After years of disappointing results, Coach is poised to be the big winner among the handbag brands this quarter.
Last year was a rough one for accessories makers such as Coach, Michael Kors, and Kate Spade, as consumers seem less willing to allocate discretionary income to luxury retailers in favor of tech products.
Despite lower oil prices, and consumers' return to making large ticket purchases such as autos, appliances and homes, high-end luxury did not benefit.
Consumer Discretionary has been one of the leading sectors for the last four quarters, driven by internet retail, household durables, and autos. Textiles, apparel & luxury goods on the other hand, are expected to see profits decline 2.5 percent this quarter.
This week we begin to get Q1 results for those companies, starting with Coach tomorrow.
During the recession, high-end accessories companies like those listed above, created lower-end lines to appeal to a wider demographic and stay afloat during the downturn. While that indeed benefited many of these companies during those years, it ended up backfiring once the U.S. economy began recovering.
Post-recession, many of these brands appeared "too accessible" and started to lose their cache, losing support from loyal followers who no longer wanted to spend $1,000+ for a bag that also had a $200 version.
Only a couple of years ago Michael Kors was the undeniable winner of the purse wars, with quarterly profits increasing by triple digits year-over-year in 2013, and maintaining high double-digit growth throughout 2014, with things finally beginning to slow in 2015.
During Kors peak, Coach was the biggest loser in the space. Their discount stores, with lower-end products, were cannibalizing higher-end lines, and logo-ed offerings were not resonating with millennials. Coach was starting to be seen as a line for more mature shoppers.
In the last year, though, things have been looking up for Coach. A management shake up, remodeled stores, and a new image as a lifestyle brand that includes shoes, apparel and accessories in addition to purses has helped. During Q4 2015, COH posted the first quarter of sales growth in two years. This quarter they are expected to return to profit growth as well, the first time since Q1 2014.
Currently, the Estimize EPS consensus is calling for $0.42, one cent above Wall Street, projecting a YoY increase of 17 percent. Revenue estimates from the crowd are also slightly higher at $1.028 billion vs. the sell-side's $1.025 billion. This would denote an increase of 11 percent above the year ago period. Both metrics have seen upward revisions since the January report.
Underlying concerns remain, however, for all of these names. Maturing U.S. markets, a stronger dollar, and a value driven consumer which has prompted heavy discounting could continue to pose a threat.
Competitors Kors and Kate won't report until next month, but despite these headwinds the crowd is still expecting growth. Kors is currently anticipated to post double-digit gains on both the top and bottom-line.
Even the weakest of the three, Kate, is poised for year-over-year growth, however it is the only of these names that the crowd is more bearish on as compared to Wall Street.
Want to be included in the crowdsourced consensus? Be sure to get your estimates in for these names here!