Looking Beyond Coach’s Numbers
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Coach (NYSE: COH), the provider of high-end clothes and accessories, posted a rocking first quarter results which lit up the Streets, highlighting recovery in the overall economic conditions. It indicates that consumers have started loosening the purse strings by spending on luxury items such as fine watches and accessories. Let's delve deeper into Coach’s performance.
Analyzing the Quarter…
Moving back to its previously used promotional strategies, such as giving away coupons and discounts to customers, increased customer traffic and pushed revenue north by 11% to $1.16 billion. Another key driver was the company’s global expansionary moves. Coach has been focusing on penetrating the untapped international markets where it foresees huge potential. In fact, revenue from international operations surged 15% during the quarter, much more than the domestic business, which saw an increase of 8%. The star market was China, which experienced a 40% jump in sales thanks to growing demand for high-end products.
Nonetheless, the North American business also performed well, with a comparable sales growth of 5.5%. Along with increased promotions, the growing men’s business contributed to the top line. The retailer also opened new men’s stores, which drove revenue growth.
However, Coach faces stiff competition from peers such as Michael Kors (NYSE: KORS). Though Michael Kors is a new player it has attracted large customer attention, eating away Coach’s market share. In fact, Kors has not only taken away the limelight in the retail space but also in the wholesale space. Its increased focus on marketing and expansion into new regions such as Europe and Japan enabled Michael Kors to witness huge growth in revenue in the recent quarter, Europe being the best performer with a whopping 110% increase in revenue. Also, it recently increased its outlook for the current quarter as it foresees a great future ahead.
Hitting a Bump
Though Coach has been a wonderful performer and has been taking the right initiatives to grow worldwide, its wholesale business has been on the decline. The key reason for the decline is its less competitive pricing. It faces competition from Macy’s (NYSE: M), which has an advantage over Coach since it provides products at a concessional rate and opts for promotions such as 25% off. Macy is an operator of a chain of departmental stores offering great discounts, which makes it attractive to the budget-restrained shoppers. It registered a same-store sales growth of 2.5% for the month of September, which is above the industry average.
However, Coach is up for a number of moves that can prove to be fruitful going forward. The company has been expanding its collection for men. It is planning to increase men’s stores, especially in the domestic region and in Japan. Hence, this segment poses a lot of opportunity in the months to come.
Coach’s recent rollout of its Legacy collection has expanded its product line. It offers high-end lleather products, which has huge demand. Also, the company will be marketing its new line of products quite heavily through all kinds of media.
The fashion retailer has been aiming to directly most of the Asian markets. Hence, it has recently acquired the Coach retail business in Malaysia and South Korea, the benefits of which can be reaped going forward.
Moreover, Coach’s stellar performance in the Chinese market has made the company further expand its business in the region. It plans to open more stores in the months to come, which will contribute to the top line. Also, according to a research report, sales of luxury goods is expected to grow by 8% in China and 7% worldwide, which highlights growth opportunities for Coach.
Along with its expansionary moves, the company is equipping itself for the upcoming holiday season. It is increasing its geographic presence as well as enhancing its product portfolio, such as increasing accessories assortment for iPad and other gadgets in its stores. These initiatives, and a great quarter, highlight a comeback for this company. I believe investors should not ignore this stock, given its bright future.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Coach. Motley Fool newsletter services recommend Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.