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Coach’s Solid 2017 Outlook Driven By China Strength

Tuesday, November 1, 2016 5:17
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coach-coh-logoCoach Inc (NYSE:COH) posted mixed fiscal first quarter earnings but offered a strong full-year outlook, as the luxury goods maker continues to make inroads with Chinese shoppers.

The New York City-based company reported fiscal Q1 net income of $0.45 per share, matching the average analyst estimate. Revenues edged 0.7% higher from last year to $1.04 billion, missing Wall Street expectations for $1.07 billion.

Total North American Coach brand sales fell 3% from the year-ago period to $545 million, while International Coach brand sales jumped 7% to $395 million, or 3% when excluding currency exchange impacts. Meanwhile, China sales were flat from last year, but would have gained 5% on a constant currency basis.

Coach noted that Chinese sales were driven by “double-digit growth and positive comparable store sales on the Mainland offset by continued weakness in Hong Kong and Macau.” In Japan, sales surged 11% in dollars, but plunged 7% when excluding forex effects. Europe sales showed continued strength, rising at a double-digit pace.

Looking ahead, Coach reiterated its full-year 2017 outlook for low-to-mid single digit revenue growth. It also maintained its operating margin forecast of 18.5% to 19.0%. Altogether, COH expects double-digit growth in both net income and EPS, which would likely beat Wall Street’s view for a 9.1% increase.

CEO Victor Luis commented via press release:

“We are pleased with our performance in the quarter, highlighted by continued positive comparable store sales in North America and growth internationally. We remained focused on elevating the perception of the Coach brand through compelling product, differentiated store environments and emotional marketing. At the same time, we implemented the strategic actions necessary to reposition the brand and streamline our distribution in the promotional North American department store channel. Despite this deliberate pullback, we achieved growth across key financials, including sales, gross profit and operating income, as well as double-digit earnings growth.”

Coach shares rose $0.86 (+2.40%) to $36.75 in premarket trading Tuesday. Prior to today’s report, COH had gained 9.65% year-to-date, versus a 4.25% return for the benchmark S&P 500 in the same period.


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