Investors applaud Coach results
Coach gives the first encouraging news about the business in a long time and investors applaud them
If you have read the press lately and you have noticed Coach`s results, the largest US maker of luxury handbags, surely you must have thought they are going through a bad time and that its stock has plummeted. The truth is that the company is going through a negative phase, but regarding the share price the reality is very different: investors have received almost with applause its semester results.
Starting at the beginning, the company earned just over $300 million in the first fiscal semester (ending December 27), 41% lower than a year earlier. And sales fell 12% year-to-year to $2.26 billion (plus a major setback in the second quarter than in the first). Bad news that had a very warm welcome: Coach´s shares rose 7%, its biggest daily gain in almost two years.
The reason is that in reality -and despite the fall- data exceeded analysts’ expectations (and hence the market expectations), plus the results showed the first fruits of its new strategy. As a result, analysts expected earnings per share (ex-restructuring costs) of 66 cents in the second fiscal quarter, compared to the 72 cents achieved by the company.
Regarding its strategy, Coach has decided to raise the price of its products by eliminating the aggressive discounts it applied in recent times, revamping stores and expand the range of models with new creations. The result is that it has beaten sales expectations in the US (its main headache in recent years) with a smaller drop than expected. This is the first time that the company provides encouraging data about the business in a long time.
If Coach is able to meet its goals and really change its business trend, it can have a huge potential in the stock market. It is trading at a PER 15, very attractive for this industry, and we cannot forget that it was worth at almost $80 per share, compared with less than $40 currently.
Disclosure: The author is not responsible for the views expressed in the article. The text has been written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.