Coach (COH) may have just killed the bears, a group that has sent shares of the handbag maker down about 14% over the past six months on fears of tepid consumer spending ahead of the presidential election and the ongoing upheaval at major department stores.
Coach reported fiscal first-quarter earnings on Tuesday of 45 cents a share, in line with Wall Street forecasts. Net sales rose 1% to $1.04 billion, falling shy of analysts' estimates for $1.07 billion. But the company notched several wins during the quarter that suggest its turnaround remains intact.
First, Coach saw U.S. same-store sales -- which are sales from stores open longer than a year -- rise 4% at its bricks-and-mortar retail locations, helped by a venture into more premium handbags such as its 1941 and Felix the Cat collections. The push into higher-priced bags and accessories lifted the Coach brand's gross profit margin to 69.8% from 68.6% a year ago. And finally, inventory declined 5% from the prior year, which raises the prospect of Coach not having to discount aggressively at its retail locations or department stores during the holidays as it's currently not overloaded with merchandise.
Strength at its U.S. retail stores, and in China and Europe, aided Coach in overcoming another challenging quarter at North American department stores. Sales in that channel plunged a whopping 30% as the company exited unproductive spaces, per a decision announced earlier in the year.
Coach reiterated that it sees revenue rising by a low- to mid-single digit percentage for its fiscal year, as well as earnings rising by a double-digit percentage.