And to think that in 2015 I was thinking of dropping Coach (COH) from my long-term Jubak 50 Stocks portfolio. In mid-2015 the stock was languishing at $28.48 (September 25, 2015) and seemed to be floundering with stagnant sales, falling margins, and a loss of pizzazz to companies such as Michael Kors (KORS) in the fashion market place.
Today the company is in the midst of what looks like a successful turnaround that has taken the shares up to $37.86 at the close on December 6. I’m leaving the stock in my Jubak 50 Stocks portfolio (It’s up 121.66% since I added it to that portfolio back in December 2008.) And I’m adding it to my Dividend portfolio as of tomorrow December 7. The shares pay a dividend of 3.73%. To get the next quarterly payment you need to be a shareholder of record as of December 9.
When I was a kid growing up in New Jersey, a local retailer used to run ads bragging that they lost money on every sale and made it up on volume.
In its turnaround Coach has taken the opposite approach and been disciplined about sacrificing sales growth for profit margins. In its downturn the company discovered a harsh truth about the luxury retail businesses: you dilute your brand by expanding sales too aggressively.
In it most recent quarter–the fiscal first quarter of 2017–the company saw sales rise 1% but earnings climbed by 20% to 42 cents share from 35 cents a share in the year earlier quarter. Even though SG&A costs were up slightly in the period, operating margins grew to 16% from 13.7% in the year earlier period. Gross profit rose by 130 basis pints.
The company figures that it gave up about 150 basis points of sales growth in the quarter–but that’s exactly on plan.
The next challenge for Coach is deciding on a strategy to reduce its heavy reliance on outlet sales in the United States (about 60% of U.S. sales.) Look to see the company continue to shut and upgrade locations in an effort to reduce the outlet share of its U.S. sales.
The shares trade at 22 times trailing 12-month earnings per share.