Heard during Coach's earnings call

Execs with Coach (COH -7.1%) were on the hot seat during an earnings conference call after the retailer put in a dismal holiday season sales performance in North America.

They defended the power of the brand and the focus on factory stores, while still conceding rivals such as Michael Kors have taken market share.

The jump in the company's inventory was partially planned and not a direct result of the sales disappointment.

The view on 2014 EBIT margin is lowered to 26%-27% from 28%.

The company says it will have new designer products out later this year to re-ignite interest in the brand and will increase its retail footprint by close to 9%.

Earnings call webcast

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Comments (1)
  • southfl
    , contributor
    Comments (78) | Send Message
    The fundamentals of the Coach business appear to be broken.


    1) The brand image may be permanently tarnished from driving over 50% of US sales through the downscale outlet store channel. Consumers have moved on to other prestige brands that more carefully manage their brand image and maintain the outlet business as a much smaller % of sales.
    2) New management team may not have an understanding of the consumer or the brand heritage.
    3) Reid Krakoff, the creative head during the growth years of the last decade is gone. The new design lead is unproven.
    4) The core women's accessories business is in decline while management is trying to execute a transition from an accessories brand to a lifestyle brand. Essentially management is trying to learn new businesses at a time when its core business is underperforming and under strong competitive attack.
    5) International expansion is another dilution of management time and attention. Each country has consumer and market nuances that must be learned. Cultural differences also magnify complexity.
    6) I listened to the call and heard the long time ex CEO Lew Frankfort jump into the call and pontificate. It isn't clear whether Mr. Frankfort still has his hands on the business or if he is truly retired. If he is second guessing the new management team, it may be the operating managers don't have the freedom to set and execute a new strategy. An internal management struggle at this point in time would be extremely damaging to a business struggling on multiple dimensions.
    7) While the company still generates strong cash flow, if topline sales continue to deteriorate it may be under pressure to cut costs. If so, what will be cut? Dividend, capital spending, international expansion, new product development, advertising, expansion into new product categories? In other words, if cash flow becomes more restricted, can the current business strategy be executed?
    22 Jan 2014, 10:07 AM Reply Like
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