Wonder here is an alysis of COH and the upcoming Xmas season.
The National Retail Federation (NRF) predicts “consumers to take a conservative approach” this year at the malls. The survey conducted by the group estimates shoppers to spend approximately $900 this season. That’s a 3% increase over last year. However, with most cash-strapped consumers shopping for promotional rates and bargains, don’t expect the economy to be bolstered by this holiday season.
The NRF’s president says that consumers will spend less as they become aware of the softening economy. And a bad turnout in the checkout lines will only add to the rapid softening of this business sector.
Durable goods orders were down 1.7% in September, which indicates a slowing economy. The other indicators proving a slow-down in spending are increasing energy costs. We see higher prices at the pump with the national average now above $3 per gallon, and will soon feel the impact of higher heating costs. Natural gas futures climbed to $7.66 on the NYMEX, and the chance that this winter will be as warm as last year is pretty slim.
But those indicators just put pressure on an already growing problem. The credit crisis doesn’t just affect banks and Wall Street investors; consumers are also left with less liquidity and assets.
Back when refinanced mortgages were all the rage, lots of people took advantage and were able to buy more against the collateral in their house. This trend was only a temporary fix for giving those customers buying power. With that ability gone, and the foreclosure rate skyrocketing, don’t expect consumer cash to jolt the economy back to the way it needs to be.
Hidden amongst the luxury goods industry, one company shows its weakness,COH
Christmas Is Coming…
If you were at the L.A. Museum of Contemporary Art last week with the opening of Takashi Murakami’s exhibition, you wouldn’t notice the change in season or the impending problems in the retail sector.
Next to the artist’s exhibition was a splendid Louis Vuitton boutique with handbags going for $650 and above. He is the designer behind the signature multicolored logo bag the fashion house now sells. The ubiquitous logo bag still remains a one-of-kind item if it was designed by Marc Jacobs (creative director at LV) and adorned with a one-of-a-kind image from this artist.
This activity is in line with what analysts already know: 60% of total U.S. spending is done by the top 20% income earners. But if you take a look at Forbes’ mixed basket following luxury items, you will see that the cost of luxury goods has increased over 6% -- that’s twice the rate of inflation.
Overall, consumers are no longer willing to buy luxury goods. The credit spending has dried up. No company is going to be feeling it worse than Coach, Inc. (COH:NYSE). It has reached market saturation of customers who can afford their goods, and are willing to pay more for quality.
Earnings plummeted from $1.49 a year ago to 69 cents this past quarter. It’s starting to get ugly.
The company has made its shoes and bags available in more locations, such as outlet stores and Ross Inc. (ROST:NASDAQ) discount chain, which makes the brand less appealing.
Most people don't care if it's a fake Coach or a real Coach. What the heck is so special about a Coach bag, if every little girl has one in her dress-up closet? Most customers would rather get on a waiting list for Louis Vuitton, Gucci or Dior, whose bags still have the allure of being exclusive.
Looking at the Claymore/Robb Report ETF (ROB:NYSE), an index composed of global luxury brands, we see which companies are the best of the best and which certainly are not, the theory being that the wealthiest people in the world will maintain their spending habits -- and it shows with Tiffany & Co. (TIF:NYSE) and Saks Inc. (SKS:NYSE).
This ETF has 5% of its holdings in Coach, but it’s not a performer. Coach currently suffers from a drop in revenue and continued cash shortages.
Another luxury brand doing well right now is Kenneth Cole Productions (KCP:NYSE), which is poised to rise in stock price again after some recent beat-downs. What’s the difference? Its shares sell for less than one time sales, but Coach trades for five times sales. Coach is clearly overvalued.
Latest news release states this about COH.
There are already signs of weakness in the luxury sector. Coach (COH), the maker of upscale leather handbags and purses, has been a Wall Street darling for several years. But earlier this month the company said fewer shoppers were visiting its stores in California and the Northeast. "Traffic slowed most notably toward the end of the period," CEO Lew Frankfort noted in a conference call with analysts to discuss the company's fiscal first quarter earnings. Investors beat down the stock, which was trading at around $35, $5 above its 52-week low. Another luxury retailer, Nordstrom (JWN), reported that its same-store sales dropped 2.4% in October, which was the first sales decline at the company since early 2003.
Cheers everyone and as always God Bless and good fortune to you and your families.
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