Pat McKeough responds to many requests for specific advice on stocks to buy and other questions on investment strategy and the economy from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week, we received a question from an Inner Circle member about one of the world’s leading makers of luxury accessories. In order to generate further growth Coach is relying on increasing overseas sales and on an expansion into more men’s products. Pat examines the company’s prospects in the face of stiffer competition and rising costs. Q: Hi Pat: What is your opinion regarding Coach? Thanks. A: Coach Inc., (symbol COH on New York; www.coach.com) designs and sells a wide range of accessories for men and women, including handbags, belts, wallets, card cases, shoes, luggage and jewellery. Outside manufacturers, mainly in Asia, make Coach’s products. The company sells its goods through three main channels: the Internet, catalogues and its company-owned stores and factory outlets in North America (543 locations), Japan (184), China (118), South Korea (49), Taiwan (27), Malaysia (10) and Singapore (7). Coach also sells its goods in department stores and licenses its brand to makers of other products, such as sunglasses, watches and perfumes. In its fiscal 2013 third quarter, which ended March 30, 2013, Coach’s earnings rose 6.2%, to $238.9 million from $225.0 million a year earlier. The company spent $400.0 million on share buybacks in the first nine months of fiscal 2013. Because of fewer shares outstanding, earnings per share rose 9.1%, to $0.84 from $0.77. Sales rose 7.1%, to $1.2 billion from $1.1 billion. Markets outside North America account for a third of Coach’s sales. If you disregard the negative impact of currency exchange rates, sales would have risen 10%. Same-store sales rose 1% in North America, mainly because a rise in online sales offset a drop in customer traffic. International same-store sales rose 14%, thanks to strong demand in China. [ofie_ad]
Coach aims at $1 billion in sales of men’s products within five years
Coach is also benefiting from its expansion into men’s products, such as briefcases and business totes. The company expects its sales of these items to double, to $600 million, in fiscal 2013. They could reach $1 billion in three to five years. The company holds cash of $928.5 million, or $3.31 a share. Its long-term debt is just $485,000. Coach recently raised its quarterly dividend by 12.5%, to $0.3375 a share from $0.30. The new annual rate of $1.35 yields 2.3%. The stock has trades at 15.6 times the $3.73 a share that Coach will probably earn in fiscal 2013. Fashion trends are fickle. The company is also facing stronger competition from other luxury handbag makers. As well, rising labour and raw material costs could squeeze Coach’s profit margins. In the Inner Circle Q&A, Pat looks at whether Coach’s reputation will help it increase its overseas sales and offset stronger competition from competitors—and counterfeiters. He concludes with his clear buy-hold-sell advice on the stock. (Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members Many believe that rising incomes in developing nations will create an even greater market for luxury goods. Do you look at projected trends like this when you are considering a stock? Have you had any notable successes with stocks by following projected economic or demographic trends? Let us know what you think.
