The Coach Mystique
Meryl is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Coach Shopping Experience
I have experienced the Coach (NYSE: COH) mystique first hand, observing customers swoon over the products, watching in awe as one customer after another passed the ultimate test – whipping out their money and purchasing merchandise. I am definitely missing something when it comes to Coach products. I have never been a fan of big handbags and do not even like Coach styles or designs.
Not far from my home are two Coach stores, a full-price retail store and an outlet. The retail store does more than its share of mall business; there may not be many people walking around, but there are always people inside Coach.
Walk into a Coach outlet and you are in the middle of a mob scene. On the slowest shopping days the outlet store is busy. On the busiest shopping days there is a line out the door. One customer leaves, another is allowed in those hallowed halls. Inside the store everything is in disarray and there is a constant commotion. People – overwhelmingly women - mill all around, grabbing merchandise, rummaging through piles of goods on shelves and on tables, throwing products on various piles, not paying attention to where the merchandise belongs.
The casual observer might mistakenly believe products are given away until they peek at the price tags. The smallest items, including things like key chains for instance, are well into double-digit dollars. Price tags rapidly move into triple digits. Yet despite this, Coach is more affordable than most designer bags. This strategy has proven profitable for the company and their investors.
Coach stock peaked at over $51 in May 2007 before the financial crisis, then plunged to just below $14 in February 2009. The stock abruptly took an about face, steadily moving up, thanks partly to management doing a commendable job containing costs (though it didn't hurt that a lot of women could not resist buying a Coach product, recession or not). The stock traded in the $70s earlier in 2012 and currently trades in the mid-$50s range.
I sold Coach shares months ago but am considering buying again. Coach should continue to do well as the economy improves. But what about Coach’s financial numbers? Here are a few impressive ones: 21.81% profit margin, 31.74% operating margin, 12.00% quarterly revenue growth and 3.53 diluted earnings per share. TTM (trailing twelve month) P/E is 16.21. The chart below shows that the company managed to maintain profit and operating margins during tough economic times. You'll also notice that the company has paid a dividend since 2009.
What about the competition?
Various companies manufacture handbags and other accessories, competing for consumers' dollars. Ralph Lauren (NYSE: RL) markets men’s, women’s, and children’s clothing and accessories, as well as home furnishings, bedding, tableware, and other related products. The company has successfully grown its business since the depths of the recession. Recent numbers include a positive profit margin of 9.97%, 15.36% operating margin, 4.40% quarterly revenue growth and $7.26 diluted earnings per share. TTM P/E is 22.76.
Fifth & Pacific (NYSE: FNP), formerly known as Liz Claiborne, owns the Juicy Couture and Kate Spade brands, as well as a long list of other retail product lines. Fifth & Pacific’s most recent numbers indicate a negative profit margin (-6.63%), negative operating margin (-4.28%), negative quarterly revenue growth (-6.50%) and negative diluted earnings per share ($0.98).
The following chart compares revenues and EPS for the three companies since the end of the Great Recession.
*Earnings per share diluted trailing twelve months
Fifth & Pacific has a long line of popular brand names, but most likely some are not doing well, hurting the entire company. Management needs to review brands and product lines, eliminating poorly performing ones.
Prada is a well-known, reputable name. However there is currently not enough financial data available to reach any conclusions on whether or not individual investors will benefit from owning the stock.
Coach and Ralph Lauren appear to be good investment prospects. Both companies survived very difficult times for retailers during and immediately after the Great Recession. They are prepared to benefit from recovering economies in the United States and overseas.
The Motley Fool has no positions in the stocks mentioned above. mercyn 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.