GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

This Company Should Be Sold Before It Eats Into Your Portfolio

July 05, 2014 | About:
Suravi Thacker

Suravi Thacker

0 followers

The prevailing macro-economic conditions had given one of the hardest blows to the luxury sector. Consumers’ tight budgets and restrictions on spending have proven to be quite disheartening for high-end retailers. Industry players are struggling to cope up with the conditions and lure in high-spending customers.

The most striking feature of the competitive environment has been innovation and promotions. A company which promotes its products well and offers the lowest price takes away maximum market share.

Among all the luxury retailers, Coach (COH) has been quite interesting to watch. It is one of those companies that managed to post remarkable quarters until it registered a lackluster third quarter sometime back. Let us check what exactly happened this time.

Efforts Fell Flat…

In spite of continuous efforts of launching new product lines and enhancing the men’s segment, Coach could not fight the effects of a tough environment. Its revenue plunged 7% to $1.1 billion. Also, it could not meet analysts’ estimates. A weak holiday season and customers’ unwillingness to spend affected Coach’s revenue from the American region.

However, strong demand in the international market, especially in China, drove revenue higher. China once again proved to be a sizzling market as customers are going gaga over the retailer’s high-end products. This led to a 25% surge in revenue from the region.

Another key driver during the quarter was the retailer’s expansionary moves. Its rapid expansion in various parts of the world, especially China and Japan, added to the top line. However, this is just the beginning. The company has yet to reap the full benefits of expansion. This can be a positive factor to watch out for in the months to come.

Competitive Analysis

A look at Coach’s stock price performance against its competitors will make the picture clearer. Peers such as Michael Kors (KORS), and Tiffany (TIF) have performed better than Coach, in terms of stock price performance over the last one year.

Coach has been the worst performer for its stock price declined 38% during the period. On the other hand, Tiffany’s share price appreciated by 41% and that of Kors increased by 44%. One of the keys reasons has been an incompetent pricing of its products compared to other players.

Even Tiffany had a tough quarter, as it posted slowing sales and a lackluster holiday season. Its high-end customers preferred to stay away from the company’s stores, leading to a tepid performance.

However, other premium retailers, especially Kors, seem to be unaffected by any kind of economic problems. It has been a marvelous performer since its IPO and has managed to win customers’ hearts. Kors’ innovative designs for all kinds of accessories are a customer delight, which has been driving its revenue as well as its stock price. In fact, the company has been the hottest IPO since its inception in December 2011. An investor eying this industry can surely give it a try.

Conclusive Thoughts

On the competitive front, Coach has been very weak. Poor economic conditions need continuous strategic initiatives, which the retailer has failed to offer. In order to survive in a budget-conscious environment, Coach needs to make a few changes in its promotions. Until then, it is better to be on the sidelines and watch the company’s reaction to the current scenario.


Rating: 1.7/5 (3 votes)

Voters:

Comments

lindaramadan
Lindaramadan - 1 week ago

Coach is undergoing changes in its fashion line. It has a strong clientele and expanding into middle class people anxious to show status at workplace with mens bags and jackets. Leather is their specialty and leather is a durable commodity that never loses its style. The workmanship on their products will not be changed to reduce costs. I think coach is a buy at these levels. In fact, I would back up the truck since it is paying you almost 4% to wait for them to get the traffic back into the stores. I would like to hear differently so please correct me if you think i'm off my noodle.

pravchaw
Pravchaw premium member - 1 week ago

Turnarounds take time. Coach is a strong brand and selling far below fair value. Management has realized that they had "over-promoted" the brand resulting is over exposure thereby losing its exclusivity. I think they have to cut back on their "discount mall" strategy and they seem to be doing that. I am quite confident that they will rebound in a couple of years.

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide