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Join in on the discussion with other like-minded investors in our community forums. Learn about the fundamental investing methodology and participate in educational workshops in the Investing forums, stay up-to-date on StockCentral news and make suggestions to the StockCentral team in Central Square, and discuss your favorite stock or recent market news in our A-Z ticker-based forums.
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armin fields
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| 09/05/2007 12:22 PM |
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For the third year in a row, Richard Chauncey of Rochester, NY, nominated the winning stock in Better Investing's Growth Stock of the Year contest.
This year, he won with Coach (COH), a designer, manufacturer and retailer of high-end women's accessories, primarily leather handbags. In 2006, Richard won with Ceradyne (CRDN) and, in 2005, with Cognizant Technology Solutions (CTSH).
Richard sure knows how to pick growth stocks and, perhaps more importantly, knows what the judges want to read. Congratulations to Richard!!
When he did his SSG in March, he got a 1.6 Upside/Downside Ratio and a 11.2% Total Return which do not satisfy the SSG Buy criteria. However, the contest does not require stocks to be SSG Buys and only looks at historical results as well as the quality of the SSG (that criteria is not explained, does anyone know what it means?).
COH’s price has come down some $5.00 per share since last March and I currently show it as a SSG Buy, but not StockCentral’s Take Stock Online.
All three SSGs used similar EPS estimates. Analysts are now estimating around 20% EPS growth for the next 5 years (First Call & S&P exactly) with Value Line high at 23.50% and Zacks low at 19.95%; Reuters less one Standard Deviation is 18.05% (20.21 – 2.15).
Here’s how the three SSGs compare:
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Richard
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Armin
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Take Stock
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Sales Growth
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17.50%
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17.00%
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20.00%
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EPS Growth
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17.00%
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17.00%
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16.31%
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High PE
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28.0
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29.0
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28.5
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High Price
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$84.80
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$107.60
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$102.28
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Value Line Hi Price
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$55-80
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$70-110
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$70-110
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Low PE
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15.9
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14.8
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12.1
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Low Price
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$27.60 [low price in 2006]
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$25.00 [growth company option]
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$21.18 [growth company option]
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U/D
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1.6
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3.2
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2.47 [imputed]
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TR
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11.2%
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19.3%
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18.1%
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Price
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$49.80
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$44.53
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$44.53
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Buy Under
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N/A
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$45.28
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$41.48
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Date
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3-9-07
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8-31-07
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9-3-07
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Data Source
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S&P
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S&P
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Hemscott
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The primary reason I got a SSG BUY, but Take Stock did not, is our Low PEs: mine is based on the last 5 years, proportional after I reduced my High PE, while Take Stock’s is based on the lowest Low PEs in last 10 years.
Armin Fields
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Armin Fields
check out my SSG blog at
http://arminfields.wordpress.com |
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Lynn Brown
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| 10/06/2007 8:05 PM |
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Armin,
Thank you so much for the comparison. I have desktop Take Stock and today it is showing a buy at $45.64. Pretty close to where you were a month ago. I have been considering this company (although I don't really need any more consumer discretionary in my portfolio) because it seems to be a very exciting company. I visited their store in Denver and talked to the sales people. They had just opened for the morning and only had one client so far. Anyway, both young women loved the company. They had worked retail for other companies and Coach was so much better. The one who had worked for 1 1/2 years was already getting stock in the company. They also said the company was supportive of employees and people could transfer to other stores anywhere. |
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Patrick Landers
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| 11/04/2007 10:05 AM |
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Armin,
What is your take on COH now. There seems to be much speculation about the retreat of luxury buyers and the demise of this stock. Management does not seem as concerned. Here is a recent interview from COH's CEO...
Coach Chief Executive Lew Frankfort disagreed with skeptics' predictions about slowing demand from aspirational shoppers. About one-quarter of the company's customer base is what he characterized as "price sensitive" with an average annual household income of $60,000. Coach's average customer has an annual income of $120,000.
"Our business in our most price-sensitive channel -- factory outlets -- is as robust as ever," Frankfort said in an interview. "We are seeing no slowdown in their spending. Many market observers took the moderation of the growth in our sales to signal a decline in luxury spending. That's absolutely not the case. Our business is very vibrant."
Coach's U.S. factory outlets are expected to post same-store-sales percentage gains in at least the mid-teens, compared with a "low-single-digit" increase expected in its regular full-priced stores, Frankfort said. Coach's average factory customer is a woman in her 40s with two children and less discretionary income than its average full-priced store shopper, a woman in her 30s without children.
Frankfort blamed the company's recent decline in traffic on unseasonably warm weather and said that the Southern California and South Florida regions were the only two markets in which the broader economy and declining housing markets have hurt traffic. Shoppers who come into stores are buying at a greater frequency, he said, and Coach is expected to increase handbag sales at double the rate of the industry.
"I'm enthusiastic about Coach's prospects, even in the near term," Frankfort said. "I believe the luxury consumer continues to be the most immune consumer during this period."
