Coach Returns A Mixed Bag To Shareholders


Dec. 4 2020, Updated 10:42 a.m. ET

Can a falling star rise again?

Coach, Inc. (COH) used to lead the affordable premium handbag segment in the US by a wide margin. The entry of Michael Kors (KORS), Kate Spade (KATE), and Tory Burch ate into its market share. Coach saw its same-store sales slide and it missed earnings expectations, which disappointed Wall Street.

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Historical returns

Shareholders used to benefit from the company’s strong results through both stock price appreciation and dividend payouts. But in the past few years, returns have been eroded, and Coach’s stock price has slumped. Returns to shareholders are trailing those of its peers. Here’s how the company’s three-year annualized total return compares with those of its rivals:

  • Coach –  -14.1%
  • Ralph Lauren (RL) – 9.2%
  • Kate Spade (KATE) – 47.6%
  • Michael Kors (KORS) – 41%

To add to the picture, the S&P 500 Index (SPY) returned 17.8% over the same period.

Share buybacks

The company announced a share repurchase program worth $1.5 billion in October 2012. Under the plan, the company repurchased and retired 17.3 million shares in fiscal years 2013 and 2014 at an average cost of $51.27 and $56.61, respectively. But the company’s share price knew no respite and continued to decline, reaching $36.30 on January 6, 2015. Currently, only ~$836 million remains in its share repurchase program.

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Dividend advantage

Despite a string of sub-par results, Coach has steadily increased dividends (HDV) to shareholders. The company’s dividend payout ratio is still the largest of its competitors. Tory Burch is privately held, but KORS and KATE haven’t paid out dividends yet. The dividend payout from well-established lifestyle brand Ralph Lauren (RL) was about 19.9% last fiscal, compared to 47.9% for Coach.

The company expects to maintain dividends of $1.35 per share in fiscal 2015—the same as last year. This is despite its acquisition of Stuart Weitzman, which we learned about in Parts 17 and 18.

Coach’s relatively strong cash flow position will enable it to maintain payouts. Also, the company expects to increase dividends to shareholders once the benefits from its transformation plan are realized. The company expects to turn things around by fiscal 2016–2017 and report positive compensation growth.


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