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Why Does the Market Dislike Coach's Name Change?

By Motley Fool Staff - Oct 19, 2017 at 1:58PM

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The affordable luxury handbag brand will keep its identity, but its growing stable will exist under the Tapestry umbrella.

In this segment of the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser, Supernova and Rule Breakers' David Kretzmann, and Motley Fool Hidden Gems' Andy Cross talk about Coach's (TPR 0.54%) name change to Tapestry. And despite all the public mockery -- and the hit to the stock prices -- their conclusion is that it's an idea that makes sense.

A full transcript follows the video.

This video was recorded on Oct. 13, 2017.

Chris Hill: Shares of Coach fell on Wednesday with the fashion retailer announcing it is changing the name of the company to Tapestry. Coach is the parent company of Kate Spade and Stuart Weitzman. I have to say, Jason, I don't think I hate this.

Jason Moser: Well, it's not Tronc.

Hill: [laughs] It's not Tronc.

David Kretzmann: That's a low bar.

Moser: Honestly, I think you're right, I think I agree with you. I think this is as big of a deal as you want to make of it. At the end of the day, for me, it was more about entertainment value than anything else. I got a lot of great gifts on Twitter responding to initial reactions.

Andy Cross: Any you can share?

Moser: Well, because this isn't a visual medium, maybe I'll show you after the show. When you look at Coach over the past five, six, seven years, and the way the company has changed, this actually does make sense when you consider their strategy. They've become more than just one brand. They don't want to lever the company's ID to just that one Coach brand. I mean, it's Coach, Stuart Weitzman, Kate Spade, and whatever else they buy in the future. And I'll bet you dollars to doughnuts that they do make another acquisition or two here in the near future as they become more of a brand house. And management sees this, ultimately, as an $80 billion market opportunity. They're bringing in less than $5 billion in sales annually. Again, I think there's plenty of opportunity there. This does not obliterate the Coach brand. It's changing the name of the company. When I walk out of this office today, Chris, my Coach briefcase is still going to be a Coach briefcase, and I'm going to be feeling really good about that.

Kretzmann: The company still produces over $500 million in free cash flow annually, and there's $1.5 billion in net cash on the balance sheet, so I would expect them to deploy that in future acquisitions and brand targets going forward.

Hill: If nothing else, they'll have to spend some money on new stationery.

Moser: They've already changed the website.

Andy Cross has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. David Kretzmann has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Coach. The Motley Fool has a disclosure policy.

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