Handbag maker Coach (NYSE:COH) reported its fiscal fourth quarter earnings today and beat analyst expectations on the top and bottom line. While investors apparently liked those numbers, boosting its stock by 3% in midday trading, there's still a lot to worry about. After all, it represents the seventh straight quarter the leather-goods manufacturer's sales fell year over year.

With its stock down 20% over the past three months, and sitting 6% lower than it was a year ago, every little bit of sunshine helps, but only if you stretch and tease the numbers do you get something positive out of this.

Here are the highlights of Coach's most recent quarterly report:

  • Net sales of $1 billion, down almost 12% from last year.

  • Net income of $11.7 million, an 85% collapse year over year.

  • Adjusted earnings per share of $0.31 versus $0.59 in the year-ago quarter.

  • Comparable store sales were down 19% compared to the year-ago quarter.

As dismal as that all looks, it's better than what Wall Street was expecting. Analysts thought Coach would generate only $970 million in sales in the fourth quarter, with profits of $0.29 per share, so topping those estimates was an accomplishment, but not by much.

If the shoe fits
The revenue numbers were helped somewhat by its acquisition of shoemaker Stuart Weitzman, which added $43 million to the sales tally and $2 million to net income, or a penny per share. It's better than not being accretive, but it remains a risky bet.

When Coach began its transformation to a lifestyle brand, shoes were a key component of the strategy, as it added salons dedicated to the accessory in some of its flagship stores to showcase what it called "the new world of Coach." When Stuart Vevers came on board as creative director,  his fall 2014 men's collections prominently featured footwear.

And while Weitzman does give Coach access to high-end retailers that it wasn't in previously, women's shoes aren't exactly an underserved market, and the purchase really just replaces the sales it was already losing to rivals such as Michael Kors (NYSE: KORS) and Kate Spade.

Discovering a new, smaller world 
No doubt because the competition is also falling on hard times now, the worst of Coach's bloodletting may have been stanched, but the numbers still look bad. North American sales plunged 20% in both the quarter and for the year, and that's hardly better than the 24% tumble they took in the third quarter. Because the region still accounts for more than half of Coach's total sales, it indicates that the retailer is still in the throes of some very bad problems that haven't been addressed.

Of course, the dramatically lower sales numbers are in part caused by the amount of stores it's closed down. In the fourth quarter, it closed 16 stores, while 77 were shuttered across all of the fiscal year.

What's to come
For the coming year Coach expects sales as a standalone brand to grow by low single digits on a constant currency basis for the coming fiscal 2016, somewhere in the neighborhood of $4.3 billion. But if you include the anticipated contribution from Stuart Weitzman, which it estimates will add $335 million in sales in terms of dollars, revenue is expected to be up in the high single digits and contribute $0.09 per share to the bottom line.

Offsetting those figures, however, is that 2016 will feature a 53rd selling week, which will add $75 million to $80 million in incremental income and $0.06 to its earnings per share.

A work in progress
Coach is obviously still in turnaround mode, and if it's able to deliver on its promise to finally start growing sales again next year, it may also begin rebuilding its stock for investors who've suffered the loss of more than half their value since shares peaked at over $77 back in 2012.

That's actually still debatable, since the entire sector has come under fire, but having fallen further first, Coach may just be the one to lead the high-end accessories market higher in the future.

 

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool 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.