The firm said it cut its numbers on the luxury handbag, apparel, shoes and accessories retailer based on increased promotional activity in its handbag business. Credit Suisse maintained its "neutral" rating on Coach stock.
For the 2015 full year, the firm lowered its earnings estimate to $1.93 per share from $1.94 per share. For 2016 Credit Suisse is now expecting earnings of $1.78 per share, down from its previous $1.97 per share estimate.
Looking ahead to the full year 2017, the firm has forecast for earnings of $1.98 per share, from $2.20 per share.
"We are concerned about the sharp increase in handbag styles on sale and the discount rate during the semi-annual sale period on the company's website. In our June check, 38% of styles were on sale at an average discount rate of 50%. This is an acceleration from the last semi-annual sale check in December where 15% of styles were on sale at an average discount of 33%," Credit Suisse said in an analyst note.
"Coach moved to the semi-annual sale format in 2014 and aimed to have approximately 25% of its assortment on sale for an average discount of 30-50%. We are increasingly concerned that a rise in discounting of the core business could indicate that new styles are not taking hold with consumers," the firm added.
Shares of Coach are lower by 1.35% to $31.86 at the start of trading on Friday morning.
Separately, TheStreet Ratings team rates COACH INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate COACH INC (COH) a HOLD. The primary factors that have impacted our rating are mixed-some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Net operating cash flow has significantly increased by 59.44% to $167.20 million when compared to the same quarter last year. In addition, COACH INC has also vastly surpassed the industry average cash flow growth rate of -108.30%.
- Despite currently having a low debt-to-equity ratio of 0.35, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.21 is very high and demonstrates very strong liquidity.
- COACH INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, COACH INC reported lower earnings of $2.78 versus $3.62 in the prior year. For the next year, the market is expecting a contraction of 31.3% in earnings ($1.91 versus $2.78).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Textiles, Apparel & Luxury Goods industry. The net income has significantly decreased by 53.8% when compared to the same quarter one year ago, falling from $190.74 million to $88.10 million.
- You can view the full analysis from the report here: COH Ratings Report