Coach Needs Some Coaching

Well, it was bound to happen eventually. Whereas reports were saying that fashion lines like Prada and Gucci were doing well despite the poor world economy, one highly regarded fashion accessories designer is showing some signs of slowing down economically. Although it is still the most popular brand of American designer handbags, Coach is having some stock market trouble.

Forbes is reporting that shares of the Coach stock will continue to go down, despite the brand’s popularity and stature:

“Coach reported strong revenue growth in its recently released fiscal Q3 2011 earnings and the market reacted positively to the news, pushing Coach stock higher.  Sales for the first quarter increased to $951 million, up 14% from the same period last year. Shares of Coach still trade within a dollar of their 52-week high of $60.63. We currently have a $57.49 price estimate for Coach, about 5% below market price. Despite strong revenue growth, the firm reported a decline in its gross margin in fiscal Q3 over the same period last year. Continued margin pressure could spur downside to our price estimate for Coach stock.”

Overall, the article says that Coach will most likely continue to see its value decline, making the profitability and growth of Coach to slow. The primary reason for this are sourcing costs for the designer goods, which lead to a shift in the profit margin, especially between retail and wholesale operations:

“The rise in sourcing costs indicates a long term trend (as the living standards and cost of labor increase in outsourcing locations) and may lead to a continued decline in Coach’s gross margin going forward. Coach’s strategic shift towards retail operations will put further pressure on margins, as the firm’s enjoys significantly lower margins on its retail stores than on its wholesale operations.”

Where do you get your wholesale handbags from? Have you ever bought stock in a designer before? If you did, which brand would you let guide you in the stock market? Do you think Coach will bounce back when the economy does?