Coach (COH) Earnings Report

I like to follow Coach (COH) closely because, much like say an Under Armour (UA), I could see this returning to the portfolio; plus it's a great tell on the segment of society most strapped - the "wanna be upper class, but not really". But with slowdowns in the US and Japan, it just (aside from deat cat short covering bounces) seems to be in a bad place. Hopefully one day it can expand in a meaningful way into China which will certainly goose earnings. Here are some details from its earnings report (on which of course it rallied), and some comments from the CEO on the US. The data seems to point to the commentaries I have been making about how the US consumer will be forced to move[Target Shoppers Turning into Walmart Shoppers] downstream. In Coach's case, the move is within the chain from retail stores to factory stores. (i.e. outlet stores) Unfortunately, as has been mentioned despite all these accurate economic calls, it has not helped performance one iota the past 3 weeks.

If there is any bifurication it certainly is not in emerging markets vs domestic markets, but its in the upper 3-5% consumer versus the other 95% in America. As an aside, did you see Starbucks (SBUX) is testing $1 coffee now? Of course the stock is up on opposite day since $1 coffee would NOT cannibalize its $4.50 coffee - and after all the US economy will rebound in 6 months since the Fed is cutting, right? Interesting how we can manufacture reasons to push one stock down and another up - here we have a company who looks to be cannibalizing its own profits if they adopt this mainstream across the entire chain, yet people react positively. Because the sector is now back in favor. :) Again, just fascinating.

I also copied an article from Portfolio.com at the bottom; which probably is a verbatim commentary to what I was talking about last summer. But in "opposite day", things that are sheltered from the US consumer are getting destroyed and things tied to the US consumer are ramping. Again, I cannot find the circular logic in this - stocks in quality sectors are being sold down because of fears of US recession impacting them - yet its ok to buy the stocks most tied to the US recession. Huh? :) Darn computers have a mind of their own...

Coach Fiscal Q2 Rises

• Luxury handbag and accessories maker Coach Inc. said Wednesday its fiscal second quarter profit jumped 11 percent, with strong sales at factory stores offsetting weak retail store performance.
• For the quarter ended Dec. 29, net income rose to $252.3 million, or 69 cents per share, from $227.5 million, or 61 cents per share in the 2006 quarter.
• The company said direct-to-consumer sales rose 18 percent, helped by a gain in sales from new and existing stores in North America. North America same-store sales, or sales at stores open at least a year, rose 7 percent with factory same-store sales climbing 17.7 percent.
• Retail same-store sales, though, fell 1.1 percent during the quarter due to a shift by consumers to lower-priced items and weak mall traffic. Upper-end handbags still performed well.
• Coach's gross margin dropped to 75.4% to 77.1%, reflecting a promotional environment in North American and currency fluctuations.

Coach CEO Says US Already in Consumer Recession

• Consumers in the United States are already acting as if they were in a recession despite what economic indicators show and would benefit from a tax stimulus package, Coach Inc's (COH) chief executive said on Wednesday. "My own view is that we're already in a consumer recession," Chief Executive Lew Frankfort told Reuters.

The Not So Affluent Society via Portfolio.com

• The first casualty of the current economic slowdown may be the American bourgeoisie.
• From Williamsburg to the Mall of America, these are the middle-class, educated Americans who have been spending $4 on a cup of coffee and $200 on a pair of jeans.
• Coach, known for its handbags, has become latest American luxury goods maker to sound a warning that Americans are no longer spending on "affordable luxuries."
  
• American consumers are paring their spending amid lower home prices, high energy costs, and tightening credit.
• 'You had a lot of people who graduated to a level of consumption they could not really afford,'' Adrianne Shapira, a retail analyst with Goldman Sachs told the New York Times. ''Two-hundred-dollar pairs of denim were plausible when home values soared, but now $100 jeans are looking more reasonable.''
• Like Tiffany, which also reported a decline in United States sales, Coach was buoyed by overseas gains. Overall, Coach sales rose 21 percent and the company reported an 11 percent increase in fourth-quarter earnings.
• So Starbucks is experimenting with a short (eight-ounce) cup of coffee for $1 in its Seattle-area stores. It is also trying out free refills for brewed coffee. Sarah Gilbert on BloggingStocks hails the move as "a new entry point for the cash-poor masses."
• Can it get any worse for affluent Americans? If they eat sushi, yes. The New York Times is reporting that laboratory tests of tuna sushi taken from 20 Manhattan stores and restaurants found mercury levels so high at most of them that they would exceed what the the Environmental Protection Agency considers acceptable. (oops)

This goes back to the points I have been making about "global equalization" in lifestyles for the bottom 60% across many countries in this world. [Do the Bottom 80% of Americans Stand a Chance?] Great for humans as many of those well below the "mean" will think living as the world mean is the lifestyle of a king. Not so great for those who are used to a better than "mean" lifestyle, and have to adjust downward. I truly think those stuck in apartments the past half decade have been wondering how the other "half" are doing it - but we can clearly see, the house ATM was the biggest piggy bank ever created. This was suspected, but any of us calling it were "wrong" for a long time while the bubble kept inflating and inflating and we wondered how consumers were doing it... And why I think this recession will be far worse than "2 quarters and done".

Now again, I did not expect this all to be priced in, in 3 weeks in the stock market! Considering it was all ignored from Sep to Dec 07. Shame on me for that one. So anyhow, after this fantasy that homes will be flying off the shelf (even at 4.5% 30 year rates if that's how long we can get them), and stores will be teeming with shoppers within 6 months I have to keep coming back to the fact... not without the house ATM. Especially in a world of persistent shortages and inflation and (according to widely quotes stats, who knows "for sure") but 70% of Americans living paycheck to paycheck. But for now we can watch these stocks ramp and say ... wow. They were admittedly "oversold" [Will There Be Anywhere Left to Shop in 2010]

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