Has Coach's stock peaked?

The handbag maker reports its strongest sales in more than 2 years, but will the company plateau?

By TheStreet Staff Oct 26, 2010 10:26AM

thestreetBy Jeanine Poggi, TheStreet

 

Credit: © Daniel Acker/Bloomberg/Getty Images
Caption: A Coach handbag sits on display in the Coach flagship storeCoach (COH) reported third-quarter earnings and revenue that handily topped expectations. But the numbers may leave investors wondering: Has the handbag maker reached its peak?

 

During the quarter, the company earned $188.9 million, or 63 cents a share, a 34% surge from $140.8 million, or 44 cents, a year ago. Analysts predicted a profit of 55 cents a share for Coach.

 

Coach's revenue jumped 20% to $911.7 million, also above estimates of $846.8 million. North American sales at stores opened at least a year grew 8.5%, the biggest gain since the fourth quarter of 2008. The same measure rose 3% in Japan and by double digits in China.

 

Comparable sales have strengthened for three consecutive quarters as consumers are being wooed by lower-priced handbags.

This marks Coach's strongest sales and earnings performance in more than two years. But the company did not provide fiscal 2011 guidance, which may cause investors to remain cautious.

 

Still, Wall Street Strategies analyst Brian Sozzi says today's report could also be viewed as a sign of what's to come as international sales begin to dominate a slower U.S. growth story. Coach continues to make an aggressive push in China, with plans to open 30 stores in 2011.

 

The company also attributed some of the gains to significant growth in shipments to department stores ahead of the holiday quarter and lower sourcing costs.

 

Coach's earnings signaled good news for the department store sector as well. Macy's (M) and Nordstrom (JWN) are positioned to benefit the most, as both sell Coach handbags and accessories.

 

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