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Coach (COH) Investors Lower Expectations as U.S. Comps Decline

January 23, 2013 9:03 AM EST
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Shares of retailer Coach (NYSE: COH) declined sharply on Wednesday after it released disappointing Q2 results that fell well short of Wall Street expectations. Management expressed confidence in their ability to address near-term challenges in North America, but based on the results it was obvious a reset of expectations was in order.

Coach reported revenue of $1.5 billion compared to revenue of $1.45 billion last year. This was an increase of 4 percent year-over-year but was below Wall Street estimates that called for revenue of $1.6 billion.

A breakdown of the numbers showed strong growth in international sales, which increased 12 percent to $411 billion. U.S. sales were essentially flat at $1.08 billion with comps down 2 percent. EPS came in at $1.23, 6 cents below consensus.

North American comps fell 2 percent versus an expected 2.3 percent rise.

Analysts lambasted the company following the results. Deutsche Banked noted that Coach posted the worst 2Y stacked comp since the September 2010 quarter and 2H2009 before that. They said a competitive holiday environment "clearly impacted unit sell-through."

Beyond the quarterly numbers, the release "may raise bigger questions with investors about discretionary spending broadly and perhaps on accessories, specifically," the analyst said. "As Coach called out an increasingly intense competitive environment in women’s handbags in North America, which many will read, primarily, as from Michael Kors (NASDAQ: KORS) the bigger question may arise as to how well accessories, from an industry perspective, are trending relative to apparel and other key categories."

Shares of Coach are down 16 percent in pre-open trading Wednesday.


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