I adjusted my SSG on this company and used 15% growth for sales and earnings. My high and low PE were very similar to yours. At the current price, they are a buy with U/D of 6.4 (High price $99 and low price $25) Compounded return is 23%.
This looks to me like a good entry price. Thanks for any additional input.
Pat Landers
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armin fields
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| 11/05/2007 6:35 PM |
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Hey Pat:
On 10-15, COH sunk about 12% to a 52-week low of $35.40, days after the Company reported its quarterly earnings which the market (and Cramer) disliked. I almost never read Cramer, but that was the first article I saw when I checked the price and news chart at Google Finance which I always like to do. What upset investors, I think, was COH's lowered expectations for the upcoming quarter which includes Xmas.
Value Line issued an updated report today and reduced its 2008 EPS estimate because of slower same-store sales. VL also reduced its long-term EPS estimate, without comment, from 24.0 to 22.0% and its estimated High Price in the next 3-5 years from $70-110 to $65-100. VL concluded with what seems like a troublesome warning: << Coach must preserve its reputation as an upper-echelon brand in order to ensure future success. >>
The Investor Advisory Service (IAS) featured COH this month, but its SSG was completed on 10-10 when the stock's price was $45.31. IAS also used 18.0% growth rates so I don't think its analysis will help much to guide us regarding whether to buy now.
In my opinion, the SSG does not work well with growth stocks that are experiencing declining growth. The historical data looks attractive while judgments about the future are largely a guess, particularly how low the High and Low PEs will go, and how low the Low Price will go. Even a more conservative SSG than yours still looks like a BUY right now, and I'd be wary of buying on the basis of primarily the SSG. While COH's last quarterly results were excellent, it's the future that seems most uncertain and scary.
Perhaps you'll do some more research and report your findings on what's going on with the company:
- what's behind COH's changed expectations and do you think it has changed its basic business plan (the Motley Fool wrote that COH sees its handbag business growing only 10% instead of 20%);
- what's expected for the Xmas holiday season: for COH, its competitors, and other retailers;
- what will drive long-term growth (the same, basic stuff or something new).
Let us know what you think...and what you find.
Armin |
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Armin Fields
check out my SSG blog at
http://arminfields.wordpress.com |
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Patrick Landers
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| 11/06/2007 8:30 PM |
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Armin,
I will look at the 10Q from last quarter when it is published for some hint of how mamgement sees the future growth of COH. I'll call IR if I have any additional questions.I'll keep you posted.
October retail sales report is coming out Thursday-that may help.
I feel that this is a well run company with a long history of superb sales and profits. Plus it appears to be on sale now (PE RV is 93) It should be able to weather a slow down in the economy as it did in 2002.
Pat Landers
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Doug Gerlach
Cambridge, MA
http://www.iclub.com/
President, ICLUBcentral
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| 11/07/2007 1:33 PM |
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For years, Phil Keating used to keep track of the peformance of the Growth Company of the Year winners, and found that the award was more often than not the death knell for the stock!
I don't know if that's still the case or not, though...
The Investor Advisory Service recommended Coach in its November 2007 issue, so that may count for something. Interestingly, Coach was presented last month at our company investment club meeting, as well. It was tabled since we didn't have funds to buy any stocks then, but we put it on the watch list for the future.
Doug |
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Posting from ICLUBcentral world headquarters in the Harvard Square's historic College House, Cambridge, MA
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Patrick Landers
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| 11/14/2007 10:21 PM |
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Hey Armin,
I finally looked at the 10Q from COH, as well as recent statements from the Senior executives. Here is what I found:
1. There was a slight decrease in guidance for next Qtr. and Year(which ends on 6-30-08) The guidance for earnings is an increase of 19% for the quarter, and 22% for the year; sales 20% for the Qtr. and 21% for the year. Although the CEO stated in the most recent conference call that there was a decrease in traffic in the high end Retail stores, there has not been a significant change in guidance. This must be due to the increased traffic in the Factory Stores I mentioned in the first post I submitted.
2. Growth Strategies place an emphasis on direct retail in N.A., Japan and the Pacific Rim. The Co. palns to open 40 retail stores in NA with a long term goal of 500 stores. They also plan to open 15 stores in Japan, with a goal of 180 stores, and to open 30 in the Pacific Rim.
3. They want to build market share by introducing more HIGH END PRODUCTS; they believe that is the part of the economy that will not be affected by gasoline prices or mortgage rates.
4. COH came off an outstanding Qtr.: Sales increased 28%, Same store sales increased 19%, EPS 32% and Profits by 35%. At the same time, SG&A decreased.
One other thing from the 10Q was that the Co. felt that the seasonality it has felt in the past is decreasing due to better sales growth in the non-holiday quarters.
Concerns I left on the voice mail of IR:
1. Are sales moving away from the Retail stores toward the Factory stores, the Internet and the Indirect Retailers (such as Macys and Nrodstrum)? If so, at what rate, and what is the long term consequence of this? How will this change affect the company margins/profits?
2. What did the Co. do during the last recession to increase sales and earnings?
What other information needs to be sought?
