Coach Inc Earnings: Stock Rises Despite Ongoing Challenges

By Markets Fool.com

Investors had pushed shares of Coach higher by more than 6% by early afternoon Thursday,, after the luxury goods retailer reported second-quarter results that were slightly better than analysts had expected. For the quarter ended Dec. 27, Coach earned $183 million in net income or earnings of $0.66 per diluted share. This was in line with Wall Street's forecasts for the quarter, but still down significantly from Coach's earnings per share of $1.06 during the same period a year ago.

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Coach's revenue for the quarter, meanwhile, was $1.22 billion, down roughly 14% from $1.42 billion in the year-ago period. Analysts were looking for Q2 revenue of $1.23 billion. Today's results were enough to lift the stock in the near term -- it was up more than 9% at one point Thursday. However, Coach still faces an uphill battle in its turnaround efforts.

Don't call it a comeback just yet
On the face of it, Coach delivered quarterly results that were in line with what analysts were anticipating. In fact, if you discount the $20 million in costs that Coach spent on its "transformation plan" in the quarter, then the company actually generated earnings of $0.72 per diluted share -- markedly above Wall Streets estimated profit of $0.66 per share.

However, investors need to keep in mind that Wall Street had low expectations for Coach in the quarter. On top of this, the company's sales continued to fall year-over-year in the period. North American sales, for example, plummeted 20% to $785 million, down from $983 million last year. Same-store sales in this region fell 22%. While management had anticipated these declines, it's still evidence that Coach's turnaround plan will take time.

Source: Coach

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Sales in China marked one bright spot, climbing 13% in the quarter. Yet overall international sales rose just 5%, in line with management's expectations.

Investors need to understand that Coach is in the midst of a major turnaround and these things take time and resources. As part of its comeback strategy, Coach plans to close around 70 underperforming retail locations this year, and refresh its product mix in hopes of becoming more of a "lifestyle" brand like rival Michael Kors.

"We continue to be focused on the execution of our strategy with the launch of Stuart Vevers's spring collection across all channels, our Fall 2015 New York Fashion Week presentation next month and the ongoing implementation of our previously stated fleet optimization plan," explained Victor Luis, Coach's chief executive, in the company press release. Overall, the second quarter was a small step in the right direction for Coach. Though, it will likely take the remainder of fiscal 2015 and possibly longer for the company's turnaround to really take hold.

The article Coach Inc Earnings: Stock Rises Despite Ongoing Challenges originally appeared on Fool.com.

Tamara Rutter has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. 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.