2 4 6 8 who do we appreciate Coach, Coach Yeah Coach. (NYSE:COH) Supposed classic financial metrics. Increasing revenues, increasing margins, negligible debt, strong cash position and a hot product line. Customers line up to get into the store.
If there is any one validating signal that tells investors all is well is an increased dividend. They did it.They increased the dividend. Yield is still around 2.5%; but that’s not bad for a luxury retailer.
OK so where are the Black Swans. Where is the long tail risk that can make all of this come tumbling down.
The big growth is in Asia. Specifically in China. Growth will continue to be high as China’s emerging business class continues to pamper itself. The risk is social. Currently it’s chic to acquire western brands to show you have arrived. Coach is riding the wave.
Tastes change. If your biggest market suddenly decides it’s not very cool and they want something more local, Coach will have a problem. Not saying it’s going to happen tomorrow or when. But it does.
As America grew more economically powerful it developed its own fashion Geist. Coach needs to position itself so that when that change occurs its on the right side of the trend line.
The composition of the board will be critical. Currently they have seven independent directors. Average age is 59 years. One 48-year-old really skews that average. Average tenure is coming up to ten years. No Asians who can offer thought leadership in China and elsewhere. Still a very much euro-centric oriented bunch of dudes and dudettes with classical MBA’s.
Ivan Menzes currently heading up Diageo a premium drinks company runs the same game as Coach. Premium western brands selling into growing foreign markets. He might be the secret Achilles heel.
Irene Miller is the lead independent director is a finance/investment type. Started off as an investment banker with Morgan Stanley, became Vice chairman and CFO of Barnes & Noble and now runs her own investment firm Akim.
Michael Murphy is also a finance guy and alumnus from Sara Lee. American baked goods for the consumer masses.
Susan Kropf was President and COO of Avon Products who has exported their business model globally sometimes with surprisingly poor results in new markets.
Gary Loveman who is Chairman, CEO and President of Caesars and formerly was a Harvard B School professor. Casinos have a unique view of the Asian gambler. but catering to established vices is not the same process as engaging with fashion conscious customers.
Jide Zeitlin former partner with Goldman Sachs. He seems to be the young guy on the board but is another finance guy. I’m sure he knows about the stock market but is this what Coach really needs. He has been on for seven years.
Stephanie Tilenius is the newest independent board member. Her CV is encouraging. Currently executive in residence at Kleiner Perkins Caufield Byers. Previously was a Google VP for global commerce and payment. Previous to that she ultimately was SVP for ebay.com and global products. Female understanding e-commerce and the internet.
Now what you need is some depth in the Asian market.
George Gutowski writes from a caveat emptor perspective.