brand with lower-price-point offerings during the financial crisis, and it took years for the jeweler to recover from the hit its gross margins took. Coach has avoided that trap so far, but it will need to remain diligent in the face of rising sales pressures abroad to preserve its brand's long-term value.

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Stocks Mentioned

Tapestry, Inc. Stock Quote
Tapestry, Inc.
TPR
$31.41 (1.42%) $0.44
Capri Holdings Limited Stock Quote
Capri Holdings Limited
CPRI
$41.68 (-2.27%) $0.97
Tiffany & Co. Stock Quote
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TIF

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