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.
Update Coach (COH)
Good sales and earning numbers from Coach (COH) for its fiscal second quarter but Wall Street wanted more and the stock was down almost 6% as of 11:15 in New York.
The pattern here of sell even on the good news reminds me of the market’s reaction to Intel’s (INTC) good earnings report last week. I used that selling as an opportunity to pick up shares of Intel. I’d think about doing the same with Coach. (The stock is already a member of the Jubak’s Picks portfolio.) For more on that sell on the good news at Intel and my buy on the shares see my post http://jubakpicks.com/2010/01/15/buy-intel-intc/
Earnings per share at the retailer climbed 12% from fiscal second quarter a year ago. Earnings of $241 million, or 75 cents a share, were up from $216.9 million, or 67 cents a share, a year ago. Revenues grew by 11% to $1.07 billion. Wall Street had projected earnings of 72 cents a share on revenues of $1.03 billion.
The best news for Coach was that sales in its home North American market finally rebounded. Same store sales in North America climbed 3.2% for the quarter.
Margins climbed in Coach’s North American outlets and gross margins for the company as a whole inched up to 72.4% from 72.1%.
In China, the key growth market for the company Coach continued to expand by opening four new stores in the quarter. That brought the company’s total in China to 37 stores. (In contrast Coach has 163 stores in Japan after opening one new store in the quarter.)
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.
