Thursday, January 29, 2015

COACH: Still not where it needs to be but showing improvement

Side note: This is my 100th post on the blog! I absolutely love blogging about one of my passions which is finance and investing. Thank you for reading and your ongoing feedback. Means a lot to me.
 
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Coach: Earnings Commentary
 
I woke up bright and early this morning to listen to a live earnings call (something I have never done before, as I usually read the transcripts after the calls). The experience was pretty cool and I plan to do that more often. I imagined myself as a part owner of this company waiting to hear what my "employees" had to say about their performance during this last quarter.



Obviously I live in an imaginary world as I don't own enough shares to call Coach's management my "employees". However, feels good to think it. As a shareholder of Coach for the past 2+ years, that's kinda' true, wouldn't you agree? Please don't judge me.

Anyways, as I listened to the call my heart kept sinking with all the announcement in the drops of sales and revenue in several segments and poor performance in Japan. I then felt a lot better as I soon realized that these reported decreases were actually an improvement  from prior reports. Looks like slowly but surely Coach, Inc. is showing signs that their aggressive initiatives and strategies to turn around the company are finally paying of. I then thought to myself:

"What a relieve!"

Financials

  • Total sales decreased to $1.22 million, a drop of 14% in comparison to the $1.42 million reported during the same quarter last year. Part of this was attributed to the strengthening of the dollar.
  • Reported profit of $183.5 million ($0.66 per share), a decrease from the $297.4 million ($1.06 per share) reported during the same quarter last year.
  • Comparable store sales in North America decreased 22%, an 'improvement' from the 24% decrease reported last quarter. This was specially noted for their bricks and mortar channels (actual stores v. online). The improvement was attributed in part to a newly introduced "Modern Luxury Concept" which features designs by their new creative director, Stuart Vevers as well a revamp of their marketing campaigns.
  • In a year over year basis, North American sales were down 20%, international sales decreased 1%. Although sales are weakened in Japan (partly due to a weak yen); china continues to show strong demand. Sales in Europe continue strong with double-digit growth.

Plans and Initiatives


“We are on track with the strategic agenda outlined in June and know that our transformation will take time – it is an iterative process that requires significant investment. As we look over our planning horizon, we remain confident in our roadmap to reinvigorate long-term sustainable growth and realize our vision for global modern luxury.” -Victor Luis, CEO.

  • Coach continues to make aggressive "transformation" moves which include the closing of under-performing stores and redesigning stores at premier target locations around the world including New York City and parts of Europe. 
  • Enticing demand in their male merchandise-- participated in their first man wear fashion show this month in London.
  • At the very beginning of this year, Coach agreed to acquire show brand "Stuart Weizman" in a deal valued around $547 million which will be paid mostly in cash and some debt. The coach brand is confident this new acquisition fits perfectly in to coach transformation in to a "lifestyle brand". Stuart Weizman has sales of about $300 million per year. As stated by Mr. Luis: "...And, as announced, just after the quarter ended, we signed a definitive agreement to buy luxury designer footwear brand Stuart Weitzman, which we believe has significant domestic and international growth potential.”  

The bottom line

To be quite honest my head was spinning as I listened to the call. I appreciate the improvement and understand the company has some time to go before it turns around completely. In the meantime, I continue collecting my dividends- currently at solid yield of 3.60% per year ($1.35 per share). Thankfully I have a long period of time ahead of me when it comes to my portfolio and investing. I am grateful in knowing that the money I invested in Coach is money that was designated for investing purposes and I can let it be. I will continue to watch the company's developments as the quarters go by and from what I can deduct, it wont be long before we'll be able to see a strong turn around towards increased profitability. Patience is virtue, specially with this stock.

**The stock has been up over 7% today after earnings call.

As always: Thank you for reading and Cheers to profits.

Mabel