You know when you see a press release and your first reaction is something like “YES! I nailed this sucker!”. That’s what I thought as soon as I saw the TPR release. Right for the right reasons. Bought back two more licenses – that’s four in 3 quarters (Coach Aussi and SWeitzman in Northern China) – Coach brand (72% of Revs and near 80% of cash flow), stabilizing, and KATE (21% revs, 15% cash) integration progressing well. Beat the quarter -- $0.04 ahead of the Street and in line with our model.
Then I saw the pre-market trade and said something like “What the !$#%!?”. The guide looked fine to me, but not for the Street. Bear case is a) tax rate accounted for the entire beat rel to consensus (ie EBIT missed by a penny, b) Stewart Weitzman (7% revs) having delivery issues, and c) KATE comped down 9%, and d) The company took up the bottom end of the year – but did not flow through the 3Q beat to the high end. I’d have done the same exact thing if I were TPR IR.
This was a crowded long, and though 93% of the business is on or ahead of plan, the 7% of the biz that is SW is enough to flush out people who rented the stock. Also mind you, SW does not have a brand/demand problem – it has a fulfillment problem. That takes quarters to fix – brand problems take years (clearly not the case -- also brand new CEO). The KATE comp decline was 100% in our model as anniversarying brand-degrading flash sales that are no longer happening (ie taking the brand higher). The final question of the call focused on Coach in Department stores – which is less than 1% of global sales -- that shows where the distorted short-sighted focus is on this company. Not a single question about licenses, which is the #1 factor that will likely prove bears VERY VERY wrong.
I've said it before and will say it again, there are no fewer than 25 licenses that can be repo'd, taken in house, and/or renogiated. This is RL all over again from 2003-2006. It was an extremely powerful story due to consolidating full revenue, doubling license EBIT, and deploying disproportionately low levels of capital to get it done. Once people get this, numbers will head higher and TPR gets a re-rating (it took RL from $28-$105).
This was a growth stock that just turned into a value stock – that will likely accelerate growth again in 2H. We’re not changing our above consensus estimates. If you’ve missed this long side, this is your shot. The story is playing out, and the market is giving you a gift. I think the sell-side will be upgrading this stock at $80, and have the financial analysis to back it up. I think this is a double over the course of 12-18mos.
