Today, the most unlikely retail company came out and showed hope for a high-end Christmas season. I suggested taking a look at this underdog over the weekend (click here). Coach condoned my previous mentioned sentiments today, suggesting that this retail can be the Polar Express powering through the snow and giving great returns this holiday season.
I think one of the strongest testaments to the fact that Coach remains undervalued and an underdog is that the company will be repurchasing $1.5 billion worth of shares. The earnings announcement reaffirmed many of the ideas I mentioned on Sunday. illustrating a company with decent growth, a strong brand name, and is successfully wading through economic uncertainties. As we all know well, China and Europe pose huge problems (of uncertainty), particularly when it comes to the category of luxury brands. Luckily for Coach, China remains a huge growth area for the company, contrary to popular belief. I won’t argue with a company that outperforms where others suffer.
Coach has many benefits, particularly in this environment as we are coming into the colder seasons (hopefully it will be frigid this season, boosting sales),being that accessories are huge in the current market. We saw the accessories as a piece of fashion just begin to make inroads during the last holiday season. Any male who shopped for an extensive group of females knows that the Michael Kors wristwatch was on every girls dream list (for a watch under $500). Coach has just begun to make headwinds in the accessory arena. In this upcoming winter season I see them going head to head with Michael Kors, and hopefully taking a piece of the accessory pie. People just love accessorizing and obviously the masses love accessorizing with Coach as it showed a 10% growth in accessories last quarter in North America.
As we have seen the stock market overall perform well during the first part of 2012, one can undoubtedly argue that the wealth effect will have some play into the holiday season. As we see even the middle classes retirements make some leaps and bounds, this could be a Christmas retail many of use can only dream about (particularly for an aspirational brand like Coach). We have seen many of the luxury brands do well in unsavory conditions, no one’s to say they wont excel in more comfortable economic conditions.
With Coach setting itself apart due to its historic branding and price points, they are undoubtedly the play of aspirational luxury.
Ask those women in your (middle to lower upper class) life about Coach, and they will respond “I need that.”
If you have been keeping an eye on Coach as of late, you will noticed that it has been taken to the cleaners (obviously a fool’s errand being that the handbags were nothing but clean). Over the past few months Coach has been down over 25%. In lieu of throwing up a bearish flag this peace of anecdotal evidence only suggests a Christmas play that will bring your portfolio ample amounts of cheer.
The holiday season makes or breaks a retail company for the year. Either they fill the store and have lines down the block, or the patrons of the malls choose to spend their well-earned dollars elsewhere. Over the past few years the economic environment has been more and more challenging. Well guess who has repeatedly excelled over that time span? Growing sales, profits, and stores in operation, Coach has held up well in a class of merchandise that has repeatedly been questionable. This aspirational luxury should have seen a squeeze due to the worsening conditions of the middle class, instead it has powered through growing its reach.
Currently the one major trial that faces Coach stems from Michael Kors. As the above video illustrated, the space where Coach has excelled has become more and more crowded. The pressure from competition stems from the fact that this space actually works. Places where customers are buying are hard to come by, so brands are flocking to this waterhole. Those in the middle class will always aspire to be more than they are, doing so through their purses (pun intended). Coach has built and expanded a business on this premise. Now everyone wants a piece of this empire. Though at the end of the day, Coach has successfully branded themselves as the quality handbag in the $300 to $500 range. Continually banking on their heritage, they will outperform and outlast new players in their space.
In the fashion industry branding remains everything, which has its pros and cons. Coach has made a name for itself since 1841. Michael Kors along with the other brands in the space are not as established, nor as synonymous with handbags as the luxurious Coach. This middle to upper income consumer has been a battleground and will continue to be this holiday season. Luckily for Coach, its bread and butter is handbags, which these consumers continue to buy. Not only that but Coach has been growing it’s accessory market share, pushing back at Kors. My faith remains comfortably sitting inside this classy Coach headed through the wild west of retail until these new brands really start to make inroads into Coach’s main profit engine. The uniqueness of these new brands like Michael Kors drives the younger consumer in their direction, though uniqueness is merely synonym for fad. At the end of the day a quality brand with heritage and longevity will always outperform, especially in a growing market.
I don’t always like bargain shopping, but look at the run Kors has had. Don’t get me wrong, Kors repeatedly shows growth, but those that rise the highest are quickest to fall from grace. In this situation playing the underdog that excels in the same business seems like the right play. The key to successful stock picking is finding undervalued companies poised to be valued. As we enter into the holiday season, that company is Coach.
