Is a Coach Recovery in Store for Investors?

Is Coach a value stock to buy, or is it a retailer with too many lingering problems?

Jun 7, 2014 at 10:00AM
Coach Pic

Coach (NYSE:COH) came under pressure of Wednesday June 4, 2014 after brokerage Sterne Agee questioned Coach's outlook for growth and recovery. Nonetheless, Michael Kors Holdings Ltd. (NYSE:KORS) and Kate Spade & Co. (NYSE:KATE) continue to dominate the luxury handbag market, which brings about the questions of whether a Coach recovery is likely, and if investors should buy following large stock losses.

Sterne Agee hits Coach
Coach is one of America's leading luxury designers, mainly known for its handbags and accessories, with over 500 stores in North America. The company also has over 400 stores in the Asia/Pacific and a handful in Europe, which does not include its e-commerce channels. In total, Coach is a company with nearly $5 billion in 12-month revenue and a market capitalization of $10.75 billion.

Yet despite its large presence, Coach's stock has fallen 30% this year and found itself further pressured on Wednesday after Sterne Agee issued a downbeat note. The investment firm took the rating of Coach down to Neutral from Buy, and lowered its price target by $10 to $41. According to the analyst, the company's sales visibility remains low and any potential for a turnaround is too far away .

Coach continues to fall behind
Clearly, Coach has had a rough year, and the Sterne Agee downgrade is just one of many in the last five months. The problem for Coach is that its competitors such as Michael Kors and Kate Spade have come out with better selections for the last few seasons that have grown more popular with consumers who seek luxury bags.

Kors Store

In Michael Kors's last quarter it reported revenue growth of 53.6% year-over-year to $917.5 million, which resulted in a 26.2% increase in comparable sales . However, it was Michael Kors's European success and growing global brand that should really spook Coach investors, as the company brought in $164.6 million from Europe and grew 125% year-over-year.

Kate Spade Pic

Kate Spade has a large presence in luxury handbags, and also in other apparel. During its last quarter, sales rose 33.6% to $328 million, and its comparable sales grew an even better 43 %.

In contrast to the North American success of Michael Kors and Kate Spade, Coach's comparable sales declined 21 % in North America during its first quarter, and the company has relied solely on the growth of markets outside the U.S. The problem is that Michael Kors is now making its presence known in other countries, and Kate Spade is soon expected to enter many of the same markets.

Can Coach recover?
As for Coach, there are no indications that its second quarter will be any better than the first. The company has already attempted to sacrifice margins by discounting, but consumers simply haven't responded, which means the company needs new efforts. 

According to Coach CEO Victor Lewis, a multi-year turnaround is under way, and he says, "As our journey progresses, we have confidence in our vision of becoming a global lifestyle brand ." Yet much like consumers, investors are skeptical, as the company banks on new creative director Stuart Vevers to revive the 70-year old brand .

Unfortunately, fashion is an industry where it's hard to catch up when you're already behind, as it remains a space where the best companies stay ahead of trends. While Lewis is a good hire, Sterne Agee is correct in implying that the road toward a turnaround is long, and unfortunately investors are often impatient.

Final thoughts
With all things considered, Michael Kors and Kate Spade remain as strong as ever, and with their penetration of global markets Coach could have a much bigger problem than it has in North America. Coach is a company that seemingly doesn't have an answer for its large year-over-year losses, and even with a new creative head, it's going to take time for a recovery to occur. Hence, even if Coach returns to prior form, this is a stock that could still have large losses in front of it, as the road to recovery is long and Michael Kors and Kate Spade will not wait for Coach to catch up.

Coach's future may be uncertain, but this top stock looks poised for long-term gains
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Brian Nichols owns shares of Michael Kors Holdings. The Motley Fool recommends Coach and Michael Kors Holdings. The Motley Fool owns shares of Coach and Michael Kors Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers