Coach's Stock Not Helped By Sales Uptick

Last Updated Jan 21, 2010 5:32 PM EST

Sometimes Wall Street isn't very forgiving, even when a company is performing better than it was in the recent past. Handbag retailer Coach (COH) is a recent victim, and got rewarded with a nearly five-percent decline in its stock price even after posting greatly improved sales compared to prior quarters.

Coach posted a 3.2 percent gain at North American stores open at least a year during its second quarter, while total sales rose 11 percent. Year-over-year operating income increased as well from the prior-year period, up 9 percent and hitting $381 million.

Those figures are a significant improvement over prior periods in 2009. For example, during the entire fiscal year, Coach's same-store sales fell 6.8 percent. Net income dipped to $622 million, down from $742 million in the prior-year period.

But the latest improvement wasn't enough to get Wall Street excited. Brian Stossi, a Wall Street Strategies analyst, was quoted in Barron's saying that Coach's inventory situation, down 30 percent from the prior year is "not what one would expect in a business returning to supposed sustainable (comparable sales) growth."

But isn't a big reason that retailers experienced a much better holiday season than in 2008 because they kept their inventories in check to avoid needing to sell prices at deep discounts? It's almost as if Coach is getting punsihed for a strategy that ensured respectful numbers.

At least one blogger, Joseph Lozzaro at BloggingStocks, views Coach favorably. He looks at potential five percent to seven percent revenue growth for the company this year as a good sign for things to come. He also says: "Coach has prudently decreased items on selected products; even so, profit margins remain impressive."

And Coach is smart to plan store growth in China, where it sees strong sales growth.

Though the retailer had a tough recession, like most stores with the exception of discounters, the brand is definitely going in a better direction right now. Maybe Wall Street will notice.

Wikimedia Commons image of Nagoya, Japan, Coach by user Eightinc.