It’s been a bad year for Coach . The company has been steadily taking it on the chin since missing an earnings estimate in January. In the last quarter of the 2012 calendar year, Coach lost focus on its core brand, and spent too much time hyping its men’s and international offerings. Those areas did well, but at the expense of U.S. sales of women’s handbags. That’s a bad miss, and the fall from grace is at least partially deserved. But there’s still a lot of room left for Coach to run, and even rivals like Michael Kors aren’t going to be able to stop it from making headway. Here are three reasons you should consider adding Coach back into your wardrobe.

Financial security
Coach may have made a branding misstep, but its CFO, Jane Nielsen, has kept it on the straight and narrow when it comes to the books. In that last quarter, the company generated free cash flow of $567 million, which was only a small drop from the $572 million a year ago considering that the company moved up its dividend payment to the end of December. Along with being cash-friendly, the company also has little long-term debt, only $23 million at the end of last year. That’s the kind of cash cow that investors should love.

That strength comes mainly from the company’s excellent margins. Gross margin was still above 70% last quarter, and operating margin was 35%, a half a percentage point increase over the previous year. All of these financial strengths point to the second reason that I still like Coach.

Brand strength
Yes, I know that Kors is growing like kudzu. The company boasted a 41% increase in comparable-store sales last quarter — which is just mean. Who does that? Coach is having to contend with those sales, but the success of Kors doesn’t mean the death of the Coach brand. However, it can’t be overlooked that Coach did have a 2% drop in comparable sales last quarter. As investors, we have to decide if that’s the beginning of a trend, or merely a bump in the road, and I believe we’re looking at a bump.

The main reason that Coach saw a drop could be seen in its windows and on its website — it focused too heavily on men. The company made the right choice to open more men’s locations and add more menswear to its existing locations, but it made the wrong marketing move. By focusing on menswear, it allowed Kors and others to step in with easy sales to women. The company has recognized that shortfall, and now it needs to do something about it, which I believe it will. This isn’t going to be a one-quarter spring-back, but Coach should be back on track by the end of the year.

Brand integrity
The final reason I like Coach is tied to both its brand and its …read more
Source: FULL ARTICLE at DailyFinance