The competition in the computer electronics space has heated up to the boiling point. Friday we saw Best Buy pull out the big guns. They will attempt a last-ditch effort to safe customers from walking out the door and buying products elsewhere. Many are wondering if this is enough to save the faltering retail business. A more appropriate question is, does Amazon have a finishing move that will end this retail match?
It has been quite a long and drawn out war between the two retailers. The other morning our notions about Amazons willingness to do anything to win was confirmed. Jeff Bezos attested to Wall Streets long-held notion that the Kindle E-reader was being sold at cost. This does not merely justify that Amazon knows where the profit engine in the consumer electronics sits (in selling content, think iTunes), it suggests that Amazon will play cut throat hardball to solidify its place against any competition.
Some time ago I suggested that the key to Best Buy saving itself was via RadioShack (you can read it all here). Best Buy has currently taken the route that price competition will save them. In fact they should have focused on some of the strategies I focused on in the article., Most importantly Best Buy should have changed their approach to retail. Instead of taking the brick and mortar approach that has served companies well for decades, that is dead, they should have focused on reinventing themselves. Apple has given them all the tools they need to see how it can be done. If Best Buy could just focus on selling an experience rather than a product, the game could be swung in their favor. Due to their actual locations, their real estate, they can offer features and experience that no online retailer can offer. A simple example would be taking the Apple one on one and education courses, changing them to fit the model of Best Buy. Best Buy has failed to do this and merely set up Amazon to do amaz(on)ing things.
At the end of the day Amazon has a one-of-a-kind business model. They have become synonymous with online shopping. Most of the major online merchants sell through their own sites and via Amazon. Does this mean they are worth a P/E of nearly 300? That’s a question that will be answered in the coming months. Though compare them to the likes of social media and that valuation doesn’t seem so ridiculous, being that Amazon has a reals, solid, and established business. Instead of attempting to make money through ads, Amazon has their own ad program making them money. As I mentioned above, Amazon’s willingness to sell products at cost shows their commitment to wining. A devotion to success remains a key component in separating winning companies from losing ones. So does the fact that Amazon has a diversified and strong business without the headaches of brick and mortar merit that P/E ratio? That I will leave up to you, but the divergence between best buy and Amazon is obvious.
Be it the divergence of their stock returns shown in the above image or the breakdown of the two companies I have mentioned throughout the article, the companies are two completely different investments. Best Buy sits on the edge of becoming extent and has failed to differentiate itself. The other company, Amazon, sits on the edge of the future, competing with the likes of Apple in the consumer electronics department. In simpler terms, Best Buy remains trapped inside a Ford Model T amidst the 20th century, while Amazon has pushed into the 21st. This in turn has successfully destroyed the once held lead that Best Buy had
Facebook was graced with an eloquent downgrade today. How lovely. One of my favorite aspects about following the tech sector in the bubble 2.0 are the fools we call analysts. Time and time again they fail to grasp the underlying movements in the tech sector. Again and again they make calls that are blatantly wrong. It’s a wild guessing game and they get paid if they guess right or wrong. The sad part is that we, investors, don’t get paid for spewing crap and have to wade through the mess these analysts create for us. Last night (more like the wee hours of the morning), I was enlightening myself with some market reading. The author of the piece I was reading suggested that the best research with the best returns emerges when you break things down yourself. So in light of the research note on Facebook today, let us dissect the mess they call analysis.
The best place to begin would be to look at the logic that the note incorporated today. This idea that those using mobile applications, in particular the Facebook app are overwhelmed and frustrated by the ads on their applications. What the analysis fails to capture are the ever-changing habits and expectations of today’s smart phone users. The expectations about what type and size of ads that you will come across on your phone are themselves changing, we are learning to deal with the iAd 5. If little George knows that every time he logs into Facebook on is phone he will receive an advertisement he learns to deal with that. Will he change social media platforms? No. Why would he change platforms when all social companies have the same approach. As time progresses these ads will only serve to be beneficial to the user experience They aren’t stupid at Facebook. They were smart enough to buy the next big thing, Instagram, so obviously they are going to be smart enough to give their users the best ad experience.
Looking at the next 3 years, BTIG suspects a slowdown in revenue. Uhm what? Look at how the tech landscape has changed substantially over the past year, let alone from 3 years ago. You are welcome to have a pessimistic view. Though over here in reality, we will take the optimistic view, because well, Facebook has shown leaps and bounds since the beginning. I am not talking about the botched IPO. I am speaking in regards to the movement from a platform based off your internet browser to one on your mobile device. I am talking about the complete revolution of advertisement, one not seen since the beginning of the 20th century. The rules to the game are changing and Facebook writes this new rule book everyday.
