Coach Crushes It
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It has been a poor start to the third-quarter earnings seasons so far. Although the majority of firms have reported results that have beaten on the bottom line, just over 40% of S&P 500 companies are beating revenue estimates. In addition, forward guidance has been dismal. There are other concerns in the market -- the fiscal cliff, Europe and so on -- but Tuesday's rout in equities was primarily driven by earnings reports and guidance that have disappointed investors. I think this will continue throughout the quarter.
- The company reported earnings of $0.77 a share, beating estimates by a penny.
- More important, the company stated sales in China grew at a 40% year-over-year clip.
- Coach also showed solid domestic growth, with a reported 5.5% same-store sales uptick in North America.
- Men's sales, while still a small part of total revenue, increased 50% from a year earlier, and the company believes this category can produce $650 million in sales this year.
- Finally, just to put a cherry on top of a great quarter, Coach's board authorized a $1.5 billion stock-repurchase program.
- The company has a solid balance sheet, with almost $900 million in net cash on its books, and it provides a 2.2% dividend yield.
- Analysts expect revenue growth of more than 10% for both fiscal 2012 and 2013. Further, the five-year projected price-to-earnings relative to growth ratio (PEG) is just under 1 (0.99). Its retailing square footage should increase 10% to 15% in fiscal 2013.
- Coach shares are selling at just 13x forward earnings, a discount to its five-year average of 15.4x. Further, look for those earnings estimates to move higher on Tuesday's strong earnings report and the significant announced buyback program.
- Standard & Poor's has its highest Strong Buy rating on the shares, with a $70 price target on the stock. The stock is also an "outperform" rating at Credit Suisse.
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