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Coach (COH) is a mystery to me today. I thought the numbers from its latest quarter were pretty good. And yet, the stock sells off. That alone is not so mysterious; heck, it happens all the time. What makes it so strange for me is I've covered so many other retailers that post awful numbers and then go on to see a big bid. Hey, that's the market, right?
Anyway, Coach said total sales increased 11% in the second quarter. North American same-store sales advanced over 3%. Earnings came in at 75 cents per share, 8 cents better than last year's income stat. Earnings.com says Wall Street was looking for 72 cents per share.
See what I mean? Frankly, such a data set doesn't justify a 5% stock in the drop (which is what was on my screen at the time of this writing). And this coming from a guy who was very bearish on Coach last year.
This reminds me that Coach is obviously a beneficiary of much easier comparisons. Still, I have to give credit wherever it's due. I think management did a good job of getting things back on track and engaging its targeted consumers.
If you want a clue as to why the stock isn't so popular today, this article over at TheStreet.com mentions the top line as being a problem. Perhaps it's so. Nevertheless, taking everything in total, I just don't perceive a reason to be so down on the company.
Now, I'm not saying the stock is a strong buy here. I'm just calling the report as I see it. If I had purchased the retailer when it bottomed out, I would have sold a long time ago.
But I do concede things are obviously improving for the company. The stock has been strong over the last year, and I don't believe the current quarter indicates that it's about to collapse. Still, you never know with businesses based on fashions and the mall culture. If you've got paper profits in this one, maybe realizing some of the gains isn't a bad idea. In the end, the choice is yours to make after performing the requisite due diligence.
Disclosure: I don't own any company mentioned; positions can change without notice.
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Reader Comments (Page 1 of 1)
1-20-2010 @ 3:33PM
Iridium said...
Simple, traders were looking for much stronger results from the company due to the increase in Coach stores. The markups and profit margins on Coach items are insane in the 1000s of percent.
The average vinyl and microfiber coach purse is manufactured in China for less than $10 yet retails for over $300.
With that kind of markup the company should have made quite a bit more money. Hopefully the company will go belly up soon because anyone that buys a Coach item is a total fool. You can buy a higher quality purse or handbag in Walmart for $30.
1-20-2010 @ 3:39PM
e.krabs said...
Hmm, an abnormal dip in light of decent upsides is exactly the perfect time to buy in. Although I do not trade COH (circle of competence and all that), I'll pass this along to someone who does, although I'm sure she's already well-aware of it.
Thanks!