After being on vacation for a week, I feel a bit out of touch with some of the companies I hold. For most companies, it was an uneventful period, but a couple reported earnings. Among those is Kenneth Cole Productions
If I had to sum up Kenneth Cole's earnings in one word, I'd go with "weak." Sales, margins, and earnings were all down for the quarter, and the year wasn't much better. I wouldn't call the results a disappointment, because the company has been very clear that it's going through a transitional phase for the last couple of quarters and will be for at least a few more.
The story for next year is an old familiar song. The forecast is flat performance for the year, with soft performance in the first half and a pickup in performance in the second half. Since the company has a history of good performance, it's reasonable to believe that things will pick up. However, investors should always be a bit skeptical when the promised land is a couple of quarters away. Either way, the stock isn't expensive, but if the company doesn't live up to its own expectations -- or if the economy softens in the interim -- I wouldn't be surprised to see the shares get cheaper.
It all really boils down to whether the company's branding strategy will yield positive results. This involves focusing its Kenneth Cole Reaction products exclusively in department stores -- such as those operated by Federated Department Stores
The strategy is an interesting one because it potentially takes the brand into the range of other aspirational brands such as Coach
In the meantime, shareholders get a 2.6% dividend yield, and the company has increased its potential buyback opportunity to 2 million shares. The last time the company bought back many of its own shares was in 2000 and 2001. However, that was also the last time earnings took a dip, and on its conference call the company stated it would try to be opportunistic in returning value to shareholders via buybacks. This isn't the perfect investment yet, but the valuation and the potential make me think it's still a reasonable one.
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