Taking Stock: Coach’s New Approach… Less Confidant CEO’s

COACH’S NEW APPROACH: Coach Inc. is changing course. The New York-based firm plans to open fewer stores and sell more moderately priced products, as the “accessible luxury” brand adapts to weakening sales and lower earnings because of the recession. Coach disclosed plans for a less-aggressive approach to building its retail network and more customer-friendly price points while also reporting a 14 percent decline in second-quarter earnings, to $216.9 million, or 67 cents a diluted share, from $252.3 million, or 69 cents, a year ago. Sales during the quarter ended Dec. 27 dipped 1.8 percent to $960.3 million from $978.0 million. The company is pulling back on its North American expansion, opening just 20 stores this year compared with the usual 40. Six of the new stores will be in Canada. “Obviously we are in uncharted waters, for Coach and America as well,” said Lew Frankfort, chairman and CEO. “We know our business well. We have a very strong franchise. We have a very excellent balance sheet.” Coach hasn’t changed plans for new stores in Japan, China and the Middle East, where its business remains robust. Frankfort said Coach’s U.S. business had “stabilized at reduced levels.”


JONES’ DEPLETED GOODWILL: Accountants and wary consumers worked together to drive Jones Apparel Group into the red in the fourth quarter. Including an $810 million after-tax charge to write down goodwill and trademarks related to impairment of the firm’s wholesale footwear and accessories operations, fourth-quarter losses are expected to weigh in at $10.07 to $10.11 a share. Excluding write-offs, adjusted losses from continuing operations are projected to range from 3 cents to 6 cents a share. Adjusted earnings for the year are slated for 85 cents to 88 cents, down from the 93 cents to 98 cents the company previously projected. “While our previous guidance considered the difficult retail environment prevailing at that time, conditions significantly worsened as the quarter ended,” said Wesley Card, president and CEO. “The resulting increase in promotional activity by our customers and in our own retail operations impacted our results.” Card noted the company ended the year with approximately $335 million in cash on hand. Jones is likely to be just the first to register large write-offs for goodwill — the accounting stand-in for intangible assets such as brand names and business reputations that were picked up through acquisitions. Such charges can trigger important provisions in loan agreements or cast in a new light deals that were inked when the market was at a high. “It doesn’t mean the acquisition was bad strategically,” said Ed Henderson, VP and senior analyst at Moody’s Investors Service. “Given this market, it just looks like almost everybody overpaid. The amount that is reflective of that is goodwill.” Other firms with goodwill on their books, some of which could potentially be written down, include Macy’s Inc. ($9.12 billion) and Sears Holdings Corp. ($1.66 billion).


LESS-CONFIDENT CEOs: Company chiefs are known for putting on a brave face when times are tough. But behind the façade, corner-office occupants are pretty nervous. The Conference Board’s Measure of CEO Confidence tumbled to 24 in the fourth quarter of 2008, down from 40 in the July through September period. The CEO scale runs from zero to 100, with a reading of more than 50 representing more favorable than unfavorable responses. The fourth-quarter reading was the lowest since the survey’s inception in 1976, and it marked only the second time it had fallen to less than 30, the first being the 29 tallied during the second quarter of 1980. “The erosion in CEO confidence is a reflection of the rapid and severe deterioration in economic conditions experienced in the final months of 2008,” said Lynn Franco, director of The Conference Board Consumer Research Center. “Looking ahead, CEOs remain extremely pessimistic about overall economic prospects in the first half of 2009.” The most dramatic component of the decline was the measure of “current economic conditions versus six months ago,” where CEOs registered a 7, down from 30 in the third quarter. “Current conditions in own industry versus six months ago” also fell precipitously, to 16 from 37 in the previous quarter. Last month, The Conference Board’s Consumer Confidence Index fell to 38, its lowest level ever, as its Present Situation component dropped to 29.4, the lowest level since April 1992.


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