Sandbagged by Guidance

 | Oct 22, 2013 | 3:30 PM EDT  | Comments
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,

kors

Is Coach's management sand-bagging (pun intended) sales guidance?

While Coach's (COH) comps were exceptionally bad this quarter -- -6.8% vs. estimates of -3.5% -- management's guidance really forced the wheels off the stock. The company now expects comp declines for the remainder of the year in the high-single-digit range. Previous guidance was for negative low-single-digits. Remember, comparisons get easier throughout the year.

Management might believe they are setting the bar low, but here are a few reasons why the bar may go even lower: 

  1.  
    1. Coach comps are running a 32% spread as compared to Michael Kors Holdings (KORS) -- yes, the market share story continues. (See By Chloe, Marc Jacobs, Tory, Kate Spade, Anya Hindmarch are also piling on.)
    2. Management suggested the category moderated this quarter. Yes, it did and Coach's comps seem to be the entire culprit based on some simple assumptions.
    3. Coach continues to be identified as a factory outlet brand and that never helps sell full-price bags at retail (non-factory outlet) stores.
    4. Factory will be even more promotional this quarter. That may help comps but watch out, as margin guidance was lowered this quarter. I'm not sure the Street is ready for a sales story at the expense of margins.
    5. Until Coach sees the light and stops with the new store openings, The Street may continue to cringe at its quarterly results.
    6. The international  response has been underwhelming, yet the company is forging ahead with really pricey real estate commitments.

Lew Frankfort, who has served as the company's chairman and CEO since 1995, conducted his last conference call today. His last words to investors were "stay tuned." We can't help but wonder if Frankfort has impeccable timing

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