ItsAValueTrap Posted April 29, 2014 Share Posted April 29, 2014 The drop is same store sales is probably because the old CEO (Lew Frankfort) was incredibly good at what he did, and now we are seeing reversion to the mean. The CEO succession has been planned for a while and it seems that the new CEO (Victor Luis) has Frankfort's blessing. The new strategy - aiming for a lifestyle brand and targeting the male audience - has been in motion for a while. To me, it looks like Victor was running the show before he officially became CEO and he is the reason why Coach is not doing as well as under Frankfort's reign. To have SSS drop 20%, it usually means that the CEO messed up badly. I'm betting on JC Penney/Ron Johnson playing out again. *Disclosure: Own some 2016 OTM puts. That might be a degenerate position. Link to comment Share on other sites More sharing options...
CorpRaider Posted April 29, 2014 Share Posted April 29, 2014 Well the plan as stated, at least, is to reverse a lot of that palantir. They've gone back to the $700+ category and are eliminating flash sales online and the like. They gotta' get the "quality leather goods" thing going again to insulate them from some of the fashion trend risk, but hey at least they didn't try "new coke". Not to equate the two brands. Link to comment Share on other sites More sharing options...
CorpRaider Posted April 29, 2014 Share Posted April 29, 2014 The drop is same store sales is probably because the old CEO (Lew Frankfort) was incredibly good at what he did, and now we are seeing reversion to the mean. The CEO succession has been planned for a while and it seems that the new CEO (Victor Luis) has Frankfort's blessing. The new strategy - aiming for a lifestyle brand and targeting the male audience - has been in motion for a while. To me, it looks like Victor was running the show before he officially became CEO and he is the reason why Coach is not doing as well as under Frankfort's reign. To have SSS drop 20%, it usually means that the CEO messed up badly. I'm betting on JC Penney/Ron Johnson playing out again. *Disclosure: Own some 2016 OTM puts. That might be a degenerate position. Maybe, but Lew is still there as Chairman. Luis is pointing to industry wide 16% decrease in outdoor comp store traffic during quarter (weather, death of brick and mortar....you pick the reason) and saying online couldn't pick up the slack because they shut down the flash sales. If the new product and store redesigns flop next year, I will be grabbing a pitchfork and coming after him. It could be like Ron Johnson in that he was running intl and that was easy to knock the cover off the ball (not as easy as aapl, but still). But it is the same business, same company, and he's executed the vision over there already. Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted April 30, 2014 Share Posted April 30, 2014 I asked my girlfriend about coach and she tells me that she wouldn't buy their products because the brand has been devalued. Too many teenage girls wear the products. I dont think its a "cool" brand in North America anymore. Can you ask her what she thinks of MK, TB, and KS? I asked a few girls I know- A Chinese grad student felt that (relative to MK) coach has better quality and some nice designs - but MK is quickly gaining ground. She mentioned she bought a messenger bag from coach recently for her BF. She also bought him a burberry check tie. Another girl, also asian, but more "americanized" thought that coach has more designs that appeal to her, but that she finds the quality lacking lately. She says she prefers her older coach bags and would "wear them to death" before looking at any of their recent stuff. My girlfriend only said: "Ewww don't buy me something from coach." Incidentally she is also asian (half). Link to comment Share on other sites More sharing options...
Phaceliacapital Posted April 30, 2014 Share Posted April 30, 2014 http://www.businessweek.com/articles/2014-04-29/coach-responds-to-falling-sales-by-raising-prices?campaign_id=DN042914 Meanwhile, Coach’s best-performing offerings are handbags that cost a lot more than an iPad (AAPL) (Weekend Borough Bag: $1,200). Acknowledging that demand, Coach is in the process of trimming its line of bags to around 100 models; a greater share of those offerings will be “upmarket.” Meanwhile, the company is making it harder to find its goods at discount. It has stopped selling merchandise on third-party flash sales sites such as Gilt and has limited access to its own online flash sales channel. Translation: “We’re going to tell people why a bag from Coach is worth more than one from J. Crew.” Much of this new effort will rise or fall on the shoulders of Coach’s new creative director, Stuart Vevers, whose first full line goes on sale in the fall. One comment there: Lux • 12 hours ago I usually spend approx $300-$500 for a purse, and I never buy coach. I associate them with being the "cheap luxury" brand, due to all of their sales. I don't want to spend $500 on a bag and have that association. Link to comment Share on other sites More sharing options...
