August 18, 2013 in Business

Coach’s plunge doesn’t mean it’s time to sell

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Coach retains pricing power because of its strong global presence.
(Full-size photo)

Shares of handbag and accessory specialist Coach (NYSE: COH) fell almost 10 percent recently, after the luxury-goods maker reported underwhelming earnings, with revenue for the fiscal year up 6 percent over year-ago levels and earnings per share up 2 percent. Key concerns include weakness in North American sales, along with the departure of several top executives, including the CEO.

Don’t write the company off, though, as it still has a lot going for it. For starters, it has a strong global brand name, giving the company pricing power. In its last quarter, international sales rose 7 percent year over year to $386 million, or a 17 percent increase on a constant currency basis. Coach’s China operations grew a whopping 35 percent.

The company’s new CEO will be Victor Luis, who has led Coach’s successful international division.

Coach’s history of rewarding shareholders through dividends and share repurchases is also appealing. The stock recently yielded 2.5 percent, and the company has increased its dividend by 13 percent over the past year and by more than fourfold over the past four years.

Still, Coach has some work to do revitalizing its business. It plans to focus on North American sales and on its outlets. Patient investors might consider accessorizing their portfolios with Coach stock. (The Motley Fool owns shares of Coach and its newsletters have recommended it.)

Ask the Fool

Q: What are venture capitalists? – A.J.S., Cincinnati

A: Venture capitalists pool their money and invest in fledgling companies, sometimes specializing in certain industries or areas, such as computer-related technology or biotechnology.

A venture capitalist firm will typically enter the scene well before a company gets to the initial public offering stage, helping the company grow via funding and guidance, usually in exchange for a large percentage of the company. The hope is that once the company grows to a certain point, it will go public and the venture capitalists can cash out, making a very tidy profit.

Famous VC firms include Kleiner Perkins Caufield & Byers, which has funded companies such as AOL, Amazon.com, Facebook, Google and Intuit. Andreessen Horowitz, another, seeded Instagram and Pinterest, among other outfits.

Q: Is there any reason why I might want to have multiple IRA accounts? – D.E., Tampa, Fla.

A: Well, you might open a traditional or Roth IRA with a regular brokerage so you can invest in individual stocks through it. (Learn more about brokerages at broker.fool.com.)

Meanwhile, you might open another IRA with a mutual fund company, if it’s the best way for you to invest in a particular fund (some funds are not available through brokerages). Also, if you change jobs, you might roll over money from your 401(k) into a new IRA so that you can manage that money separately.

It generally doesn’t matter if you have multiple accounts. Just know that most folks face a contribution limit for 2013 of $5,500 ($6,500 for those 50 or older), and that’s all you can contribute in total – it’s not the limit per account. Learn more about IRAs at fool.com/retirement.

My smartest investment

In 1982, I began putting $97 per month in a tax-sheltered annuity and continued to do so until 1996. Part of the contribution went into guaranteed interest, but most went into the stock market. My aim was to build a fund that could be used to add a glassed-in porch to my house and to restore an antique automobile. The porch is in place, the restoration underway, and withdrawals have also been used to cover other expenses. – W.E.C., Columbia, S.C.

The Fool responds: Many 403(b) retirement-savings accounts are referred to as TSAs because they initially permitted investments only in annuities. These plans, available to many education and nonprofit workers, are quite similar to 401(k)s, and now permit a much wider range of investments. With many traditional pensions disappearing, retirement accounts such as 403(b)s, 401(k)s and IRAs have become vital tools to help Americans achieve comfortable retirements.

Your story shows how effective it can be to invest modest amounts regularly, and you also benefited from a lengthy bull market. You were smart to diversify beyond stocks, too, as stocks don’t always go up.

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