Friday, August 2, 2013

Earnings Commentary: COACH (COH)



Adjusted closing price day before earnings 07/29/13: $57.85
Adjusted closing price after earnings on 7/30/13: $53.30
Current price 08/02/13: $53.85

 COH announced earnings this past Tuesday 07/30 and lets just say that what happened to the share price thereafter wasn't pretty. I have been a COH shareholder for over a year now. I’ve mentioned before that I am a strong believer in the quality of the company and optimistic about their future and despite their recent struggles, that has not changed.  This is another one of my long term acquisitions. Thankfully they pay dividends (you guessed it!) so at this point I just have to forget that I even own shares in this company until the “storm” passes (more on COH dividends towards the end of the post).

 Here are some highlights of their earnings callà

 Some of the Good:

1. Earned an adjusted $0.89 per share, up 3.5% from the $0.86 per share it reported during the same quarter last year.

2. Sales rose 5.8% year-on-year to $1.22 billion. Coach’s profit was in line with analyst estimates; however, revenue came up short of the consensus estimate of $1.24 billion.

3. Amazing international results with a 35% year-on-year sales increase in China and new stores opening in Japan as they continue to work towards increasing international market share. They are also re-structuring stores in Europe to gain full control of operations.

 Some of the not-so-good:

1.    A drop in same store sales (specifically in North America) which declined by 1.7%  (quick concept check: same store sales refers to the profit generated in existing stores that have been opened for at least a year. It doesn't factor in new store locations that may have opened their doors just recently. The figures help analysts differentiate between revenue growth that comes from any new outlets and growth that is a result of improved management and operations at the existing outlets. Source)

The silver lining in same store sales is that direct-to-consumer sales increased by 5% which means more purchases were made online rather than the actual stores—which might continue to be a trend as we all know online shopping’s popularity continues to increase.

2.    Beyond the numbers, there’s also a lot of re-structuring going on internally with the company. Two of the top executives (one of them being the COO and creative director) are leaving and some new ones are coming in. One thing you should probably be aware of is that just like us humans, the market (and Wall Street) hate uncertainty. Not matter how great a company may be; not knowing what will happen next brings fear in to the picture and fear can sometimes cause a sell-off which is what happened after COH's earning's call yesterday.

Let me tell you a little story about investing…
Beyond the thrill of choosing stocks and making a profit; Investing is a learning experience—especially when your goal is to be successful. Hence, you have to take the good with the bad and learn from every experience that comes your way! I purchased COH near its all time high during the very beginning of last year. I was confident in their prospect and I bought shares with the goal of making a profit and buying myself a new coach bag (yes sometimes I invest to buy something. We all have our goals. ha!).

Well, let’s just say that within the first couple of weeks of me buying the stock I was making a really nice profit. The profit was significant enough for me to be able to sell and get on with my life.
Well guess what: Greed took the best of me and I decided to keep the stock and see how much higher it would go. I forgot about the infamous quote by one of my “virtual mentors” Warren Buffet: “Bulls make money, Bears make money, pigs get slaughtered”<---remember this amazing piece of advise! I decided to be a pig and next thing I knew the share price of COH began tumbling down. I didn’t know what was going on and I just simply "stopped looking". Next thing I knew price per share was down significantly and with that my profit (and my hopes of a new coach bag). The price has yet to fully recover since that happened.

However, like I mentioned, I am on this for the long term. My experience with COH is worth pure gold considering that I am now more cautious about my investments and have a better idea of what to do when a stock begins to depreciate in value significantly (and rapidly). I admit that maybe I should have taken action a long time ago and sold off my position. However, had I done that, perhaps I wouldn’t have gained the same experience I obtained from this. So, I am grateful either way.  Ive been able to save myself a lot of headaches (and money) since then and I’ve been able to apply what I learned to my investment career going forward.
As I wait to see what happens with COH, I get nearly $275 in dividends per year which sure beats the $2.50 I would probably get from a regular savings account. Not to mention that the company has been increasing dividends per share at least once per year since 2009. This is one of the differences between having your money sitting in a bank account Vs.  Investing! And like I mentioned before, dividends are paid regardless of whether a stock price goes up or down.

Dividend info at a glance: Current Dividend Yield: 2.53%, Annual Payout: $1.38 per share

Thank you for reading! If you want to know more specific information about this particular experience feel free to email me!

Tell me, what are your thoughts on what’s to come for COH?

Additional sources: fool.com