If you follow or invest in Coach (TPR -0.49%), then you're well aware of the common comparisons to Michael Kors (CPRI -0.44%). That's because Michael Kors is on a rampage. The company's designers are killing it and its products are in extremely high demand. The jet-setting in-store experience doesn't hurt, either. Michael Kors is a better growth story than Coach, which will be evidenced below. However, instead of bashing Coach for not being best-of-breed anymore, this article will take a look at what Coach is doing to improve and examine whether the company still presents a quality investment option.
Growth strategy
Coach's growth strategy is broken down into three substrategies:
- Transform to lifestyle brand.
- Increase global distribution.
- Improve store sales productivity.
In Coach's 10-Q, it lists four key initiatives to achieve these goals. In summary:
- Transform to a lifestyle brand with a focus on accessories, presenting a clear and compelling image of the Coach consumer.
- Capitalize on opportunity in the Men's category by opening new stand-alone and dual gender stores, and by broadening product assortment in existing stores. Primary geographical focus: North America and Asia.
- Raise brand awareness in Asia and Europe while expanding in South America and Central America in order to build market share in under-penetrated markets.
- Innovate digitally.
In regard to the last initiative, Coach needs to make a move. Its website, Coach.com, doesn't rank very high for a household name like Coach, and visitors over the past three months seem to be less interested than in the past. According to website analytics company Alexa.com, Coach.com has a global traffic ranking of 8,237 and a domestic traffic ranking of 3,133. Over the past three months, the bounce rate (visitors only viewing one page and leaving) increased 23% to 35.30%, page views per user declined 6.54% to 4.00, and time on site slid 24% to 3:30.
What might surprise some people is that Coach.com has higher traffic rankings than MichaelKors.com, which sports a global traffic ranking of 11,793 and a domestic traffic ranking of 4,207. Over the past three months, the bounce rate has increased 11% to 25.80%, page views per user has declined 4.18% to 5.73, and time on site has slid 11% to 3:33. The bounce rate is much lower than Coach.com's, indicating that visitors are more likely to stay on-site. Time spent on site is almost identical. What stands out the most is page views, where MichaelKors.com has a significant edge.
Despite recent declines in traffic stats, there's one peer company that's more impressive online than both Coach and Micheal Kors: Ralph Lauren (RL 0.89%). RalphLauren.com has a global traffic ranking of 5,588 and a domestic traffic ranking of 2,008. Over the past three months, the bounce rate has increased 10% to 30.60%, page views per user has declined 5.63% to 7.71 (still a very high number for page views), and time on site has slid 11% to 5:40. RalphLauren.com seems very good at keeping loyal visitors interested. However, Michael Kors seems better at keeping new visitors interested based on the lower bounce rate.
The above numbers don't guarantee anything. They just offer a peek into what's going on with the company websites, which can indicate increasing or declining demand. However, since traffic stats can be seasonal, pay more attention to the overall numbers for bounce rate, page views per user, and time on site.
The long game
Coach's long-term game plan is to increase cash flow and offer investors superior returns. Challenges include intense competition, a challenging macroeconomic environment, and a difficult retail scene with continuous promotions. However, Coach points to its strong balance sheet ($854.74 million in cash and short-term equivalents versus $985,000 in long-term debt), and its ability to generate cash flow (operating cash flow of $1.38 billion) as sources of liquidity that will allow it to invest in its brand while also returning capital to shareholders.
This would be a good time to point out that Coach currently yields 2.50%, much more than Ralph Lauren at 0.90%, and Michael Kors doesn't offer any yield. However, Michael Kors crushed its peers on the top line over the past year:
COH Revenue (TTM) data by YCharts.
The same can be said for the bottom line:
COH EPS Diluted (TTM) data by YCharts.
In its recent second quarter, Michael Kors saw revenue jump 38.9% year over year, with comps increasing 22.9% (30 consecutive quarters of comps growth), and EPS improving 44.9%. In other words, Michael Kors doesn't seem to be slowing down, thanks to expanding brand awareness and its ever-increasing global presence.
Ralph Lauren's second quarter wasn't bad, either. Revenue increased 3%. It raised its full-year revenue outlook to 5%-7% growth from 4%-7%, based on global store expansion.
The bottom line
Sometimes the answers are obvious, at least in my opinion. Coach and Ralph Lauren are household-name brands with strong balance sheets and abilities to generate significant cash flow. These should lead to future shareholder rewards. For Coach, shareholder rewards might increase thanks to recently announced initiatives. However, these would still be moderate shareholder rewards compared to Michael Kors, which should outperform its peers in regard to stock appreciation.
