TPR Coach, Inc.

Sector financial performance:

This company, primarily designs, sources, markets, sells, and distributes women’ handbag, men’s bag, or women’s accessary, has been grouped into handbag& luggage sector in personal items industry.
It seems that, based on the typical company data, the demand for handbag and travel luggage in North America market in the past three years has been weak and declining quickly for some of brands, primarily attributable to declining store traffic from their own stores and stores of their wholesale clients. The trend seems to be worsening in the past three years as indicated by the continuingly decreasing same stores sales (decreased by -3%,-2%, and -7% for 2017, 2016, and 2015 respectively).
Sales from European and Asian market have been successfully offsetting the decline in same stores sales of North American market of those companies during the same period. However, the growth seems to be slowing down in Asian area entering 2018.
Companies, facing the unfavourable retail environment, have responded to the slowing down traffic by expansion of business (including acquisition and opening new stores) and lower price. However, while those methods seem to have worked better for some premium brands but their profitability seems to be damaged largely.
The typical companies’ gross margins are down to about average 61% in 2017.  The SG&A as percentage of sales (including store occupancy and staffing costs) went up by about 480 basis points to about 53% in 2017; the typical operating margin went down from 13% to 8% in 2017. Companies’ cash flow thus significantly decreased during the same period.
The typical average stock price/cash flow ratio is about 38.

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Company performance:

It seems that the demand for its core products of this company in North America market has been weak in the past three years as indicated its continuingly decreasing stores traffic and wholesale sales. The growth in sales of its core brands has been supported by international market. However, it seems that the store traffic and thus the same store sales bounced back after entering fiscal 2018 but demand from international market decreased.
The first six months fiscal 2018 compared with the same period of 2017
Organic sales (excluding currency and acquisition) increased 0.5% (2% in recent quarter from same store sales mainly).
Coach organic sales increased 0.2%:
Coach same store sales increased 0.8% (including e-commerce)/decreased 0.2% (excluding e-commerce) due to improved traffic in US and Japan offset by decrease in Asia.
Coach wholesale decreased.
The fiscal 2017 compared with the 2016
Organic sales (excluding currency and acquisition) increased 1.8%.
Coach organic sales increased 1.1% due to increase from international market.
Coach same store sales (North America) increased 3.1% (including e-commerce) due to higher conversion.
Coach wholesale (North America) decreased.
The fiscal 2016 compared with 2015
International sales increased but North America sales decreased.
Coach organic sales increased 1.8% due to increase from international market (7% growth in Europe and China).
Coach same store sales (North America) decreased 3.3% (including e-commerce) due to lower traffic.
Coach wholesale (North America) decreased.
Its gross margin has decreased from around 69% in 2014 down to about 65% of 2017 due primarily to acquisitions. While it’s SG&A as percentage of sales was improved (about 53% in 2017), its operating margin still decreased to about 13% in 2017.

Stock performance

This stock currently has a stock price/cash flow ratio of 39. We think that its stock is being relatively undervalued considering its relatively better performance in its same store sales and its ability to improve margin, which has been damaged by acquisition.

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