Palantir Posted April 30, 2014 Share Posted April 30, 2014 Well the plan as stated, at least, is to reverse a lot of that palantir. They've gone back to the $700+ category and are eliminating flash sales online and the like. They gotta' get the "quality leather goods" thing going again to insulate them from some of the fashion trend risk, but hey at least they didn't try "new coke". Not to equate the two brands. Where do you see that the plan is to back off discount/outlet sales? Iirc in their last CC they wanted to participate in that channel. Link to comment Share on other sites More sharing options...
Phaceliacapital Posted April 30, 2014 Share Posted April 30, 2014 LVMH is also trying to move upscale, exactly because they want to distinguish themselves from the Coaches & Korses in this world. Too much (fashion) risk if you ask me.. Unless you show me a sum of the parts that selling all the leather from the handbags in inventory is worth more than the company, I don't think it is a very interesting case.. And if we are discussing Coach, why not look at Guess? 52w low, 16% fcf to equity etc Link to comment Share on other sites More sharing options...
CorpRaider Posted April 30, 2014 Share Posted April 30, 2014 Well the plan as stated, at least, is to reverse a lot of that palantir. They've gone back to the $700+ category and are eliminating flash sales online and the like. They gotta' get the "quality leather goods" thing going again to insulate them from some of the fashion trend risk, but hey at least they didn't try "new coke". Not to equate the two brands. Where do you see that the plan is to back off discount/outlet sales? Iirc in their last CC they wanted to participate in that channel. You're right, I shouldn't have used the word "plan." They've only stated an ambiguous intention to review and rationalize on a market by market basis. That includes the full price factory outlets and discount channels. Link to comment Share on other sites More sharing options...
siddharth18 Posted June 19, 2014 Share Posted June 19, 2014 The slide continues. Anyone still following this? http://news.investors.com/061914-705387-coach-cuts-views-analyst-day-shares-dive.htm?ven=yahoocp&src=aurlled&ven=yahoo http://finance.yahoo.com/news/coach-says-close-70-underperforming-164749246.html http://www.marketnewscall.com/coach-inc-nysecoh-tumbles-as-it-could-not-find-any-short-term-strategy/1229352/ http://www.bloomberg.com/news/2014-06-19/coach-falls-on-forecast-of-prolonged-north-american-slide.html Link to comment Share on other sites More sharing options...
eclecticvalue Posted June 19, 2014 Share Posted June 19, 2014 Not regularly, but i think it is getting really interesting. It is trading under $10 Billion, P/E is 10.74 and YTD it is down -37.2%. So obviously it has gotten cheaper. The question is, Is it a value trap? Link to comment Share on other sites More sharing options...
PatientCheetah Posted June 19, 2014 Share Posted June 19, 2014 Not regularly, but i think it is getting really interesting. It is trading under $10 Billion, P/E is 10.74 and YTD it is down -37.2%. So obviously it has gotten cheaper. The question is, Is it a value trap? I think it's a classic value trap, it has being showing up on value screens for the last two years. Coach opened too many outlets in the last few years, devalued the brand, so the ROIC you saw in the last few years cannot be trusted. Link to comment Share on other sites More sharing options...
siddharth18 Posted June 19, 2014 Share Posted June 19, 2014 Not regularly, but i think it is getting really interesting. It is trading under $10 Billion, P/E is 10.74 and YTD it is down -37.2%. So obviously it has gotten cheaper. The question is, Is it a value trap? Still too hard for me to figure out. I mean if I can get this for less than a P/E of 5, there could be some margin of safety. But markets give no bonus points for solving a puzzle outside of one's circle of competence. Link to comment Share on other sites More sharing options...
Palantir Posted June 19, 2014 Share Posted June 19, 2014 Wow, this is a disaster... Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted June 19, 2014 Share Posted June 19, 2014 A lot of value investors got excited about: JCP RSH ARO BBY SHLD Tesco (TSCDY?) So far, the strategy of buying poorly-managed retailers (e.g. not Tesco) hasn't fared that well. Link to comment Share on other sites More sharing options...
valueyoda Posted June 19, 2014 Share Posted June 19, 2014 At least, value investors can't use the real estate value argument for Coach compared to the other retailers on your list. If you believe that management can stabilize the situation in the United States with new designs, and the company can successfully grow in China, then you should buy the stock hand over first at these levels. I bought an initial position today, as I think normalized FCF per share could grow to $4-$5 in 2016, as the strategy will not completely fail in the US and actually be quite successful in China. However, this stock could easily decline another 10-20% over the next few quarters, as the turnaround will be difficult. Link to comment Share on other sites More sharing options...
