Popular Posts: Health Stocks: Are Premium Grocers and Others Worth a Buy?AMZN: Amazon Stock Has a Big, Boring Problem10 Potential Short Selling Candidates for 2014 Recent Posts: COH: Don’t Try to Catch Flailing Coach Stock Why RSX Is Rebounding After Russia Sanctions Health Stocks: Are Premium Grocers and Others Worth a Buy? View All Posts Fashion is a fickle business. A brand can become a household name overnight if the right celebrity is seen wearing it. But all it takes is a single bad season, or a new fashion darling to catch the eye of the fashionistas, to torpedo a decades-old premium brand.
Unfortunately for handbag and accessory maker Coach (COH) — as well as the embattled holders of Coach stock — the winds of fashion appear to have shifted.
Shoppers — and particularly American shoppers — have fallen out of love with Coach’s wares. And COH has been powerless to stop rival Michael Kors (KORS) from cutting deeply into its market share.
A Quick Look at Coach EarningsFirst-quarter Coach earnings just came out, and it wasn't pretty:
Sales were down 21% in North American stores open more than a year. Company-wide, sales were down 7% for the quarter, or 5% stripping out the effects of currency moves. Not surprisingly given the sluggish sales, COH's margins took a hit across the board; gross margin fell to 71.1% from 74.1% a year ago, and operating margins tumbled to 23.9% from 29.3% Earnings for the quarter declined from 84 cents per share in the first quarter of 2013 to 68 cents last quarter.Investors didn't take the news well; shares of Coach stock are down more than 8% on the news.
Yet as dismal as the COH results were, there was a fair bit of good news buried in the press release.
For instance, Chinese sales rose 25%, and Chinese same-store sales rose at a double-digit rate — and this despite the slowdown in the Chinese economy. International sales grew at 14% and 20% if you strip out the effects of currency moves. Sales of men's products were also "strong," though specifics were not provided in the press release. And management maintained the dividend of Coach stock at 33.75 cents, offering a yield of 2.9% at current prices.
So … what’s an investor to do? Has Coach stock now become an attractive value play after the slide?
COH: One Big Hang-UpAt first glance, there is a decent bit to like. Coach stock is relatively inexpensive, trading for less than 15 times consensus 2014 earnings estimates of $3.13 per share. And while margins have slipped, COH is still a wildly profitable company. Coach's return on equity has consistently been above 30% since 2001. COH also has been a dividend-raising machine, more than tripling the quarterly payout to Coach stock since initiating a dividend in 2009.
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And let's not forget the success the company has had in China and in pushing new product lines, such as accessories for men.
There's one big problem, however.
COH is still very dependent on American women, the key demographic that has abandoned the brand. 543 of Coach's 1,011 stores are in North America, and the region accounts for 60% of sales. Another 199 stores are in Japan — a country with tepid domestic demand and a currency that I believe to be in terminal decline. COH has 147 stores in China and another 96 in other parts of Asia. Together, these make up nearly a quarter of Coach's store count.
So, an investment in Coach stock is essentially a bet that either the Coach brand stages a major comeback among American women, or that its popularity abroad surges ahead fast enough to compensate for declines in North America.
Sure, a fashion comeback could happen. However, accomplishing a turnaround in fashion is trickier than accomplishing one in, say, industrial machinery. Once a brand loses its cachet, it's hard to get it back.
What about international sales? Here, the outlook is better, and I expect Coach to benefit from a turnaround in emerging-market currencies. But if the brand has lost its appeal among American women, it might be just a matter of time before their sisters in China and other emerging markets follow suit.
Bottom line: It's probably best to sit this one out for now. Avoid Coach stock.
Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today's best global value plays.
) reported its first quarter earnings before the opening bell on Friday, posting higher revenues and beating analysts’ earnings estimates.
Jim West/Alamy Last week, we talked about investing, the second circle of wealth in my series of "Six Absolute Necessities for Acquiring Long-Term Wealth." The third is guaranteed income. When I study people with successful retirements, filled with abundance and options, almost all have things in common: They carry very little, if any, personal debt. They have stable, secure income from multiple sources that they can set their watch by every month Starting about 10 years before they retire, they begin shifting their assets from riskier investments to low- or no-risk income assets. A mortgage is generally the biggest debt most of us have. Many argue that you should never pay off your house because the equity you put into it is tied up and not making you money. They might recommend borrowing as much as you can now because interest rates are low. I say you can have the best of both worlds. First, pay off your mortgage before you retire. By adding small amounts directed to your principle every month, you will take months, even years off your payoff date. When your house is paid off, get the biggest equity line of credit you can. This way, if you see an attractive investment opportunity, you can put your equity to use, and if you don't, you have removed the pressure of a big mortgage payment in retirement. If you can pay off your mortgage while you are working, why not now shift that payment over to a solid savings or income product? This could work out to tens of thousands of extra dollars producing monthly income for when you retire. An abundant retirement is about strong positive cash flow that you can count on for years to come. Do you have any idea how much money you need to retire every month? Do you know where you can get that income from? Do you have enough money for home health care or long-term care? Are you protected from big market downturns during your retirement years? How much will inflation eat into that monthly income needed? Can You Answer These Questions? All these questions must be part of an income plan. We calculate these for clients all over the country. First, know how much income you and your spouse will receive from Social Security when you retire. You can get an estimate from the Social Security Administration. If you believe that number is at risk because of issues with Social Security, you better start putting more away and growing it safely. If you need $5,000 per month to retire and the Social Security for you and your spouse is only $3,500, then you have a $1,500 shortfall. Do you have a pension? How much will that be when you begin to draw it? Do you have a 401(k) or Individual Retirement Account? How long could that account last if you need to draw $1,500 a month -- $18,000 in a year? Will you have to pay taxes on what you take out? If you have a 401(k) or traditional IRA, the answer is yes. If you lose 50 percent of your capital to a bear market, how long will you be able to get $18,000 per year? As you get to be in what we call the "retirement danger zone," which is 10 years before your projected retirement, you need to start shifting assets away from market risk and over to guaranteed products. A solid fixed indexed annuity with a long-term income rider might be a very good call. I wrote an article about the different types of annuities and how to purchase one that fits your needs. A lifetime income rider (state and product variations exist) will guarantee that you have a certain amount of income (depending on how much you have in your annuity and at what age you start withdrawing) for you and your spouse's life. If you live to be very old, your normal retirement funds might run out, but a lifetime income rider guarantees that income stream regardless of what happens to the underlying cash in the account. Also if you have five to 10 years, you have time for that income rider to grow. Many income riders offer 6 percent and more guaranteed growth every year. When you purchase a $200,000 annuity, many companies might offer a 10 percent bonus on your initial purchase price so your starting amount would be $220,000. When you add compound growth at 6 percent over 10 years, your income rider would top $400,000. Then you would start to draw your lifetime income at 6 percent of the $400,000, giving you $24,000 a year income for you and your spouse's life. Presto! You have filled your income gap. If you have the resources to purchase another annuity, you might get one with a cost of living clause to hedge against inflation.
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