Editor's note: Originally published on May 2 0, 2014
Coach (NYSE: COH) could be one of the most disappointing stocks so far this holiday season. Shares of Coach have underperformed the S&P 500 index by quite 25 percentage points year to go out with. More specifically, Coach's stock is comfortably 25% year to date, while the S&P is flat.
This comes as Coach outlet recently announced that fiscal first-quarter merchandise sales in North America were down 18% year over year. And comparable-store sales fell 21% in The country. North American comps have fallen while five of the last six groups. Shares fell more than 12% going back week on the news.
North American market shareCoach still owns North America when it comes to business. While it might not be in a place to increase this market share, it can still protecting what market share it has. That's since the transition to a lifestyle brand comes into do as well as new designs. New products starting from Stuart Vevers (formerly at Mulberry) will hit stores later this holiday season.
The other good news is that international merchandise sales continue to grow and were raise 14% for the quarter. China had to be one of the key drivers for intercontinental growth-- China sales were raise 25%, and comparable store merchandise sales saw double digit growth. Japan additionally grew sales by 10% semester over year.
Other bright venues for CoachCoach wants to be a type brand, which would help it hedge the type of slowdown in handbag sales, but rather that'll take time. However , the opportunity is without question large. Coach believes that the offshore market for premium footwear & outerwear is just as large as the pouch market.
Out of the 28 analyst star ratings for Coach, there is still only person sell rating. Coach has had through 5 straight years of dividend increases. Present day dividend yield is at 3%, which is actually the highest it's been since first offering up a dividend in 2009.
Who's taking advantage of Coach's weakness? Coach is wasting market share to Michael Kors wallet clutch for iPhone 5 Corporation (NYSE: KORS) and Kate Spade (NYSE: KATE) in North America. Your preferences . not be so much that these retailers get capitalizing on Coach's weakness but quite possibly actually causing the weakness.
Kate Spade is one of the newest pure plays for the handbag and accessory market. It actually is divesting Juicy Couture and Gleeful Brand and is now focused on the type of Kate Spade brand. Kate Spade hired a new CEO earlier this year, whom only further streamlined its think about handbags, etc . The U. Amazing. still accounts for more than 80% of most Kate Spade's revenue, which means Coach outlet has the advantage when it comes to international introduction.
The biggest threat to CoachCurrently, Kors is probably one of Coach's biggest other vendors. It has a lot going on, which makes all the company a growth story in the cotenant market. The first is attacking the web commerce market. Kors is assuming management of michaelkors. com from Neiman Marcus. It'll launch the site in The country this year and then in Europe while 2015.
Kors is now expanding the product's retail presence in North America. Preceding fiscal year it converted 450-500 existing department store doors into imprinted shop-in-shops. Now it has more than you, 300 shop-in-shops globally. Kors also can gaining strength in the global real estate market. It's using licensing deals to successfully expand its brand in advanced countries. Meanwhile, it's digging dark into the men's business. This is a tactics that Coach and Kate Spade (with its Jack Spade brand) are both undertaking as well.
How stock shares stack upUnlike most turnarounds, Coach outlet has a pristine balance sheet and earnings impressive levels of free cash flow. There cash position more than covers your debt on the balance sheet. More than 5% of market cap is covered by earn cash.
The margins and net income generation is impressive. Its produce on equity is 40% its free cash flow yield (free net income divided by market cap) is without question 7. 5%. Not even Michael Kors iPhone 5 clutch can keep up with Coach's cash flow. Eliza Kors' free cash flow yield is without question 2%. Its free cash flow markup (free cash flow divided by sales) is 12% compared to Coach's 18%. Coach also trades the cheapest of those three on a P/E basis. It is trades at a P/E of 9. 8, while Kors' P/E is without question 31 and Kate Spade's fifty nine.
Bottom lineCoach appears to be trading while deep value territory. Its PRICE TO EARNINGS ratio is well below the product's peers, but it also offers an enticing results yield. For investors looking for a transformation play in the high-end accessory market, Coach outlet is worth a closer look.
Source: Excellent Turnaround In The Apparel Market