Luxury handbag maker Coach reported a 66% drop in fiscal fourth-quarter net income Tuesday. So what did its stock do? Rally, of course, to the tune of more than 4%. That’s because analysts had expected the retailer to do even worse.
Coach reported net income of $75.3 million, or 27 cents a share, down from $221.3 million, or 78 cents, a year earlier. But when you strip out one-time costs, it earned 59 cents a share — which was 4 cents better than analysts had predicted, according Zacks Investment Research.
Back in June, Coach had warned that it planned to shutter roughly 70 underperforming stores during its 2015 fiscal year. Its goal was to become more competitive against rival luxury goods makers such as Michael Kors. And part of the one-time charges taken in Coach’s fourth fiscal quarter were for store closings.
Contrast Coach stock’s action Tuesday with what happened Monday to shares of Michael Kors. Its stock sank 6% — and it also reported earnings and sales ahead of expectations. The difference was that it warned that the investments it planned to pour into opening stores in Europe and expanding its presence in department stores would squeeze future profit margins. So in a sense, you could argue Wall Street punished Michael Kors for investing in its future, and rewarded Coach for admitting past mistakes.