Update Coach (COH)
(I’m on vacation until August 24. During that time Jubak Picks will operate on a reduced schedule of one or two posts a day. I will resume a full posting schedule after I return.)
For a while the slowdown in North American sales—because of the U.S. recession–obscured exactly how good a job Coach (COH) was doing at cutting costs and expanding its business in China.
No more.
Growth in North America is back, the company announced in a fiscal fourth quarter earnings report released before the New York stock market opened on August 3. Adjusting for the extra week in the fourth quarter of fiscal 2010 versus the fourth quarter of fiscal 2009, North American same store sales climbed 6.3%.
That let the company’s strict cost cutting and China growth shine through in the earnings. (It also didn’t hurt that on a constant currency basis same store sales climbed 6% in a tough Japanese economy.)
Update Coach (COH)
Looking for signs that the global consumer is back? You’ll find them in the third quarter fiscal 2010 earnings that Coach (COH) reported before the stock market opened on April 20.
The company announced earnings of 50 cents a share, 4 cents a share above Wall Street expectations, on revenue of $830.7 million. Wall Street had been projecting revenue of $811.5 million. Revenue grew by 12.3% from the third quarter of fiscal 2009. Gross margin climbed to 74.1% from 70.96% in the third quarter of fiscal 2009. Wall Street analysts had estimated margins at 72.53% for the quarter. The gross margin for the third quarter just about matches the 74.2% gross margin in the second quarter. To me it’s clear that Coach’s revamped product line and aggressive efforts to cut costs in its manufacturing system have paid off—and are sustainable.
The better than projected results came from both existing and new stores.
Buy Coach (COH)
Listening to the management team at Coach (COH) talk about the company’s business is an odd experience. This “fashion” company spends a lot of time talking about “engineering” its products and building production and distribution “infrastructure.” (Want to hear a sample of Coach-speak? Tune into the company’s presentation at the Morgan Stanley Global Consumer and Retail Conference here http://phx.corporate-ir.net/phoenix.zhtml?c=122587&p=irol-eventDetails&EventId=2532032 )
And that’s a major reason that I want to buy Coach shares in the current tough environment for luxury goods. Anybody can roll out a new product at a lower price point designed to appeal to value-conscious luxury-goods buyers (now there’s a phrase I never thought I’d write), but it takes a company like Coach to introduce the new $300 Poppy handbag lines and “engineer” gross margins higher at a lower selling price. For why you want some cost-cutting growth companies in your portfolio now see my post http://jubakpicks.com/2009/11/20/nervous-afraid-to-stay-in-but-scared-to-get-out-join-the-club-and-read-my-three-strategies-for-coping/ )
Update Coach (COH)
Coach (COH) reported that its earnings for the June quarter matched Wall Street expectations at 43 cents a share.
That’s about the last good news for the fourth fiscal quarter that Coach had to announce, however. Coach certainly hasn’t escaped the collapse in retail sales–although it is weathering the downturn better than most.
For investors who can get past the bad news of this quarter, though, the stock remains a compelling way to profit from the increasing number of middle-class consumers in China. That’s why I put the stock in my book, The Jubak Picks, and why it stays in that portfolio.
