How Will Coach Close Out Its Financial Year?

COH: Coach logo
COH
Coach

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Coach is holding a conference call to report its fourth quarter and financial year 2016 earnings on August 9, 2016.

Factors To Consider:

1) Collaboration With Disney

  • Coach teamed up with Disney for range of handbags, t-shirts, and sneakers, featuring the world’s most iconic mouse.
  • It debuted in New York and Paris on June 10th, followed by its other stores on June 17th.
  • Since the launch, several items have sold out online, including all four colors of the $395 kisslock handbags, designed in the shape of Mickey’s ears, and $1,500 leather dolls and bean bags.
  • Such limited editions help prevent discounting in order to move inventory, which would result in lowering the brand value.

2) Reduced Spending On Handbags

  • Coach is heavily reliant on its handbags and handbag-related products, which constitute 80% of its sales.
  • If this category slows down, it would be hard for the company to turnaround its business.
  • According to a recent survey, 24% of consumers expect to spend less on handbags in 2016, higher than the percent expecting to spend less on other luxury items.
  • Coach also realizes 60% of its sales from outlets, which makes it hard to wean the company off discounting.

Highlights Of The Previous Quarter:

1) Turnaround of Coach’s North American Business

  • Same-store sales at the retail stores were unchanged, after a number of quarters of negative comps, representing the fourth consecutive quarter of improvement.
  • While store and mall traffic were soft, due to increased internet sales, more was spent per customer versus a year prior.
  • Positive comps were seen in the renovated luxury concept retail outlets.
  • Low single-digit growth in the North American premium women’s handbag and accessories market.
  • Higher premium handbag purchases, as compared to six months ago.
  • The above $400 price bracket rose in penetration, and forms ~40% of handbag sales, up from ~30% last year.
  • Handbag AUR (Average Unit Retail) has risen to over $300 in the quarter, for the first time since FY 2009.

2) Chinese Market And Chinese Tourists Driving International Sales

  • Greater China third quarter sales increased 2%.
  • This was driven by double-digit growth and positive comps on the Mainland, offset by weakened markets in Hong Kong and Macau due to a slowdown in inbound tourist traffic from the Mainland.
  • Annual sales forecast of $600M, reflecting continued softness in Hong Kong and Macau.
  • Decline in Chinese tourists to North America and Europe, notably France, affected performance there.
  • Growth in Chinese tourist spending in Japan, Korea, and Southeast Asia resulted in high growth.
  • Japan sales grew by 7% on a constant currency basis, benefiting from increased Chinese tourist traffic and a positive response to the new modern luxury stores.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Coach.
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