Chart a Course to Better Sales Growth Forecasts BetterInvesting

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1 Chart a Course to Better Sales Growth Forecasts Ann Cuneaz, Education Program Manager, Ken Kavula, President, Mid-Michigan Chapter April 24, 2013 Disclaimer The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell any of the stocks, mutual funds, or other securities that may be referenced. The securities of companies referenced or featured in the seminar materials are for illustrative purposes only and are not to be considered endorsed or recommended for purchase or sale by TM National Association of Investors Corporation ( BI ). The views expressed are those of the instructors, commentators, guests and participants, as the case may be, and do not necessarily represent those of TM. Investors should conduct their own review and analysis of any company of interest before making an investment decision. Securities discussed may be held by the instructors in their own personal portfolios or in those of their clients. BI presenters and volunteers are held to a strict code of conduct that precludes benefiting financially from educational presentations or public activities via any programs, events and/or educational sessions in which they participate. Any violation is strictly prohibited and should be reported to the CEO of or the Director of Chapter Relations. This presentation may contain images of websites and products or services not endorsed by. The presenter is not endorsing or promoting the use of these websites, products or services. This session is being recorded for future use. 2 Agenda Complete Page One (Sales Growth) on the Stock Research Form Analyze and Evaluate Collected Data Make a Supportable Sales Growth Projection (YOUR Judgment) on the Stock Selection Guide 3 Process 1. Collect history using Stock Research Form 2. Consider: a. Historical trend and consistency b. Life cycle of the company c. Company s growth strategy d. Business cycle 3. Collect analysts growth estimates 4. Set a reasonable range for future Sales growth rates 5. Select supportable Sales growth rate 4 1

2 Collect Current Information STEP 0 CURRENT INFORMATION Historical Sales Growth Most Recent 1 year 3 year 5 year 10 year Other Quarter COH 16.6% 21.1% STEP 1 COLLECT SALES HISTORY; MAKE OBSERVATIONS 7 8 2

3 1.1 Historical Sales Growth Most Recent 1 year 3 year 5 year 10 year Other Quarter COH 16.6% 21.1% 1.1 Historical Sales Growth Use the SSG to measure growth in other periods. Toolkit Historical Sales Growth 1.1 Historical Sales Growth Online SSG 9.6% 15.3% 13.3%

4 1.1 Historical Sales Growth Most Recent 1 year 3 year 5 year 10 year Other Quarter COH 16.6% 15.3% 9.6% 13.3% 21.1% 1.1 Historical Sales Growth Most Recent 1 year 3 year 5 year 10 year FY09 11 Quarter COH 16.6% 15.3% 9.6% 13.3% 21.1% 13.5% 13.5% 13.5% Other Trends (Life cycle growth observations; Recessionary growth observations) Growth Strategy (references: Annual Report/MD&A comments; Analysts evaluation of growth strategies (S&P Business Summary); Morningstar summary of bulls & bears analysis)

5 BUSINESS CYCLE Most Recent 1 year 3 year 5 year 10 year FY09 11 Quarter COH 16.6% 15.3% 9.6% 13.3% 21.1% 13.5% Company Life Cycle Sales Growth Rates Have Slowed Economic resilience Boom/Bust assumed Great Recession Flat sales growth in FY09 9.6% (3-yr) good bottom? Other Trends (Life cycle growth observations; Recessionary growth observations) Sales growth is slowing as company matures. Sales growth was flat in FY09 (recession), followed by a more normal level of sales growth of 13.5% in FY09-FY11. Growth Strategy (references: Annual Report/MD&A comments; Analysts evaluation of growth strategies (S&P Business Summary); Morningstar summary of bulls & bears analysis)

6 Annual Report 10K S&P Report - Business Summary Management s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) we continue to focus on two key growth strategies: increased global distribution, with an emphasis on North America and China, and improved store sales productivity. Organic growth strategy Hint: search for growth, strategy or strategies in the document 21 Corporate Overview Leading U.S Designer and marketer of high-quality accessories Market Profile 20% share of estimated $9.3B U.S. Market Japanese consumer is 40% of the global luxury handbag market; Coach holds 16% of Japanese market Primary Business Dynamics 87% of sales through direct-to-consumer channel Grow through increased market share and improved productivity COH Research: Page Growth Strategy (references: Annual Report/MD&A comments; Analysts evaluation of growth strategies (S&P Business Summary); Morningstar summary of bulls & bears analysis) Organic Growth Strategy: Coach has grown mainly through new store expansion (including international, mainly Japan) and increasing same store sales. STEP 2 EVALUATE SALES HISTORY

7 Process 1. Collect history using Stock Research Form 2. Consider: a. Historical trend and consistency b. Life cycle of the company c. Company s growth strategy d. Business cycle 3. Collect analysts growth estimates 4. Set a reasonable range for future Sales growth rates 5. Select supportable Sales growth rate 25 Evaluate History 1. Historical trend is stable and consistent around 13% except for recession in Evaluate History 1. Historical trend is stable and consistent around 13% except for recession in Sales growth is slowing from a 10 year historical rate of from 20% to <15% as company matures. 3. Growth strategy is organic and sustainable as company seeks more market share in Asia and Europe. 4. Recessionary Sales performance was flat in FY09 recovering to 13.5% since Evaluate History 28 7

