Coach, Inc.'s Transformation Just Got a Little Less Expensive

Coach's lofty transformation plans are no longer expected to cost $300 million. Here's what investors need to know.

Jul 7, 2014 at 2:22PM

Coach

Coach will soon close up to 70 underperforming stores. Source: Coach.

Thanks primarily to a costly transformation plan unveiled a few weeks ago, shares of Coach, Inc. (NYSE:COH) have fallen more than 10% over the past month. But according to a recent SEC filing, that transformation is now expected to cost much less than Coach originally anticipated.

When Coach first told investors of its multiyear plan -- which includes updating its global store fleet, realigning inventory levels, closing roughly 70 underperforming retail stores in North America, and implementing various organizational efficiencies -- it estimated the efforts would result in pre-tax charges of $250 million to $300 million between its fiscal fourth quarter 2014 and throughout fiscal 2015.

Last Wednesday, however, shares of Coach quietly climbed more than 2% after an amended SEC filing provided an updated estimate of those costs. Specifically, Coach says it was previously "unable to provide good faith estimates of the amount ... for each major type of cost" associated with the plan. Now, however, Coach provided the following estimates for charges related to its transformation:

  • $75 million to $85 million related to inventory realignment (of which $15 million to $25 million will be cash)
  • $45 million to $60 million for store closures (of which $40 million to $50 million will be cash)
  • $30 million to $40 million in non-cash impairment charges
  • $15 million to $20 million in non-cash accelerated depreciation of existing store assets
  • Up to $15 million of "other related, but individually insignificant, costs" (of which up to $10 million will be cash)

So why did Coach stock jump last week? In short, add the above estimates together and this means it now expects its transformation to cost somewhere in the range of $180 million to $220 million, or roughly $75 million less at the midpoint than its previously expected range. What's more, "only" $65 million to $80 million of that total will be cash, which won't put much of a dent in the $775 million cash hoard held by Coach at the end of its most recent quarter.

Of course, this still doesn't guarantee Coach's transformation will be an automatic success. And it doesn't take the sting away for Coach investors who have watched competitors like Michael Kors and Kate Spade continue to grow like weeds and take market share in the crucial North American market, where Coach last fiscal year derived nearly 69% of its total sales.

But it should put Coach in the perfect position to ready itself for the September launch of the critically acclaimed debut collection from its new creative director, Stuart Vevers. This, in turn, will set the stage for what Coach CEO Victor Luis has described as a "multi-year journey that ensures both brand vibrancy and healthy, long-term growth."

As a long-term investor myself, knowing Coach's long-term plans will now cost less to implement only sweetens the deal.

Leaked: This coming device has every company salivating
But Coach's products aren't the only new thing you'll be able to wear soon. In fact, there's another product in development that will revolutionize not just how we buy goods but potentially how we interact with the companies we love on a daily basis. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multibagger returns, you will need The Motley Fool's new free report on the dream team responsible for this game-changing blockbuster. CLICK HERE NOW.

Steve Symington owns shares of Coach. The Motley Fool recommends and 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers