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Source: Coach.

Coach (NYSE:TPR) shares fell 9% on June 19 after the company announced that it would be restructuring its business in accordance with what it calls its "Transformation Plan." In an effort to improve the retailer's operations and help with strategic goals going forward, management has decided to implement the overhaul. But Mr. Market appears concerned that this move might be a sign of worse times to come.

Given these events, does this present the Foolish investor with a great opportunity to buy a strong company at a discount, or would a stake in Michael Kors Holdings (NYSE:KORS) or Vera Bradley (NASDAQ:VRA) be a better long-term play?

Coach's news is bad... but there's some upside
In its press release, Coach revealed that it would close as many as 70 retail locations throughout North America. As of the end of its third quarter of this year, the retailer operated 1,011 stores globally, down from 1,016 a year earlier. Of these, roughly 54% (or 543 stores) are located in North America, with Japan's 199 stores coming in as its second-largest base of operations.

Following these closures, Coach will have reduced the size of its North American fleet by 13% and its global fleet by 7%. While this will serve to cut costs and increase margins, management's move will negatively impact the business' revenue. Furthermore, Coach's decision to close these stores will come at a pretty high cost, some of which will be allocated to its fourth-quarter earnings this year, but most of which will impact its 2015 results.

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Source: Coach.

If management is accurate in its assumptions, the combination of store closures, updating some of its remaining stores, and realigning inventory will force the retailer to book pre-tax charges of between $250 million and $300 million. Using the assumption that analysts were right to forecast Coach's 2014 and 2015 earnings per share of $3.05 and $2.79, respectively, without knowing of this news beforehand, the restructuring by management will reduce the business' two-year aggregate earnings per share of $5.84 to between $5.13 and $5.25.

The only positive note stemming from all of this is that most of these expenses will be non-cash in nature. This means that instead of paying out cash to complete its efforts, the retailer will write down inventory and implement accelerated depreciation. The only significant cash charges will likely come from severance plans and lease-termination fees.

Should investors choose another retailer?
The past five years have been really good for Coach. Between 2009 and 2013, the business saw its revenue jump 57%, from $3.2 billion to $5.1 billion, while its net income leapt 66%, from $623.4 million to $1 billion. These improvements were mostly due to significant increases in the business' store count, which rose 41%, aggregate comparable-store sales growth of 14% in its North American operations, and a reduction in its cost of goods sold from 28.1% of sales to 27.1%.

During its 2014 fiscal year, however, the situation has shown signs of deteriorating. Whereas the company had seen a prolonged period of growth, it is now being negatively affected by a 5% drop in revenue year to date and a 12% decline in earnings per share. This fall in fortunes can be chalked up, for the most part, to significant dips in comparable-store sales.

COH Revenue (Annual) Chart

Coach revenue (annual) data by YCharts.

Given these concerns, one possibility is for the Foolish investor to consider buying into shares of peers Vera Bradley or Michael Kors. During the same five-year period, Vera Bradley saw its revenue soar 86%, from $288.9 million to $536 million. This growth was largely driven by a 267% jump in store count combined with an 86% improvement in aggregate comparable-store sales. Due to higher taxes, which rose from 0.3% of sales to 6.5%, Vera Bradley's bottom line grew by just 36%, from $43.2 million to $58.8 million.

Michael Kors has fared even better. Over the past five fiscal years, the retailer saw its revenue climb 552%, from $508.1 million to $3.3 billion. While the business benefited from a 282% jump in store count, the 324% increase in aggregate comparable-store sales also helped propel revenue higher. Due to this higher revenue, combined with the retailer's cost of goods sold falling from 47.5% of sales to 39.1% and its selling, general, and administrative expenses falling from 37.7% of sales to 28%, Michael Kors saw its net income shoot up 1,588%, from $39.2 million to $661.5 million.

Foolish takeaway
Right now, investors seem to have lost confidence in Coach and its ability to return from a period of falling sales and profits to one of top- and bottom-line growth. However, given management's abrupt and large-scale strategy, combined with the retailer's strong long-term performance, it's hard to say that the company does not provide the Foolish investor with an interesting prospect. But for those who see the opportunity as too fraught with risk, one of its rivals (most likely Michael Kors) might make for a better, less risky alternative.

Daniel Jones has no position in any stocks mentioned. The Motley Fool recommends and 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.