Coach works out plan to re-gain market's trust

ANALYSIS_ Last Coach's analyst and investor day failed to impress Wall Street, with many withdrawing their trust on the high-end bags and accessories brand. In an attempt to regain the market's confidence, Coach Inc. has pulled together a plan to reverse its fate.

After paying the toll at the trading floor in Wall Street for an often described as a too-heavy outlet presence and an overly promotional strategy, Coach laid out its plan to reinvigorate sales and restore its brand equity.

Along with plans to close 70 stores, Coach will cut back on its logo-ed product and dissuade customers of discounts in its outlet business, after North America sales posted their fourth-straight same-store sales decline in April.

However, Wells Fargo analyst Paul Lejuez is not sold at the plan, saying that the handbag maker is "attempting something very difficult in trying to transform its brand, reduce promotions and attract new customers," equating the strategy to that employed by low-price department story JC Penney under ousted CEO Ron Johnson.

Analysts hardly convinced on Coach's turnaround efforts

“We believe that things might get worse for Coach before they get better. However, we would like to label Coach as a wait and see story,” summed up Zacks Equity Analysis in a research note. They currently have a Zacks Rank #3 (Hold) on the stock.

Corinna Freedman footwear, apparel and accessories analyst at Wedbush Securities said in an interview with CNBC's ‘Fast Money’ that she's unconvinced the struggling handbag maker will put together a successful turnaround.

"It remains to be seen whether or not that customer is going to come back to the store," said Freedman. "They are relying a lot on merchandising. They are relying a lot on new products in September. But, that's not going to be a quick turn. It's going to be a very long turn."

Likewise, analysts at Zacks pointed out that “troubles for luxury retailer, Coach, Inc. (COH) seem far from over” after the company announced 70 store closures and projected a double digit dip in its revenues for fiscal 2015 during their investors day.

Coach forecasts same store sales in North America to decline in high-teens in the fiscal. Meanwhile, operating margins are expected to be around high teens as the company increases investments across board.

In a report published Friday, David Schick, analysts with Stifel, reiterated his ‘Buy’ rating on Coach (NYSE: COH), but lowered the price target from 65 to 47 dollars.

In a report issued soon after Coach's analysts and investors day, Stifel noted, “Yes, we have had a Buy on COH; we want to remind you of that as you read further. We had thought COH had the opportunity to reset its brand higher and, given strong ROIC characteristics of the accessories business, this would drive renewed interest from investors. We were essentially wrong on the pace at which these conclusions were reached at the company. That means more damage was done and the reset of expectation has to be that much more significant. But, now one looks at a COH model with vast sales drops and pure spending increases expected. This is potentially compelling over time and so we stick with Buy.”

The stock was badly battered after the announcement, with a “massive sell off leading to 9 percent erosion of market cap,” as summed up by Zacks. Year to date stock price has fallen over 35 percent.

Angela González Rodríguez