Image placeholder title

NEW YORK ( TheStreet) -- Investors cheered better-than-expected holiday earnings and signs of progress in an ongoing turnaround at leather handbag and accessories maker Coach (COH) , but did they forget about the decidedly unsexy sales line?

Coach reported adjusted earnings per share of 72 cents versus the consensus forecast of 66 cents. Revenue came in at $1.22 billion, relatively in line with Wall Street's expectations. Coach's CEO Victor Luis took a minor victory lap in response to the performance and reiterated full-year sales and profit guidance. He noted that consumers responded favorably to newly redesigned department store shops at the likes of Macy's (M) - Get Macy's Inc Report  as well as trendier studded bags and furry coats from designer Stuart Vevers that launched in September.

Coach opened 20 of these concept stores globally in the quarter. On a call with investors on Thursday morning, Luis mentioned these stores are performing "significantly" better than the broader Coach fleet, and that same-store sales were positive. The company is on track to renovate about 150 retail locations in its fiscal year and open up to 60 new concept stores globally, which, according to Coach, may be helping to improve consumer's perception of product quality and value after years of discounted logo bags. 

As for its department store shops, Coach completed 140 projects to spruce up the signage and fixtures that showcase its handbags before the holiday season. 

The stock popped over 5% in morning trading on Thursday response as investors bought into the potential for a Great American retail story comeback.

But all these positive developments can't mask one ugly truth about Coach's business, which is that sales continue to decline steeply in the U.S. and Japan, both key markets for Coach, and are unlikely to turn positive until the next fiscal year.

TheStreet Recommends

The persistent sales declines underscore the ongoing challenges Coach is having in reconnecting with consumers who are enthralled with trendier, and in many cases more affordable, handbags from Michael Kors (KORS) , Kate Spade (KATE) and Tory Burch

In the holiday quarter, North American same-store sales declined 22% as the company pulled back on discounts online, at outlets and at full-price mall locations. Fewer discounts led to fewer people visiting Coach stores and fewer transactions. The lackluster sales performance in the quarter came after a 24% same-store sales decline in North America in the first quarter of Coach's fiscal year.

Coach also warned on the earnings call that the second half of its year "could be more challenging" as it pulls back further on the discounts consumers have come to expect from the retailer.

Sales in Japan in constant currency dropped 7% in the second-quarter, similar to its showing in the first quarter.

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 largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels 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 weak operating cash flow."

You can view the full analysis from the report here: COH Ratings Report

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.