Is Coach Cheap Enough to Be a Value Play?

Shares of Coach (NYSE: COH  ) are down close to 40% year to date. The latest is another tumble over the last few weeks or so after another dismal quarterly earnings report. But its dividend yield is now an impressive 4%, which is the highest it's been in five years. It still carries no debt and its dividend is only a 40% payout of earnings. So does all that make if a worthwhile investment?

Coach's weakness
Last month Coach once again tapered its near-term outlook, noting continued weakness in its North America business. Management has noted that revenue could fall by double digits in fiscal 2015.

Granted weak mall traffic and the tough winter weather led to decreased store traffic. However, it also takes longer to turn around larger companies. Coach's move from an accessory company to a lifestyle retailer could take longer than expected, which is part of the reason the stock continues to be hammered. It has to start competing more on fashion rather than price.

The turnaround plan
Last month Coach noted that "bold changes need to be made." These include gaining a larger presence in men's and increasing its reliance on sales from the fast-growing Asian market. Coach believes it has a $12 billion market opportunity in Asia.

Then there's the men's business. Revenue from its men's business was up 50% in fiscal 2013 but still only accounted for $600 million  of its total $5 billion in annual sales. Coach is opening stand-alone men's stores to try to boost sales to men. Management thinks it can boost sales of its men's business to $1 billion by fiscal 2016.

A couple of top-notch competitors
Kate Spade (NYSE: KATE  ) is another pure play on accessories, thanks to its previous divestitures of the Juicy Couture and Lucky Brand units. But back in May, Kate Spade reported a mixed quarter, with revenue up 33% year over year and beating analysts' expectations. However, its earnings loss of $0.06 a share was greater than the expected $0.04. However, Kate is still up nearly 20% year to date.

Michael Kors Holdings  (NYSE: KORS  ) has been one of the hottest stocks around -- not just in the accessory space. Shares are up 10% year to date and up 114% over the last two years. Kors has managed to beat earnings in each of the last four quarters. Its fiscal fourth-quarter earnings were up 63% year over year.

Still facing intense competition from Kate and Kors
Although Coach is hoping to turn to the men's business to help take the pressure off accessories, it is going to have some serious competition. Kate Spade is increasing its distribution of its men's merchandise brand, Jack Spade.

Meanwhile, there is Kors that is looking to boost its presence in Asia. It is doing so via regional licensees. However, Kors is also set to expand its presence in North America, which could further pressure comps for Coach. Most notably is Kors' plans to boost its shop-in-a-shops. Then there's the men's business, which Kors is also going to focus on. Kors believes there is a $1 billion opportunity in men's sportswear and watches.

How shares stack up
Coach is the only major accessory retailer that offers a dividend yield. Its current P/E ratio of right at 10 is the lowest it has been in more than five years. Coach also has the highest return on investment -- at 43% -- of the three. Kors' is 37% and Kate Spade's is 34%. As mentioned, Coach has no debt, but neither does Kors.

Bottom line
Coach's brand name and recognition is still very strong, but it appears the turnaround is a several-year project. The dividend yield will likely attract some income investors, but it's tough to see value investors getting involved at this stage, at least not until signs of a turnaround are in place.

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