Although this market was once dominated by Coach, Inc. (NYSE:COH), which was founded in 1941, younger brands like Michael Kors Holdings Ltd (NYSE:KORS) and Fifth & Pacific Companies Inc (NYSE:FNP)’s Kate Spade have emerged as major contenders in an increasingly crowded market. Which of these three fashionable companies is best positioned to capitalize on rising consumer sentiment, which hit a six-year high in July?
The loser: Coach
Shares of Coach, Inc. (NYSE:COH), the largest name in affordable luxury handbags and accessories, plunged on July 30, after the company reported a drop in profit, weak same-store sales, and the departure of two key executives — Mike Tucci, the President of the North American segment, and Jerry Stritzke, the company’s President and Chief Operating Officer.
For its fourth quarter, Coach, Inc. (NYSE:COH) earned an adjusted $0.89 per share, up 3.5% from the $0.86 per share it reported in the prior year quarter. Sales rose 5.8% year-on-year to $1.22 billion. Coach’s profit was in line with analyst estimates, but revenue came up short of the consensus estimate of $1.24 billion.
Coach, Inc. (NYSE:COH) reported solid sales growth across the globe, with a 5.6% increase in North America and a 6.6% gain in international markets. However, North American same-store sales declined 1.7% while direct-to-consumer sales rose 5%, indicating that more purchases were made online rather than at brick-and-mortar locations.
China was the standout performer in the international markets, reporting a year-on-year sales increase of 35%. Although Japan reported a 4% sales increase on a constant currency basis, sales actually declined 15% on a dollar basis, due to the dramatic weakening of the yen during the quarter.
In recent years, Coach, Inc. (NYSE:COH) has attempted to expand its fashion collection to include more accessories, clothing, shoes, and men’s bags. Coach also plans to emphasize its outlet stores over its full-price locations in an effort to improve sales volume. However, Coach’s executives don’t believe that the addition of all these products and a renewed focus on lower-end consumers will directly boost same-store sales, which are still forecast to rise at a “low to mid-single” digit rate for the rest of the year.
In other words, Coach’s numbers tell the same old story for the company — its numbers are still rising, but stale single-digit growth just isn’t appealing when compared to Wall Street’s favorite new kid on the block, Michael Kors.
The winner: Michael Kors
Michael Kors Holdings Ltd (NYSE:KORS), which went public in December 2011, has become a favorite of shoppers and investors alike. Last quarter, the company reported earnings and revenue growth of 131.8% and 57.1%, respectively, a trend that Wall Street expects to continue when it reports first quarter earnings on August 6.
Under the guidance of designer Michael Kors Holdings Ltd (NYSE:KORS), who rose to international fame as a judge on Project Runway, and CEO John Idol, Kors has established itself as the trendy affordable luxury brand that makes Coach look stodgy and dated by comparison. Same-store sales climbed 35% year-on-year in North America and surged 63% in Europe — growth rates that Coach can only dream of. Kors is also quickly establishing footholds across Asia and penetrating key markets such as China and Japan.
