Coach (NYSE:TPR) has had a rough couple of years. In 2015, the company's stock was down 50% from its 2012 peak. But finally, after a long down streak, the shares are finally up, by 7% on a year-over-year basis, after the company announced Q4 results.

In this video segment, Sean O'Reilly and Vincent Shen talk about what's been beating up the stock so much recently, what management has been doing to reverse the trend, the markets that are growing especially well for the company, and whether investors should look a little more favorably at the stock in light of recent news.

A full transcript follows the video.


This podcast was recorded on Jan. 26, 2016.

Sean O'Reilly: Without further ado: Coach. It's like the perennial value stock. Since I started at the Fool in late 2013 it's always been like, "Wow. Coach is really cheap." Perennial, just beaten up. It's like, "It's a great brand. It's still earning money even though it's a little bit less." Chinese growth, I'm sure, was talked about. They finally showed some sales growth, so what's going on?

Vincent Shen: A big-picture context here, Coach has been struggling for the past couple of years now. Overall I'd say it was a combination of too much promotional selling.

O'Reilly: Just say Michael Kors, Vince. Just say it.

Shen: Definitely more competition from the likes of Michael Kors or Kate Spade, you're absolutely right. They got really big into doing these sales. I think it hurt their brand image a little bit.

O'Reilly: It takes away the luster of it, for sure.

Shen: Exactly. For this most recent quarter that they reported their fiscal 2016 second quarter ended Dec. 26, so includes pretty much the most important period in terms of the holiday shopping season -- this was their first, I believe, after nine or 10, you said, quarters where declining year-over-year revenue, finally, they were able to buck that trend, break that streak. Net sales were actually up 7% year over year in constant currency, 4% if you include the effects because of their international business, of course. Their adjusted earnings per share were about $0.68, which, down slightly year over year, but beat most Wall Street estimates.

Overall, the company, like I said, is going through that transition where management right now is really focused on cutting their underperforming stores. They're reducing some of that.

O'Reilly: Yet another retailer closing locations?

Shen: Exactly.

O'Reilly: Wow!

Shen: They're improving their product quality, just trying to focus on longer term, restoring that brand reputation. That cost money, so as a result during this quarter we saw their SG&A expenses go up a little bit. They're also integrating their Stuart Weitzman acquisition, which they made early last year, I think.

O'Reilly: Was that big?

Shen: Close to $600 million, so not huge.

O'Reilly: That's bigger than I was expecting.

Shen: In terms of its contribution, they mentioned that they're very, very encouraged by initial results from that segment. I think boots, for example, did really well despite the warm weather. The big trend right now, you see boots on a lot of people. Stuart Weitzman's just a pretty small portion, about 7.5% of their top line, but, like I said, management is very, very encouraged by the results that they've seen. Breaking down in terms of the geographic segments, you'll see big differences. In one case, their North American stores continue to post losses. The comparable-store sales are down 4%, but you mentioned China -- particularly mainland China did really well for them. I think sales were up double digits.

O'Reilly: You know Beijing has the world's largest Coach store.

Shen: Oh, really?

O'Reilly: It is the world's largest Coach store. I saw it. It is in Beijing. There's a reason for that.

Shen: I can't say I'm surprised. International sales overall for the company revenue were 9% year over year in constant currency. Then for mainland China it was very strong, but there's some weakness still in Macau and Hong Kong.

O'Reilly: I'm not surprised, but it's kind of wild that it's hitting Coach now, because you obviously saw Wynn and Las Vegas Sands saying, "Yeah, things are going rough over there right now."

Shen: I hadn't thought about that situation. When we've covered it previously, it's always been focused on the gaming side.

O'Reilly: Right. It affects the entertainment side.

Shen: Yeah, absolutely, and the shopping side, of course. Hong Kong has some world-class shopping. I'm sure that's not helping. Other than China, in terms of the international segment, Europe and Japan also saw pretty strong results, double-digit numbers, in terms of improvements. This company, their shares were up -- last I checked, about half an hour ago, up over 9% today on top of the positive momentum from these earnings. The stock fell about 13% in 2015, which, honestly, mirrored a lot of other retailers.

It's down over 50% from its peaks in 2012. Obviously, management is focused on that recovery process, and it's a good sign to see here not only in terms of integrating that acquisition, but just overall their international business. I think management also mentioned that for North America they're hoping to see comps turn positive by the end of this fiscal year, so definitely a nice a change to see after nine, 10 quarters of down revenue.

O'Reilly: You obviously read the press release -- you know the stock. Do you buy it right now? Not the stock per se, but do you buy what management's saying? Does it make you somewhat bullish?

Shen: Yeah. I have gone into a few stores and, obviously, this is just my personal experience, but I feel like, in terms of the styles and their offerings now, it's definitely going a little bit more in terms of their traditional -- Coach, traditionally, was known for really fine leather products. I think for a period they had offerings that were very heavily branded, started moving away from that because most fashion trends moved away from that, and now they're restoring that customer traffic and sales. I think what management's doing now is important, it's necessary.