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Can Coach, Inc. (COH) Earnings Keep Pushing Up the Stock?

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Coach, Inc. (NYSE:COH) will release its quarterly report tomorrow, and investors are riding a positive wave of enthusiasm since the company’s previous report back in April. Yet even though the stock seems convinced of the success of the company’s turnaround, expected growth in Coach earnings seems tepid at best, at least for now.

Coach, Inc. (NYSE:COH)

For years, luxury goods retailers like Coach, Inc. (NYSE:COH) managed to buck the recessionary trend, as well-to-do luxury shoppers didn’t suffer as greatly from the financial crisis as those of more modest means. But beginning last year, Coach, Inc. (NYSE:COH) came off its highs as questions about growth in the formerly hot Asian market started to work their way through the luxury space. Let’s take an early look at what’s been happening with Coach over the past quarter and what we’re likely to see in its quarterly report.

Stats on Coach

Analyst EPS Estimate $0.89
Change From Year-Ago EPS 3.5%
Revenue Estimate $1.24 billion
Change From Year-Ago Revenue 7.3%
Earnings Beats in Past 4 Quarters 3

Source: Yahoo! Finance.

Will Coach earnings keep up the momentum?
Analysts have held their views on Coach, Inc. (NYSE:COH) earnings completely steady in recent months, making no change either to June-quarter estimates or to their views on the coming fiscal year. The stock, though, has done anything but stand still, with gains of more than 17% since the company’s last report in late April.

Coach reacted quite favorably to exceeding earnings expectations in its March quarter, as the stock jumped more than 9% in a single day after the announcement. Overall revenue climbed 7% in North America and 6% internationally, with double-digit percentage comparable-store sales growth in China helping to offset sluggish 1% comps growth in North America.

Yet despite that good news, Coach, Inc. (NYSE:COH) continues to face some struggles. Coach has had great success adding discount factory locations to its store base, with 22 new locations in just the past three quarters. Factory stores help boost revenue, but margins tend to be much weaker because of the 20% to 70% discounts to regular retail that shoppers find there. By contrast, rival Michael Kors Holdings Ltd (NYSE:KORS) has done a better job of creating overall growth, doubling its European sales and pushing its comps up a whopping 37% last quarter.

The company also needs to work hard to avoid a potential leadership crisis. With the imminent departure of both CEO Lew Frankfort and executive creative director Reed Krakoff next year, Coach, Inc. (NYSE:COH) is facing the possibility of a leadership vacuum, and successors like new executive creative director Stuart Vevers will have to come up with both strategic and creative direction in order to keep Coach ahead of its competitors.

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