Earnings Digested: Coach Inc – The turnaround gains traction

Coach Inc (COH) presented last quarter’s results last week. The market reacted with optimism to the news that heavy discounting was largely stopped and encouraging sales in remodeled stores. Additionally, Stuart Vevers collection represented 90% of the women products on sale during the quarter.

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Photo Credit: gatoreena

On the retail side, the company has already opened 20 stores with the renewed store concept, intends to renovate 150 retail locations and to open approximately 70 new stores in the current fiscal year. In the end of the fiscal year, the painful retail restructuring will be mostly done. The renewed stores provided encouraging results:

“This holiday quarter was the first time that we were able to offer consumers the full modern luxury experience across product, environments and marketing, albeit, in only a few stores. However, it is proving to be a very powerful strategy in terms of changing consumers’ perception and impacting results as these locations posted positive comps that were greatly above the performance of the fleet.” – Victor Luis (CEO) [Source: Seeking Alpha Transcripts]

Overall, Coach presented good progress on its turnaround efforts, especially on the brand repositioning and on the retail refurbishing.

Additionally, Victor Luis offered additional insights about the acquisition of the shoemaker Stuart Weitzman:

“Stuart Weitzman is a complementary brand, with many similar core equities and characteristics to Coach. It’s a brand built on offering innovation, relevance and value to a loyal customer base. It has an increasing global recognition and a presence in 70 countries and is known for its craftsmanship and quality, fusing fashion and fit in a segment where comfort is a major driver of customer loyalty.

While we will develop each brand separately, over the long-term, we will learn from each other driving synergies across our respective businesses. Specifically, we will leverage Coach’s international infrastructure and expertise in handbags and accessories to develop Stuart Weitzman’s handbag and accessories business. In turn, Coach will benefit from the Stuart Weitzman team’s expertise in footwear development, where they are proven leaders in style and comfort.”

Conclusion

Coach offered a set of interesting results this quarter. The restructuring is on track with encouraging indicators on sales in renewed stores. Additionally, inventories might be on a downtrend which might be tranquilizer for investors. Furthermore, the acquisition of Stuart Weitzman was a surprise but it seems that it might be the first step in transforming Coach Inc from a one brand company to a company owning a wider brand portfolio. This might be the new growth spring for Coach. You can read more about my views on Coach here.

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