Coach Rides Again

Coach (NYSE: COH  ) today reported third-quarter earnings, which were a mixed bag. However, the stock has popped today, so investors found some things to like about the company’s results.

Third-quarter net income fell 29% to $114.9 million, or $0.36 per share. The company took a one-time charge of $0.03 per share related to cost-cutting initiatives. Total sales decreased 1%, to $740 million. Gross margin declined to 71%, compared to 75% a year ago, as the company instituted deeper factory store promotions and introduced less expensive products in its full-price stores.  

If you’re wondering what the good news is, Coach's adjusted earnings did beat analysts’ expectations by a penny, and the firm also said it’s initiating an annual dividend of $0.30 per share. The company does have plenty of cash on its balance sheet and negligible debt, so a dividend looks manageable and certainly does sweeten the deal for long-term shareholders. The company also repurchased 3.6 million shares during the quarter.

It’s been a tough ride for many consumer-goods companies, and the luxury market has been in free-fall, stressing out many purveyors of high-end goods, including department store retailers such as Nordstrom (NYSE: JWN  ) and Saks (NYSE: SKS  ) . Coach, too, has suffered. However, CEO Lew Frankfort said he sees signs of stabilization in Coach’s same-store sales, which have been hovering at pre-Christmas levels in North America. That's a glimmer of hope, anyway.  Still, North American comparable store sales did decline by 4.2% in the quarter, which isn’t exactly good.

A lot of retail and consumer-goods stocks seem way too speculative for my blood in the current economic environment, especially when they’ve struggled for years, or have displayed faddish growth; I’ve been very bearish on companies such as Borders (NYSE: BGP  ) , Talbots (NYSE: TLB  ) , and Crocs (Nasdaq: CROX  ) , for example. I believe the economic headwinds are very serious and investors need to be very careful and seek out true long-term leaders with strong balance sheets.

Coach strikes me as a great contender for that honor, though, with its respected American brand, reputation for quality, and strong balance sheet. As I said in January, if rivals get wiped off the scene, Coach will have even more advantage. Consumers may have a tight grasp on their purse strings now, but I believe Coach will be a survivor. I think investors could do a whole lot worse than buying and holding shares of this classic company for the long term.

Pack up some related Foolishness:

Coach is a Motley Fool Stock Advisor recommendation. Take a ride in any of our Foolish newsletters today, free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 21, 2009, at 11:33 PM, BrodieMan720 wrote:

    The nicest thing about Coach right now is by lowering prices, they can target a younger market to draw them in for longer term purchases. They have such a good brand that the quality of their products will help maintain those younger customers. I'm stoked about the dividend also. Some of the best news I've woken up to in a while.

Add your comment.

DocumentId: 879973, ~/Articles/ArticleHandler.aspx, 7/24/2014 7:01:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement