NEW YORK (TheStreet) -- Coach (COH) was falling 6.98% to $48.83 at midday on Wednesday after the company reported second-quarter earnings that fell short of analysts' expectations.
The luxury brand reported a 9% drop in North American sales, which fell short of analysts' estimates on profit and revenue and brought down the company's second-quarter results. Coach reported second-quarter revenue of $1.42 billion, which marked a 6% decrease from the same period in the fiscal year 2013 and missed the analyst consensus of $1.5 billion.
Profit also fell from the same period last year to $297 million, or $1.06 a share, from $353 million, or $1.23 a share. This fell short of analysts' expectations of $1.11 a share.
"We continued to be disappointed by our performance in North America, which was impacted by substantially lower traffic in our stores and by our decision to limit access to our e-factory flash sales site," said new CEO Victor Luis in a company statement.
Sales in China, on the other hand, rose approximately 25% and Coach is on schedule to meet its annual guidance of $530 million in the region, according to the report.
TheStreet Ratings team rates Coach a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate COACH INC (COH) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- COH's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.46, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for COACH INC is currently very high, coming in at 75.74%. Regardless of COH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, COH's net profit margin of 18.93% compares favorably to the industry average.
- COACH INC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, COACH INC increased its bottom line by earning $3.62 versus $3.54 in the prior year. For the next year, the market is expecting a contraction of 4.7% in earnings ($3.45 versus $3.62).
- COH, with its decline in revenue, underperformed when compared the industry average of 18.4%. Since the same quarter one year prior, revenues slightly dropped by 0.9%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Textiles, Apparel & Luxury Goods industry and the overall market, COACH INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: COH Ratings Report