Coach (COH) will report Q3 earnings on 4/26 before the open with the Street consensus at $0.41 EPS and $1.02B in Revenues, and FY16/17 projections of $1.90/$4.48B and $2.11/$4.66B. COH shares have closed higher on Coach earnings in 4 of the last 5 reports, yielding a 6 quarter average max move of 9.1% and average closing move of just over 6%. That said, Coach stock price has closed lower its last 2 Q3 earnings reports, and 3 of the last 4.
The $11.18B apparel Company trades 19.15X Earnings, 2.64X Sales, 4.35X Book and yields a 3.35% dividend.
Forecasts expect 6.9% of revenue growth in 2016 followed by 3.95/6.2% in 2017/2018 respectively, while EPS set to fall 1% Y/Y in 2016 but return to double digits at 10.7% in 2017 and accelerate to 13.8% in 2018. The gross margin trajectory shows expectations at 68.2% in 2016, which has moved lower each year since 2016, but now is expected to stabilize. At 10X FY17 EV/EBITDA, Coach (COH) trades at a premium to its peer average multiple of 8.75X, while Michael Kors (KORS) is the cheapest name at 6.35X.
Looking at the last Coach earnings report (Q2), COH performed in line with expectations and noted the most significant progress in its transformation plan despite a difficult retail environment globally. COH did cite a backdrop of lower tourist traffic and a highly promotional environment, two themes that have showed up early in some earnings reports this quarter as well. Europe and China posted double digit growth. Stuart Weitzman, a recent acquisition, exceeded expectations and continues to gain traction internationally. Breaking down sales further the women’s handbag segment was flat in North America due to heightened promotional activity, while Men’s (17% of total sales) posted strong results, and Coach (COH) sees that as a $1B opportunity. COH posted total store comps of -3% and cited lower conversion and declines in traffic from weak mall trends.
In terms of some read-through’s into the quarter, Gucci recently disappointed on earnings with the biggest weakness coming from Bottega Veneta, a handbag maker, slowdown in tourism noted. Both Prada and Louis Vuitton posted weaker than expected earnings results earlier in April, and cited some impact from the terrorist attacks resulting in slowing tourism.
Analysts have an average price target of $40.70 on Coach shares with 16 Buys, 19 Holds and 2 Sells. On 4-22 Wolfe Research raised its target to $47 from $41 ahead of Coach earnings citing strong checks with product improvement and full-rice conversion, expecting -1% comps versus the Street consensus of -1.4%. On 4-7 William Blair upgraded shares to Outperform with a $40 target and Nomura raised its target to $50.
Short interest in Coach stock stands at 5% of the float, hitting a 3 year low and down meaningfully from above 10% in late 2014. Institutional ownership rose 0.44% Q/Q in Q4, notable buyers included Balyasny (3M+ shares) and Point-72 (1M+ shares) while a notable seller was Wedgewood (10M+ shares). COH is not a highly concentrated holding for any notable funds.
Looking at the Coach stock chart, shares have performed strong in 2016. Shares moved above weekly cloud resistance in mid-February, and currently are flagging with the 8 week EMA supportive at $38.95, and beneath that the 20 week EMA sits at $36.75. Shares have a volume pocket below the 50 day MA at $38.65 down to $37. The longer term chart shows a name that broke out of a downtrend (2012-2016) in February, though the weekly RSI extended and MACD nearing a potential bearish crossover, a retest of the broken trend line would occur near $36.75. The $43.50 and $46 levels are upside resistance.
In terms of seasonality COH shares have averaged a 7% decline over the past 5 years in Q2, and June and July its two weakest months of the year.
The options market is pricing in a 7.5% move on Coach earnings, and an IV Skew with a flatter slope than normal showing a modest bullish bias in the market. COH has seen numerous positions taken in the options market, and checking the OptionsHawk Notable Trade Database, included are:
- 4/21 Spread Sold 5K May $43 Calls and 3,500 May $37 Puts
- 4/20 Buyer 1,500 April 29th (W) $39.50 Puts $1.05
- 4/15 Buyer 3K May $40 Puts $2.25 which followed a buyer of 1,500 on 4/13 at $2.25
- 4/8 Buyer 7K May $40 Calls at $1.50 to $1.70
- 4/7 Buyer 2K May $41 Calls $1.55
- 4/1 Buyer 4K May 6th (W) $41.50 Calls $1.30 to $1.35
COH will need to post improving comps and expanding margins for shares to move meaningfully higher, the last 11 quarters it has posted negative comps, and shares remain at a premium valuation on hopes of the transformation working, though the global luxury retail environment was fairly weak in Q1 based on a few peer indications. It feels like a quarter where COH will post disappointing results, but not enough for investors to give up on the recovery story. So perhaps we’ll see a situation where shares may sell off initially before recovering without too much damage.
Thanks for reading.
More from Joe: Â Options Traders Look For Q2 Upside In Biotech Stocks
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The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