AJDelphi Posted June 19, 2014 Share Posted June 19, 2014 I owned Coach from 2008 to 2012 and ended up selling it because nearly all of the women I talked were no longer interested in the brand. Like others have said, fashion is such a tough business if you are not the "hot" brand. I feel like Coach was like this 5+ years ago. With that in mind I'm waiting until Coach gets MUCH cheaper until I buy, probably around $20. If it doesn't get that cheap, oh well. Link to comment Share on other sites More sharing options...
valueyoda Posted June 19, 2014 Share Posted June 19, 2014 I completely hear you. The brand is out of fashion. So, you have to make a bet that the brand is not permanently tarnished. Link to comment Share on other sites More sharing options...
CorpRaider Posted June 19, 2014 Share Posted June 19, 2014 I'm going to average down a little if I can get some fills at $35. My CB is just above $40. Horrendous guidance was for low double digits negative sales with a stable ~70% gross margin in FY 2015. Will be interesting to see how much is kitchen sinking by new ceo and design chief a year or two down the line. Seems like they're not going to go too crazy with the fashion injection which was a concern of mine. Not sure about the R/E argument but they do own the soon to be completed 504 through 522 West 34th Street, that's gotta be worth a few hundred million. Hopefully they're not pissing away two years of operating cash flows on this "transformation" but I think it will turn out better than new coke. Link to comment Share on other sites More sharing options...
portfolio14 Posted June 20, 2014 Share Posted June 20, 2014 Brands like Coach WILL turn around. The brand value has very long half-time even if the business is floundering. The question is when. It's current in my too hard basket though. Link to comment Share on other sites More sharing options...
dcollon Posted June 24, 2014 Share Posted June 24, 2014 From ValueWalk http://www.valuewalk.com/2014/06/wedgewood-partners-comments-on-coach-inc-coh/?utm_content=quick_link&utm_medium=email&utm_campaign=EMAIL_WEEKLY&utm_source=mailchimp Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted June 24, 2014 Share Posted June 24, 2014 At least, value investors can't use the real estate value argument for Coach compared to the other retailers on your list. If you believe that management can stabilize the situation in the United States with new designs, and the company can successfully grow in China, then you should buy the stock hand over first at these levels. I bought an initial position today, as I think normalized FCF per share could grow to $4-$5 in 2016, as the strategy will not completely fail in the US and actually be quite successful in China. However, this stock could easily decline another 10-20% over the next few quarters, as the turnaround will be difficult. The way I see it, it's pretty obvious that the current CEO screwed up bigtime. For same store sales to drop so much, you need to be pretty bad at your job. Victor Luis is probably a wonderful human being but he is in the bottom percentile. Betting on turnarounds with bad CEOs is a bad idea in my opinion. Link to comment Share on other sites More sharing options...
CorpRaider Posted June 24, 2014 Share Posted June 24, 2014 I'm sort of where wedgewood is on it (got in much later, thankfully). COH could still throw off huge cash flows the next two years, if managed differently, but they're plowing them back into this reinvention. It better work or Luis is toast. I'm really glad there is a separate executive chairman and CEO split here. I always prefer that if there's a diffuse s/h base. Of course, risking missing two years of fat cash flow is not really very much like the straight retailer examples provided above, where they've got horrible balance sheets and are an inch or two away from losing their pitiful margins forever by the will of the great and profitless Amazon. Link to comment Share on other sites More sharing options...
Palantir Posted June 24, 2014 Share Posted June 24, 2014 Luis has only been CEO since Jan, totally unfair to lay this on him. These problems were visible before and are now apparent, I can't see why having Frankfort as Chairman can ever be good... Link to comment Share on other sites More sharing options...
Guest 50centdollars Posted June 25, 2014 Share Posted June 25, 2014 I think coach devalued their brand. I see too many teenaged girls wearing their products and that hurts it because adult women won't buy something they see teenagers wearing. I asked my girlfriend about coach and that is exactly what she said. She would never buy their products. So once their products become uncool with teenagers, who do they sell to? Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted June 25, 2014 Share Posted June 25, 2014 I think coach devalued their brand. I see too many teenaged girls wearing their products and that hurts it because adult women won't buy something they see teenagers wearing. I asked my girlfriend about coach and that is exactly what she said. She would never buy their products. So once their products become uncool with teenagers, who do they sell to? I may be offbase here but wasn't louis vuitton a tired old brand at one point before marc jacobs - leading to a 15 year (still ongoing) resurgence? I thought there was a book or article on it- but a google search comes up with nothing.., Or maybe it was gucci with Tom Ford - regardless it is probably as difficult to bet on fashion turnaround as it is to bet on business turnarounds... Link to comment Share on other sites More sharing options...
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