NEW YORK (TheStreet) -- Coach (COH - Get Report) shares have plunged 40% in two year's time and may fall still further, based on first-hand observations of the brand inside major department stores. Discounts, closed displays and other problems are making it difficult for the company to expand sales and profits at these outlets.
In the past month alone, Coach's stock has shed 17.2%, compared to a 10.9% fall for rival Michael Kors (KORS - Get Report), and a 1.5% rise for the renewed Kate Spade (KATE - Get Report). Consider this: Coach's same-store sales, a key industry metric, have not increased since the quarter-ended April 23, 2013 (1% improvement realized). For the latest nine months of Coach's fiscal year, gross profit margins have evaporated to the tune of 244 basis points.
Michael Kors has delivered same-store sales increases of 22.9% to 36.7% over the past four quarters. Same-store sales growth at Kate Spade has been even more impressive than Michael Kors. In the most recent quarter, Kate Spade's same-store sales rose a whopping 43%, following increases of 30%, 31%, and 27%.
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According to Yahoo! Finance, analysts expect Coach to earn 53 cents per share when it announces its fiscal fourth-quarter earnings in early August. If that estimate is met, Coach's earnings per share will have fallen a staggering 40% year on year.
Not only is the street's fourth-quarter earnings estimate at risk of being missed, but earnings guidance for the new fiscal year could be disappointing. Wall Street estimates have Coach earning $1.90 per share for its fiscal year 2015 period.
Coach's weak earnings potential is evident at the store level. From eye-popping discounts cheapening the brand in real time at leading department stores, to Coach shops in Macy's (M - Get Report) being closed for remodeling, to misguided distribution in non-luxury department stores, the turnaround for Coach appears likely to not happen anytime soon. That is if it happens at all.
Take a look at these Coach items at 40% off at a higher end Macy's department store. Spotted in the background is a Coach shop remodel.