Michael Kors Holdings Ltd (KORS), Coach, Inc. (COH): This Company Works on Expanding its Product Line

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Leather goods aren’t selling like they used to at Coach, Inc. (NYSE:COH). The company had unexpected weak sales in their North American segment which led to a 10% drop in its stock price on July 30. With competition growing from the likes of Michael Kors Holdings Ltd (NYSE:KORS), Kate Spade, and Tory Burch, Coach is busy transforming itself into a lifestyle brand and expanding its core leather goods business. There is also a management shakeup going on with two senior executives leaving at the end of August and the company replacing its executive creative director.

Coach, Inc. (NYSE:COH) reported for the fourth fiscal quarter ended June 29, net income of $221 million, or diluted EPS of $0.78, compared to $251 million and diluted EPS of $0.86 reported in the fourth quarter of 2012. For fiscal 2013, net income totaled $1.034 billion and diluted EPS was $3.61 versus 2012’s $1.039 billion and diluted EPS of $3.53.

Coach, Inc. (NYSE:COH)Total quarterly North American sales in the period increased 6% to $825 million from $781 million in 2012, but comparable store sales were down 1.7%. For the full year, total sales in the North American market totaled $3.48 billion, an increase of 5% from $3.32 billion in 2012. Comparable store sales were even with last year’s numbers, while POS sales were below prior year and shipments to North America declined.

Competing brands are taking market share

To better compete with its rivals, Coach, Inc. (NYSE:COH) revamped its shoe collection in the past few months and, in October, will be unveiling a clothing line in a holiday collection. The company is estimating a modest sales increase next fiscal year in the low to mid single digits, but won’t forecast an improvement in same-store sales until it’s certain that sales are, in fact, improving.

In comparison, Michael Kors Holdings Ltd (NYSE:KORS)’ net income for the fourth quarter was $101.1 million, or $0.50 per diluted share. For fiscal 2012, net income was $41.6 million, excluding a $2 million credit for reimbursement of professional fees related to the company’s IPO; diluted EPS was $0.21. The company’s comparable same store sales grew 35%, which was attributed to increasing demand for the brand, an exciting product line, and an “exceptional jet-set in-store experience.” For fiscal 2014, Michael Kors estimates comparable store sales to increase by 15% to 20%, and diluted EPS to fall in the range of $2.43 to $2.47.

Fifth & Pacific Companies Inc (NYSE:FNP), which owns the lifestyle brands Kate Spade, Juicy Couture, and others, had net sales for the first quarter of $372 million, up 17.2% from the same period last year. Adjusted loss per share from continuing operations for the first quarter of 2013 was ($0.16), an improvement over the first quarter of 2012 loss of ($0.22).

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