CEO Victor Luis might try to spin Coach's (NYSE:TPR) third-quarter earnings by saying he was "excited by the strong results" the handbag maker put up, but any reasonable reading of the numbers shows this was just another brutal quarter.
Sales and profits fell through the floor once again, and the North American market remains the weakest link in an aging and stumbling brand.
A barren wasteland
There was hardly anything on which to hang one's hat of hope. Sales in North America cratered 24% to $493 million as the region's comparable-store sales continued their inexorable decline, dropping 23% from last year. This marks the eighth straight quarter -- and ninth of the last 10 -- in which Coach has recorded negative comps.
While it blamed 11 percentage points of the total comps decline on a reduction of eOutlet events, having closed 43 stores and 12 outlets in the quarter, sales at department stores also plunged 30% because Coach eliminated promotional events.
This was actually part of the strategy revealed last year when Coach abandoned its heritage as a leader in "accessible luxury" in favor of becoming a lifestyle brand that instead exudes "modern luxury." Coach said it had been too promotional, its bags were too ubiquitous, and that its outlet stores were undercutting the premiums paid by consumers at its full-price stores.
So it closed a fifth of its North American store footprint, scaled back to holding just two semiannual doorbuster sales each year, and acquired high-end shoemaker Stuart Weitzman, which gave it a foothold into classier department stores such as Nordstrom (NYSE:JWN).
Higher prices chasing customers away
Coach also began thinning out its lower-priced handbag offering. Handbags priced at $400 and higher accounted for about 30% of handbag sales last quarter, up from about 20% a year ago and 16% two years ago.
Coach has drastically reduced the North American market's impact on its results -- the segment now accounts for just 53% of total sales, down from 58% last year and 66% in 2013.
Foreign markets sagged, too
The international market is weakening, too, and sales in the quarter fell 3% to $428 million, though that was largely a result of the strong U.S. dollar. On a constant currency basis international sales were up 4% year over year, but that's down sharply from 20% growth (also on a constant currency basis) in the year-ago quarter.
Taking out currency effects, sales in China were up 8% for the three-month period ended in March, Japan fell 11%, and Europe was up by double-digits. All those markets, though, were demonstrably better last year.
In all, the poor showing led to Coach reporting a quarterly profit of just $88 million, or $0.32 per share, down from $191 million, or $0.68 per share, a year earlier. Coach said that if you excluded certain "transformation related" items, its per-share profit was slightly better at $0.36, which beat Wall Street's estimate by a penny.
Stock defies performance
Despite back-to-back-to-back quarters of dismal performance, investors had bid Coach's shares 30% higher from the low point it hit last November. While the stock pulled back sharply at the market's open today, it showed some of that same resilience by battling back toward breakeven at midday trading.
There doesn't seem to be good reason for the optimism, though, and with Coach's stock valued at 21 times future earnings, the shares appear to be priced at a premium akin to one of its handbags -- and poised to become as cheap as one of the knockoffs sold on city street corners.