Although Coach posted tepid earnings estimates for 2018 this morning, observers believe it’s par for the course for a brand in flux.
The company expects revenues for the coming year to reach between $5.8 billion and $5.9 billion, with Kate Spade — which Coach purchased last month for 2.4 billion, in a bid to attract more millennial shoppers — contributing over $1.2 billion. Earnings are expected to be at $2.35 to $2.40 per share. These numbers fell short of analyst expectations for 2018, which averaged around $6.04 billion in total revenue, at $2.49 a share.
More promising is the news that the brand nearly doubled its overall profits to $151.7 million in the fourth quarter of this year.
Coach launched a turnaround plan in 2014 that continues to evolve. Along with selling higher-end designs under creative director Stuart Vevers, renovating stores, and cutting back on promotions, the brand has been pulling its product out of department stores and outlets in an effort to regain image control and pivot to the luxury consumer.
It’s not alone — Michael Kors has followed suit with its Runway 2020 rejuvenation program that involves scaling back on promotions and department store presence. Last week, the brand posted a 3.6 percent decrease in overall revenue at $952.4 million, still more than original estimates of $918.6 million.
“What we’re watching at this point is a course correction by the Coach brand, which is actually healthy from a brand longevity and relevance standpoint,” said Fosina. “It’s clear Coach understands that the brick-and-mortar retail store shelf-stocking model is not the one that will be most relevant in the years ahead.”
Ashley Paintsil, editor in chief of FashInvest, agreed. “Right now, retailers are trying to adjust to all the changes in the market, especially when it comes to store closures and moving more of their business online, so these results aren’t surprising,” she said. “All the hype surrounding the Kate Spade acquisition pushed analysts’ expectations of the company up, but the reality is that, although they’re paid to predict the future, they can’t do that 100 percent accurately because anything can happen to alter a company’s shares.”
Maddison Tailor, the director of marketing at Ansira agency, agrees that these tamer sales expectations should not be cause for worry just yet. “Although it opens the door for more affordable and trendy competitors to take their business, Coach focusing on regaining brand exclusivity and adding to their portfolio has the potential to really pay off in the long run,” she said.
Many in the industry see the addition of Kate Spade to Coach’s portfolio, which also includes Stuart Weitzman, as particularly savvy.
It can capitalize on its younger buyers, further introducing them to the Coach brand and style when the time is right, according to Fosina. “The company’s offering would then span the full demographic of buyers for luxury bags, at a variety of price points,” he said.
“Their profits will likely increase because Kate Spade is doing very well overall,” said Paintstil, though she was quick to hedge her bets: “We’ll have to wait and see.”
Coach, for their part, is banking on it.
“Kate Spade brings a new, unique brand attitude and an additional consumer segment to the Coach Inc. portfolio and we expect that this acquisition will enhance our position in the attractive and growing $80 billion global premium handbag and accessories, footwear and outerwear market,” said Victor Luis, the company’s chief executive officer, on Tuesday’s earnings call.