"Investment spending is likely to spike in fiscal year 2016, which should lead to further margin contraction next fiscal year," analysts said.
However, analysts recently traveled with CEO Victor Luis and noted that industry dynamics remain favorable, as management detailed their strategies to get the business back on track, according to the note.
Some key pillars to re-engage the Coach customer are improvements in product, stores and marketing, analysts highlighted.
On Friday, shares closed up 0.48% to $35.80.
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, expanding profit margins and good cash flow from operations. 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:
- The gross profit margin for COACH INC is currently very high, coming in at 76.71%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 9.48% trails the industry average.
- Net operating cash flow has significantly increased by 59.44% to $167.20 million when compared to the same quarter last year. Despite an increase in cash flow of 59.44%, COACH INC is still growing at a significantly lower rate than the industry average of 148.10%.
- 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