A Few Reasons Why Coach Still Looks Interesting

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U.S. consumers were spending less because of the government shutdown, as indicated by a recent survey. This is a bad sign for retailers who are eagerly waiting for the holiday shopping season to start. Premium retailers will find it even more difficult to sell their products since consumers tend to first cut down on high-end products. As a result, retailers such as Coach might have a tough time ahead. Speaking of which, Coach recently reported first-quarter results that failed to impress investors, causing its stock price to plummet.

Failure to lure customers
Coach's revenue slipped to $1.15 billion, a 1% drop from last year's first quarter. The core women handbag business witnessed lower demand as customers shifted to other brands such as Michael Kors . Coach's store traffic decreased, leading to a drop of 6.8% in same-store sales. Nevertheless, the retailer's cost-cutting measures enabled it to post earnings per share of $0.77 to beat estimates of $0.76.

Although sales in North America decreased slightly, Coach witnessed great demand in international markets, especially China. Sales from China grew 35% over last year as Chinese consumers continue to buy Coach's products. This led to higher revenue from international markets .

As compared to others
Coach's women's accessories could not match up to Kors' popularity and growth. Kors' market share has been increasing continuously, and has now reached 13% . Its products are loved by customers, leading to higher sales each quarter. This has resulted in Kors' stock price appreciating 225% since its IPO in December 2011. Its first quarter was a great one, seeing a 55% jump in revenue and 25% growth in same-store sales in North America . This is in sharp contrast to what Coach experienced in the same region.

Even peer Ralph Lauren posted a lackluster quarter, with a revenue increase of only 3.8% over last year. Revenue was mainly boosted by the retailer's new stores and other expansionary moves. Its same-store sales dropped 1% as it experienced resilience in overall consumer spending. Sales from Europe grew, however, enabling Ralph Lauren to stick to its previously announced revenue guidance .

Interesting moves
Although Coach's performance has not been very impressive, its efforts to improve look interesting. The company has been spreading its wings, expanding into new areas as well as new segments.

The company has been expanding its international footprint. Since China has been one of the bright spots for the company, Coach has been expanding its reach in the region. It opened six new stores in China during the quarter, in addition to four new stores in North America and two stores in Asia .

Moreover, the retailer has entered into the men's segment. Its products for men have gotten a great response, and the company plans to expand this category further.

Coach has also been putting effort into its products so that it can increase store traffic. It relaunched the Madison range of products, featuring newer designs that were quite successful earlier. It has also introduced new shapes in its Legacy brand of handbags. On the footwear front, the fashion retailer came up with new designs in August. These efforts should start bearing fruits in the future.

Coach is also strengthening its marketing efforts in order to attract consumers. The accessories retailer has undertaken a brand transformation strategy, hoping to become a global lifestyle brand which will have a wider presence and a variety of products to offer.

The takeaway
Though Coach has not been up to the mark and has underperformed as compared to its peers, its strategic efforts might help the company to have a bright future. Its new products, expansionary moves, and brand transformation strategy should bring back lost customers. This in turn should lead to higher sales.

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The article A Few Reasons Why Coach Still Looks Interesting originally appeared on Fool.com.

Pratik Thacker has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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