A Mixed Bag: Analyzing Coach’s Sales Performance in Fiscal 2Q16
Transformation on Track: Will 2016 Bring a Coach Renaissance?
Revenue almost in line with Wall Street’s estimates
Coach (COH) posted a 4.4% increase in sales to ~$1.3 billion in fiscal 2Q16, which ended December 26, 2015. The company’s overall sales were nearly in line with the consensus Wall Street analyst estimate of ~$1.3 billion.
Coach’s sales performance was helped by its inclusion of results for premium footwear brand Stuart Weitzman, which posted better-than-expected sales and operating income numbers, which we’ll discuss further in part six.
Sales for the Coach brand, however, declined 3.3% in reported terms to ~$1.2 billion. In fiscal 2Q16, Coach closed down several stores and opened others as part of its transformation plan. Most of the closings came in North America, Japan, and Asia. The company’s directly-operated net store count increased by one compared to the count from fiscal 1Q16.
Forex movements hurt top line
Coach’s overall sales rose 7% in constant-currency terms. Excluding the negative impact of foreign exchange movements, sales fell 1% for the brand. The appreciation of the US dollar versus the euro, the Japanese yen, and the Chinese yuan affected the company’s sales. Despite the headwinds posed by the higher dollar, Coach reported upbeat results in its international business, particularly in Europe, which we’ll discuss further in part four.
How have global peers performed lately?
The world’s largest luxury goods company LVMH Moët Hennessy Louis Vuitton (LVMUY) (MC.PA) reported organic sales growth of 5% in the first nine months of 2015 in its fashion and leather goods segment. The company noted particular strength in leather goods.
Kering (PPRUY) (PPRUF) reported a 12% sales increase in its couture and leather goods brands in 3Q15 at directly operated stores. Balenciaga, Stella McCartney, and Alexander McQueen brands outperformed. The weakness of the euro versus the US dollar likely helped their performance to an extent.
Revenue outlook
Coach maintained its fiscal year sales projection of a low single-digit growth rate in constant currency terms for the Coach brand. However, the company raised its estimate on the adverse impact of the higher US dollar. Coach now expects foreign exchange movements to negatively impact sales by 225–250 basis points, up from the 200 basis points projected earlier.
Coach makes up 0.56% of the portfolio holdings in the First Trust Consumer Discretionary AlphaDEX ETF (FXD) and 0.3% in the Vanguard Consumer Discretionary ETF (VCR).
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