(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.)
 The company reported June quarter earnings of 64 cents a share, 8 cents a share better than the 56 cents expected by Wall Street. Earnings per share in the fourth quarter of fiscal 2009 were 45 cents a share so year to year earnings growth in the just ended quarter was 42%. Revenue climbed by 22% to $951 million, well above the $889 million consensus for the quarter.
Fiscal 2010 marked the first full year for Coach of directly operating its own stores in China. (Previously the company had operated through a joint venture partner.) Sales in China doubled in the year. Obviously that was off a relatively small base but the company did see same store sales in China grow at a double digit rate. For fiscal 2011 the company plans to expand its China footprint to include the same mix of retail stores, shops in department stores, and flagship retail stores that characterize its operations in North America and Japan. Coach said it expects to accelerate its store openings in China to 30 new locations in fiscal 2011.
 The company is also pushing ahead with two other growth opportunities: its first standalone Coach stores for men and an entry into Western Europe.
But as the company emphasized in its earnings announcement China is Coach’s biggest growth opportunity. And on the basis of this quarter, the company remains, in my opinion, one of the best ways to invest in China’s growing middle-class consumer economy.
As of August 9, I’m raising my target price to $51 a share by March 2011 from $48 by October 2010.
Second the motion — MLPs. I owned considerable # of shares of KMP through the crash. I think there’s definitely an argument to keep owning them — boomers are retiring and are desperate to find yielders so I can’t see why they’d sell this type of investment. But mistrust the government. If anything can gum up the good times, it’s Uncle Sam.
Jim,
I want to make a note of long overdue thanks to you. You mentioned Enbridge quite a few times in the past, especially when you were still writing for MSN Money.
Well, I bought some units in EEP around November 2008, and it has been the best cash cow (~15% yield and 2-bagger capital gain) I have ever owned.
Thank you, thank you, thank you.
(On a side note, I dialed in to some of their conference calls after the Kalamazoo oil spill and got the sense that they were sincere in their cleanup efforts. That cleared up some qualms I had about their environmental commitment.)
Run26.2 – here’s another article.
Wonder how much of a domino effect a popping chinese real estate bubble could have:
http://www.marketwatch.com/story/chinese-banks-reportedly-facing-wave-of-bad-loans-2010-08-08
Off Topic… The China Housing Bubble in Search of a Pin:
http://www.minyanville.com/businessmarkets/articles/asia-china-housing-bubble-china-mriacle/8/9/2010/id/29519
jamba,
In stagflation, you have to pick and choose your stocks even more carefully. Even if they are in one of the sectors you mentioned (which should do well btw), watch for signs of weakness. A poorly managed company in a stagflationary environment can stumble easily.
Stagflation is the worst of all possibilities, but also the easiest to fix.
Ed,
I have read different people talking about the possibility of Stagflation like the late 70’s. If this were to happen what type of investments would do best/worst? I would assume that gold, ag stocks and minerals stocks would do well. Would like your thoughts on the subject.
Thanks