Pat Landers |
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armin fields
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| 11/15/2007 1:39 PM |
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Hi Pat:
Thanks so much for the feedback:
- Are you ready to buy or do you recommend a wait-and-see?
- Do you think COH will meet or exceed the market's expectations for Sales and EPS in the upcoming Xmas quarter?
- Was the Motley Fool wrong to say that COH "did slash its expected growth in the handbag business from 20% to 10%" and to worry that the company was maybe changing its business plan:
" Coach was a hot gift for teens last Christmas, which concerned both me and fellow Fool Alyce Lomax. We feared the brand could potentially be tarnished, since its core consumer is a relatively wealthy woman, rather than a middle-class high school student."
Armin
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Armin Fields
check out my SSG blog at
http://arminfields.wordpress.com |
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Patrick Landers
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| 11/16/2007 12:46 PM |
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Armin,
The CFO said earlier this week that he expected sales and earnings increases of 19%-20% for the current quarter. So hopefully there will not be a disappointing surprise.
I still have not heard back from the IR at the Co. I sent an Email with my concerns about sales trending away from their high end Retail stores to the Factory outlets and indirect retailers; most importantly, how will that affect their margins/earnings.
I have adjusted my SSG and am using forcasted sales and earnings of 15% (lower than the company, VL, TS, MSM or Yahoo finance have predicted.) That gave me a estimated high EPS of $3.21. I used a high PE of 25 (the high PE has not been that blow since 2001) and a low PE of 15 (the low PE has not been below that since 2003-right after the last recession and before the run up in 2003). These are conservative numbers and with these numbers I get a buy with an U/D of 5.2 and total return of 18.7%
Also, it's price now is $34. If it doubles in 5 years (my goal) it will be at $68. If it does earn $3.21 in 5 years, it's PE will be 21 (for a price of $68), which is just above the average I have forcasted. It's PE RV is 95.
I believe that this remains a quality company that may be "on sale" now. I intend on buying some shares of it (with the proceeds from COGN) but am going to wait until I hear from the company concerning the above mentioned trends and margins.
What are your feelings?
Next-what to do with SBUX?
Pat Landers |
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Patrick Landers
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| 11/23/2007 9:29 PM |
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Here are the questions I sent to the COH IR and her responses. It sounds like the Co. feels there may be a slow down, but nothing serious (like what is occurring in the retail sector). Based on the information in the prior posts as well as the most recent 10Q from the Co., I feel it is a good entry point for the stock.
From: Pat Landers [mailto:ltreble1@yahoo.com]
Sent: Fri 11/16/2007 12:01 PM
To: Andrea Resnick
Subject: 10Q
Dear Ms. Resnick,
Thank you for answering a few questions I have about your most recent report and your Co. I am an individual investor but belong to a club with about 150 members. We have been watching your stock for some time but are very interested in buying some shares with the recent price retreat.
My questions:
1. Are sales trending away from your retail stores, toward factory outlets, indirect retailers and Internet sales?
- They are not. We measure the crossover from US retail stores to US factory outlets on a monthly basis and have seen no increased crossover.
- From time to time we see sales in our factory channel increase at a faster pace due to higher same store sales, opening schedules, etc.
- Japan, which is in our direct channel is growing a slower pace that the US due to the maturity of the market.
- Internet continues to post strong growth off a very small base. We view the internet channel as a traffic driver to our US full price stores.
At what rate is this occurring, and do you see it as a permanent change?
-See above
What percentage of sales comes from retail stores? from factory outlets? from indirect retailers? and from the Internet?
- We do not share more than what is available in the 10Qs and 10Ks. Our total indirect business is about 20% of sales, direct is about 80%.
2. What are the profit margins for retail stores? factory outlets? indirect retailers? Internet sales?
-We do not share more than what is available in the 10Qs and 10Ks. The operating margin for the two main segments - direct and indirect - are shown.
3. Same store sales were 19% last quarter. Is this above or below normal? Do you see same store sales staying in this range in the future?
-North American same store sales were 11% in retail stores and 27% in factory stores last quarter. We have achieved 22 quarters of double digit same store sales growth in retail stores and 14 quarters of double digit comps in factory. Per our guidance, we expect to achieve low single digit comparable store sales in our retail stores and at least mid-teens same store sales in our factory stores this holiday season.
4. In the last recession (2001-2002) what did COH do, if anything, to continue it's growth? Are there any changes upcoming to off set the current decrease in consumer spending?
-Post 9/11 we had two quarter of negative comps in our retail stores. This quickly corrected, and we began to comp double digit in this channel by June '02.
-At the time we did less to drive sales than to cut spending
-We are currently slowing some corporate spending but increasing our spend on newspaper advertising by about $1.2 million.
5.In the 10Q, you speak of opening 40 retail stores in N.A., 10-15 in Japan, and 30 in China/Korea. Do these include the factory outlets, or are they strictly Coach Retail stores?
- 40 are NA full price stores, about 6 US factory outlets, 10-15 retail stores in Japan plus a few additional factory locations. In other international, these are strictly retail locations opened by third party distributors in Asia, the Middle East and other regions.
Thank you again for your help.
Pat Landers
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