The Daily Dose: Identifying Losers

 | May 01, 2014 | 10:00 AM EDT  | Comments
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Stock quotes in this article:

coh

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kors

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kate

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wmt

Happy post-Fed decision day! The Fed's mention of a "slow" housing recovery should be a source of worry as we enter the spring buying season, but the market seems to be trading on real-life economic stuff instead of every musing from the Fed. Well, that is until something is deemed to having changed inside of the Fed. Yellen and company have done a fine job of playing with the minds of investors this year.

It's worthwhile to learn what characteristics a losing entity possesses from the standpoint of the first quarter of 2014 and overall. My example is retailer Coach (COH). I still can't get beyond that company's horrible quarter and misleading earnings call, so I came up with a list that can be used to identify losers during the investment research process.

First, a max of one sales channel is having success amid a globally improving economy, and that segment is the lowest margin for the company. Coach's only success in the first quarter of 2014 was with its lower margin factory business, while full-price stores and sales to department stores were straight up poor. Having said that, I am growing concerned about Coach killer Michael Kors (KORS). New product introductions have stunk, visually and quality wise. This is not what I want to see ahead of a holiday season where Kate Spade (KATE) will have expanded floor space.

Second, to drive sales strength in one of numerous businesses, the company is offering increased incentives to clients and consumers. Coach has become more promotional at the lower margin factory store channel. That management decision diminishes the brand's value in the mind of consumers and undercuts the initiatives put in place at the full-price stores.

Three, the long-term outlook is "off" relative to the glowing nature of the executive commentary. Coach basically reduced its long-term sales outlook despite trumpeting its major product relaunch this fall with a new designer. In my view, that is a loser move as it demonstratives a lack of confidence. Sure, the company may be under-promising to over-deliver, but the outlook should have been reaffirmed into an alleged brand revival in a few months.

A very important development at Wal-Mart (WMT) was hardly covered yesterday. This reinforces what I have been saying: Wal-Mart's employees are so disconnected with the headquarters' initiatives that it is impacting sales in the store.

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