Coach hits 6-month low on dire forecast and market loss

ANALYSIS_ Coach Inc.(COH) plummeted Tuesday after its weak forecast for the first quarter of fiscal 2014. The New York brand advanced a tough end of the year and predicts further declines through the rest of its financial year due

to a decreased market share.

Shares at Coach traded poorly in Wall Street after the company´s CEO Jane Nielsen said on a call with analysts that its North American same-store sales would be down by "high single digits" for the rest of the financial year to June 2014.

On the back of the news, Coach opened substantially lower Tuesday morning, dropping to a 6-month low after losing as much as 9 percent after it reported a 6.8 percent fall in North America same-store sales in the three months to September 28.

“Investors do not appear impressed with Coach’s results, thus shares of this designer and marketer of fine accessories and gifts fell 3.7 percent or 1.98 dollars to 52.20 dollars during pre-market trading hours,” highlighted Zacks Equity Research in a note.

The analysts were however expecting Coach´s first-quarter fiscal 2014 earnings of 77 cents a share, as “that came in line with the Zacks Consensus Estimate, and also remained flat with the prior-year quarter.” The consensus estimate was for EPS of 0.76 dollars.

Net sales for the quarter came in at 1,150.8 million dollars, a 1 percent behind last year´s same period and equally short of the Zacks Consensus Estimate of 1,191 million dollars. Main reason behind the slip was a worse than expected performance in the North American market – their main one -. Noteworthy was that sales for the period increased 2 percent on a constant currency basis.

Coach falls on decreasing market share in North America

Analysts that follow the stock agree on the main reason behind the steep fall in sales in North America and the dire forecast for further declines through the rest of its financial year lies in the continuous loss of market share to rivals such as Michael Kors.

"I think where Coach has really struggled is the 20-35 crowd. They've left Coach and gone to Michael Kors and Kate Spade," said commenting the news for Reuters Edward Jones from Brian Yarbrough.

Analysts at Trefis stressed the pivotal role that the US market will play for Coach in the short run. “We believe that the company's North American results will remain weak in the near term. Since these operations account for about two-third of Coach's sales, the retailer's overall results will also feel the negative impact.

However, Coach's international and men's business hold some upside for the company's results, and this could be a highlight in its release,” the analysis firm said before the company released its results for the first quarter of its 2014 fiscal year.

With regards what the near future lies for the New York based brand, the analysis team at Trefis say that “It will be interesting to see Coach's progress on its brand transformation strategy, as its success is the key for the company to sustain its market share in the North American handbags and accessories market. Coach's profitability could come in lower than the prior year due to the weaker yen, and increased investments in international markets and brand transformation strategy.”