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 https://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.)
So where was the disappointment?
Analysts had projected that North American sales would grow by 3% to 6% in the period so the 3.2% growth barely hit the bottom of the expected range. Some analysts also fretted that falling inventory levels—inventories were down about 30% from the same quarter a year ago—were a sign that the recovery in North America wasn’t sustainable. I’m not sure I follow that logic: Going into earnings season analysts that follow Coach and other retailers were worried about rising inventories if the Christmas shopping season was weaker than expected.
I don’t see how this adds up to a 6% drop in the stock, but that’s what happens when traders decide to take profits on a stock that is up roughly three-times from March 2009.
As of January 20, I’m leaving my target price at $40 a share by October 2010.
Full disclosure: I own shares of Coach in my personal portfolio.
I believe a lot of us have been worried/concerned as reegards the Consumer Discretionary sector. What I’m not worried about is the knee-jerk reflexs of a bunch of traders.
Thanks Jim for your helpful insights.
I’ll have an update of my what to worry about and when to worry on Friday morning.
A bright spot in the technical health of the market comes from the record number of new highs on the NYSE. Bull market peaks are noted by declining numbers of stocks hitting new 52 week highs. Hulbert at MarketWatch notes new research by Ned Davis that bull market peaks tend to follow record number of highs by about 8 months. I’m still bullish on small/midcap stocks and I am rotating into precious metal and energy stocks as they correct—these are usually the last to peak in a bull market.
I am nervous too. However, I draw comfort from Jim’s ability to spot sectors that are poised for an uptrend and invest more in those. I think Jim is bullish on technology sector and overseas exposure and his recent picks have indicated that.
Of course, negative market momentum can pull these stocks down but the damage is likely to be less.
Jim:
John Hussman of husssmanfunds.com (who also publishes a Weekly Market Commentary on his website which is very useful in understanding the markets, just as your site is) believes that a market correction is just around the corner, say within 10-12 weeks or so. Or rather, he says that in the past when all the indicators appear as they do now (extreme current overvaluation of the market relative to the historical record, overbought conditions, overbullish sentiment, and upward yield pressures), the odds of a sudden and “unexpected” market correction happening out of nowhere have been very high, and you have to take this into account as you invest right now. I was wondering what your thoughts are of a sudden correction happening, on the order of at least 5 percent (and likely substantially more)? It would seem you don’t think this likely, if you are still encouraging readers to buy into the market right now with your recent bullish remarks on Intel, Marvel, Coach, etc. (Unless you are cherry-picking certain stocks that you think would still do well even in the event of a general market downturn). So, can you please post something, or even a reply to this comment, on what your thoughts are of a good-sized correction in the stock market happening by this spring? Thank you. – Jay
I’m a little more concerned that selling follows good news from multiple strong companies. Failure to sell on bad news is indicitive of bullishness. Selling on good news is bearish. I don’t like seeing the mood changing, or is it more to do with the bad news from China in the last few days and nothing to do with the stock specific news at all?