Blue Ridge Capital and Coach
Blue Ridge Capital initiated new positions in Yandex (YNDX), Visa Inc. (V), MasterCard Inc. (MA), and Kate Spade & Company (KATE). Notable positions the company exited include Coach Inc. (COH), Apple Inc. (AAPL), Liberty Global (LBTYA), and Barrick Gold Corp. (ABX).
Blue Ridge exited a position in Coach Inc. (COH) in 2Q14. The position accounted for 2% of the fund’s portfolio in 1Q14.
Overview of Coach
Coach is a provider of luxury accessories and lifestyle collections for women and men in the United States and internationally. The company’s offerings include fine accessories, gifts, and certain seasonal lifestyle apparel collections for women and men.
In addition, the company licenses rights to distribute the Coach brand products, including footwear, eyewear, watches, and fragrances. Coach operates a North America segment and an international segment.
Coach is undergoing transformation
Coach shares fell in June after the company said it will close 70 out of its 351 North American full-price stores by the end of the first half of 2015. The company has been seeing lower sales mainly due to high competition from rivals Michael Kors and Kate Spade. The company also forecast a “low double digit decline” in revenues for fiscal year 2015.
During the fourth quarter of fiscal 2014, Coach announced a multi-year strategic plan with the objective of transforming its brand and reinvigorating growth, aimed at returning to ‘best-in-class’ profitability. The plan includes the store closures as well as investment of approximately $500 million in capital improvements in stores and wholesale locations.
One of the company’s initiatives is to transform “from a leading international accessories company into a global lifestyle brand, anchored in luxury accessories.”
Earnings and net sales fall in fiscal 4Q14
Coach’s earnings declined 34% to $0.59 per share from $0.89 per share for fiscal 4Q14. The New York handbag maker reported net sales of $1.14 billion for its fourth quarter ended June 28, 2014, compared with $1.22 billion in the corresponding period last year, a decrease of 7%.
Net income fell to $164 million, from $254 million in the prior year’s fourth quarter, excluding restructuring and transformation-related charges. The results, however, beat street estimates.
Coach said lower sales in the North American business drove the decrease in net sales, but gains in international business partially offset the decrease. The company’s sales in North America fell 16% to $691 million in the quarter. International sales increased 7% for the quarter to $414 million from $388 million last year. Sales in China drove this increase.
The management said “The fourth quarter capped a challenging year for the company, most notably in the North America women’s bag and accessory business.”
The next article in the series will discuss Blue Ridge Capital’s exit from its position in Liberty Global Inc. (LBTYA).