For Coach (COH), big moves after earnings reports are becoming a habit. That trend was intact Tuesday when the high-end handbag seller topped analysts' earnings estimates and posted surprisingly bright North American numbers, lifting the shares 11%.
New York-based Coach was expected to earn 80 cents a share on sales of $1.18 billion in the fiscal third quarter, according to FactSet, but it exceeded both, turning a profit of 84 cents a share with revenue of $1.19 billion. However, it was the North American segment, its largest, that was the real standout.
While the China component of Coach's business remained strong, with sales rising around 40% year over year for the third consecutive quarter, domestic sales totaled $792 million, up 7% from the prior year. More impressively, same-store sales were much better than predicted, climbing 1%, compared with a decline of 1.4% that had been foreseen by Wall Street analysts.
Coming into the quarter, it would have been easy to imagine a drab showing. In the second quarter, which encompasses the holiday shopping season, Coach complained that economic weakness contributed to dampening its results. The most recent three months don't appear to have suffered the same fate.
The products Coach sells aren't ultra-luxury but they are unquestionably on the upper end of the retail spectrum. That shoppers would be so anxious for its totes — along with the wallets, clothes and shoes that are becoming more of Coach — right after the Christmas rush is something of a surprise. The unexpected strength played no small role in boosting the stock $5.58 to $56.17. Less than hour into the session, more shares of Coach had already traded than do ordinarily in a full day. It was also one of the biggest percentage gainers on the NYSE.
As noted, this type of giant move isn't any longer unusual for Coach post-earnings. The stock generally is more volatile than the market at large (the beta is 1.2, according to Yahoo! Finance), but the sizable plunges and surges after it releases quarterly numbers are making that seem conservative by comparison. The table below contains the past 20 earnings days — several are double-digit moves, and now seven of the past eight have seen a percentage drop or increase of more than 4%.
From the pessimistic side, one might say the quarter could be an anomaly. Recent consumer confidence data were low, and companies themselves have been offering a mixed view of the economy. McDonald's (MCD) said diners were proving reluctant to spend. Equipment maker Caterpillar (CAT) was fretting about mining. Tech giant IBM (IBM) missed estimates. Finding trouble spots isn't especially difficult. Still, not every company has been a disappointment — for instance, DuPont (DD) also beat earnings forecasts.
In summary, the picture that's being painted is an economy with pockets of strength and others of weakness. For a report saying home sales are up, another indicates that manufacturing is soft. At the moment, Coach investors can afford to look past all that and simply enjoy the day's gains and a higher dividend to boot.
- Investment & Company Information