First, I had to get up at 5am west coast time to listen to the CC. Then I had to watch my shorts from yesterday go into the red.
The CC reinforced my thesis. Sales growth is slowing. Lew expects demand to level of in the second half of next year. Meeting next year's eps target depends on expanding an already excessive gross margin. Gross margin this quarter declined. Lew said that the past year has been one of unprecedented growth in the handbag market -- not just Coach. In response to a question about new competitors entering the market, Lew said "we welcome them. They will expand the market and that will be good for us." That doesn't sound like a competitive strategy to me.
Why is the market paying a secular growth multiple for a company which is benefiting from a cyclical swing? How will the stock be valued if the economy turns down and we get a couple soft quarters? Suddenly this won't be a pure growth story any more, and the valuation will have to take into account the cyclical nature of the biz.
I don't like to short stocks for more than a trade, but I'm digging in my heels on this one. Lets see what things look like after the spring earings report next year.
out of all the crummy stocks to short, you decide to short COH..the market is paying because COH makes OUTSTANDING products..if gross margins declined, why did Lew Frankfort say "the past year was unprecedented growth"?
I found it difficult to think we both looked at the same results and listened to the same CC - but I recognise that that everybody has a right to their own assessment, and I try and learn from others.
"Sales Growth is slowing". Possibly this so -and I would expect this as a company grows larger - but it's hardly discernible in this case. Growth to this quarter was 33%,to the same quarter 2003, 34% and in the same quarter 2002 it was 28%. It is true that sales growth in the June quarter was higher at 46%, but it is better to compare to the same quarter the previous year. The December quarter comparisons will be the best test of sales growth.
"Gross Margin this quarter declined" How so? It was 75.0% compared to 72.7% the same quarter last year.
The reason COH is given a trailing multiple of 32.8 (at market close today)is just because of its growth and margin consistency, and the transparency afforded by US and Japan store growth, and the still significant SSS growth.
For my part I thought the CC was extremely positive, one of the best COH CC for a number of quarters, and it seems the market did also.
But I do not claim to be infallible, and I wish you the best of luck with your investments.
Aaah life...sometimes its good and sometimes youget crunched. Personally I appreciate your honesty and letting it hang out there. Normally Im a Bull on this stock but I was not willing to go long preconference call as its had some seriuos selloffs as of late. Who knows, maybe its all lined up again. Anyways, From the looks of it, some heavy hitters covered today from 42-44 in about an hour. I entered a small short position today at 45. Just hoping to flip it and make a bit. Either way Coh has been berri beri good to me.
In your previous email you were 'hung up' to the margin issue as to how far it can go. You gave an example of '76% can not go to 100% etc etc .
Well as long as the margin is not declining the high margin is excellent when there is a sales boom. They called it 'surge' , 'jump'. If margin % is fixed , the dollar value of the margin is also a surge or a jump. That is what counts at the end of the day for a fixed number of stocks. EPS dollars .
This stock is has steem to make another 52w high . Then it has to prove itself all over and not necessarily with improved margins. If margin % is higher well that is better!