Coach Hit By Slack Bag Sales

Coach's Profit Drops 32%, Shares Fall

Luxury goods maker Coach ( COH - news - people ), famous for its namesake handbags, said Tuesday that its fiscal fourth-quarter profit plunged 32% from last year, despite nearly flat revenue.

The New York City-based Coach reported fiscal fourth-quarter net income of $145.8 million, or 45 cents per share, down from $213.5 million, or 62 cents per share, in the year-ago period. Excluding one-time items, Coach saw an adjusted profit of 43 cents per share.

Total revenue was almost flat at $777.7 million, compared with $781.5 million last year.

On average, Wall Street analysts expected matching profits of 43 cents per share, but on slightly higher revenue of $780.4 million.

Coach said that its direct-to-consumer sales rose 3% in the quarter, to $683 million. However, same-store sales declined by 6.1%. Same-store sales are considered a key indicator of a retailer's health, since they measure the performance of stores open at least one year.

The company also intimated that indirect sales plummeted 21% to $95 million.

As for the full fiscal year, profit fell 20% to $623.4 million, or $1.91 per share, compared with $783.1 million, or $2.17 per share, last year. Revenue gained almost 2%, however, to $3.23 billion from $3.18 billion.

Coach said it plans to open 20 new stores in America in fiscal 2010, and also accelerate its growth in China.

Shares fell $1.74, or -6.2%, in morning trading Tuesday. The stock was downgraded to a "Hold" from a previous "Buy" rating Tuesday morning by analysts at Lazard Capital Markets.

The Bottom Line
We have avoided shares of COH since the company initiated a dividend payout a few months back. The company has a 1.06% dividend yield, based on last night's closing stock price of $28.43. The stock has technical support in the $20-22 price area. If the shares can firm up, we see overhead resistance around the $30 price level. We would remain on the sidelines for now.

Coach is not recommended at this time, holding a Dividend.com rating of 3.4 out of 5 stars.

McGraw-Hill's Adjusted Results Beat View

Publishing giant McGraw-Hill Companies, said Tuesday that its second-quarter profit fell 23%, hurt by one-time charges and lower revenue.

The New York City-based company reported second-quarter net income of $164.1 million, or 52 cents per share, down from $212.3 million, or 66 cents per share, a year ago. Excluding one-time restructuring charges, McGraw-Hill saw an adjusted profit of 58 cents per share.

Revenue dropped 12% from last year, to $1.47 billion.

On average, Wall Street analysts expected a lower adjusted profit of 55 cents per share, but on higher revenue of $1.54 billion.

The famous publishing company has eliminated 550 jobs as part of its cost-cutting program, and recently announced plans to sell its BusinessWeek magazine.

McGraw-Hill shares rose 10 cents, or +0.3%, in morning trading Tuesday.

The Bottom Line
We have avoided shares of MHP since our early June coverage began last year, and shares were trading at $44.36 at the time. The company has a dividend yield of 2.71%, based on last night's closing stock price of $33.16. The stock has technical support in the $25 price area. If the shares can firm up, we see overhead resistance around the $33 to $37 price levels. We would remain on the sidelines for now.

McGraw-Hill is not recommended at this time, holding a Dividend.com rating of 3.4 out of 5 stars.