Today, a bone was picked with a Smucker’s advertisement featured by Walmart The talking heads suggested that this was bad for business. What world do you live in? If I like Walmart on Facebook, I like it because I am cheap, in turn meaning I want to know about all their bargain offers. Being that a large majority of Americans buy jelly, a Walmart advertisement selling jelly only serves to benefit Walmart. It boosts the image Walmart wishes to portray, that they have a great deal on a product you regularly use.Instead of hindering Facebook as these fools suggested, it in fact only serves to benefit Facebook. Facebook wishes for both users and companies to utilize its platform to create and support their own brand image (or personal brand image in my case). That’s why I use my Facebook profile to follow what I like, to share what I do, and to interact with individuals I like. Obviously, that’s why Facebook put an image of a name brand product at a bargain price on their Facebook wall.
Obviously Zynga’s failure has weighed heavily on Facebook and it’s stock. Looking through the clutter one can see that the change in Facebook’s structure has pushed themselves away from Zynga. At the same time they have catapulted themselves in a direction of more profitability In our consumer based society buying and selling things are everything. Just ask Google how they have made a killing for years. They would respond that through capitalizing on search the are making billions off of selling advertisements. Facebook looks to do a similar measure, but through different means. They want to bring you what you want, what you like, and at the same time let you share those items with your friends. As the photo sharing craze takes on the world, individuals will go from taking pictures of the food they eat at dinner to the new shoes they bought or the new shirt they bought. As we see advertising only mature on the Facebook platform, you are no longer going to be just tagging Sally, but tagging Nike and P.F. Chang’s. This revolution, this way in which companies will be able to subconsciously sell products to the masses will change the world of advertisement (even more then it has).
Steve Jobs once said, “A lot of times, people don’t know what you want until you show it to them.” Zuckerberg hasn’t even begun to show us what remains hidden up his sleeve. So before you start reducing estimates and lowering projections, maybe you should realize that those models can become outdated as fast as Facebook can connect those around the world.
If it can be sold then let’s do it, if it could be sold we gon’ move it.
At one point Monster.com was truly a monster. This giant of a job source once served as the resource for every job seeker in America. Point blank, its days as a useful resource are behind it. Just as Facebook forced the death of MySpace and companies like Yelp forced the death of the phonebooks, LinkedIn is currently cutting the throat of Monster.com with a saber. Similarly to the time I mentioned the death of the phonebook during the heats of summer, critics will likely come out again today. My response will be forward, so you have no need to read further. Old technology is dead, your internet experience has and will continue to reshape the way you interact with your daily life. As much as you may hate new tech, the building blocks for the revolution were set decades ago and the companies that are not keeping up with the Joneses (new techs) will die.
Sometime ago the topic of discussion was the death of TheStreet.com. The conversation captured my attention not because I desired to buy the faltering stock, but because I always find the death of a once premium company quite entertaining. Obviously TheStreet.com was taken to the woodshed by many other companies that better serve investors needs on a daily basis. When it comes to Monster.com, they have similarly failed to serve job searchers. Though if you look back at the story of this faltering internet brand, you see a tale of many mistakes and their inability to innovate as the future came crashing in the front door. The similar can be said and continues to play out with Monster.com.
Initially, when one takes a look at Monster, they are struck with the thought, “well this company pioneered the jobs industry of course they will continue to play a vital role.” This fallacy can be attributed to comparing the internet industry to that of other industries over the last century. When IBM lost their edge in the personal computer they were able to diversify and serve a purpose in other aspects of the tech industry. If G.E.’s nuclear division goes under, they have many other legs to stand on, or will create other legs to stand on. When it comes to Monster Worldwide, they have failed to innovate. They have failed to diversify. I was looking at what the company has done recently, what the news was buzzing about, and besides not impressing investors, it was the creation of an iPad app.
Those over there at Monster are such jesters.
If you don’t realize how contradictory that is, I cannot help you with anything. Let me try to elaborate on my thoughts, though if you have half a brain you can skip ahead. Monster has been part of the application world for barely 8 months. There are companies that make their bread and butter off of applications! Monster has just joined those ranks? What is wrong with that picture? Monster prides itself on being an internet company though it sits way behind the times. What kind of internet company doesn’t utilize the overwhelming force that is the tablet scene. As I have said over and over again, change or die. It looks like Monster Worldwide has taken the latter path.
I think the past and future of their company can be best summarized from a statement I came across in their 10k: “Some of our competitors or potential competitors may have greater financial, management, technological, development, sales, marketing and other resources than we do.” If that doesn’t scream we have given up and are unable to keep up, I don’t know what would.
My solution for fixing Monster.com? Well that is easy, because obviously they don’t have the resources or technology they should sell themselves to LinkedIn, before they become completely irrelevant and cease to exist.