8 Including commentary STEP 3 COLLECT ANALYSTS ESTIMATES 29 Process 1. Collect history using Stock Research Form 2. Consider: a. Historical trend and consistency b. Life cycle of the company c. Company s growth strategy d. Business cycle 3. Collect analysts growth estimates 4. Set a reasonable range for future Sales growth rates 5. Select supportable Sales growth rate Projected Sales Growth (from Research Reports) Curr Qtr Next Qtr Curr Year Next Year 3 5 Year COH 16.3% 13.6% 15.7% 13.4% Online SSG Feature 2-Year Analyst Estimates for Sales Source: (Analyst Estimates) Coach Research: Page

9 Online SSG Feature 2-Year Analyst Estimates for Sales 1.3 Projected Sales Growth (from Research Reports) Curr Qtr Next Qtr Curr Year Next Year 3 5 Year COH 16.3% 13.6% 15.7% 13.4% 33 Source: Analyst consensus estimates provided by Morningstar for the Data Service Projected Sales Growth (from Research Reports) Curr Qtr Next Qtr Curr Year Next Year 3 5 Year COH 16.3% 13.6% 15.7% 13.4% 15% 1.3 Projected Sales Growth (from Research Reports) Curr Qtr Next Qtr Curr Year Next Year 3 5 Year COH 16.3% 13.6% 15.7% 13.4% 12-15% Over the next five years, we model annual average revenue growth around 12%. Source: Value Line, Inc. Page 1 Page 4 35 Source: Morningstar, Inc. - Valuation, Growth, and Profitability 36 9

10 1.3 Projected Sales Growth (from Research Reports) Curr Qtr Next Qtr Curr Year Next Year 3 5 Year COH 16.3% 13.6% 15.7% 13.4% 12-15% Combined numeric results from: Yahoo Finance Value Line Morningstar Now let s add analysts comments 1.4 Comments about Future Sales Growth Bulls Say High-end positioning and brand loyalty allow COH to price higher than lesser brands, but where customers still see value Current successes in Japan and China have just begun Coach continues to drive demand through its innovation in styles, colors, and materials Coach has been underestimated because it has focused on efforts on the domestic market, new markets provide opportunity Source: Morningstar, Inc. - Bulls & Bears Page Comments about Future Sales Growth Bears Say Customers are aspirational and more sensitive to the economy in general Growth strategy relies heavily on strong growth in China and Japan New product lines such as shoes and accessories could dilute core business Fashion changes and loyal customers may eventually shop elsewhere Coach will always trail European competitors, especially in Asia where COH has poor name recognition

11 Combine History and Analysts Estimates STEP 4 SET REASONABLE RANGE FOR SALES ESTIMATE 41 Process 1. Collect history using Stock Research Form 2. Consider: a. Historical trend and consistency b. Life cycle of the company c. Company s growth strategy d. Business cycle 3. Collect analysts growth estimates 4. Set a reasonable range for future Sales growth rates 5. Select supportable Sales growth rate 42 History + ACE* History + ACE Set a Reasonable Range for Future Sales Growth Short-term (less than 1 year) 1-2 Years Long-term (more than 3 years) *Analysts Consensus Estimates Low High

12 STEP 5 SELECT FUTURE SALES GROWTH Process 1. Collect history using Stock Research Form 2. Consider: a. Historical trend and consistency b. Life cycle of the company c. Company s growth strategy d. Business cycle 3. Collect analysts growth estimates 4. Set a reasonable range for future Sales growth rates 5. Select supportable Sales growth rate It s Decision Time 1. Historical Data 2. Growth Strategy (MD&A from Annual Report) 3. Analysts Estimates 4. Analysts Commentary 47 Review History Commentary 1. Historical trend is stable and consistent around 13% except for recession in Sales growth is slowing from a 10 year historical rate of from 20% to <15% as company matures. 3. Growth strategy is organic and sustainable as company seeks more market share in Asia and Europe. 4. Recessionary Sales performance was flat in FY09 recovering to 13.5% since

13 Review Analysts Comments Bulls Say Higher prices due to market position and brand loyalty Japan and China growth Drive demands through its innovation New markets and products are growth opportunities Bears Say Customers are sensitive to the economy Relies heavily on Asia New product lines could dilute core business Fashion changes Coach trails European brands in name recognition History + ACE Set a Reasonable Range for Future Sales Growth Low High What Is Your Tolerance for Risk? What Is Your Tolerance for Risk? Low High Low High Conservative investors will select a growth rate from the lower end of the range. The right answer is the one that is right for you! Sample Sales Growth Ranges Lower Risk 10% 11% Medium 12% 13% Higher Risk 14% 15%

14 1.5 YOUR Sales Growth Projection Research + Process = Supportable Growth Estimate 53 Practice Activity Complete Page 1 of the Stock Research Form and make a Sales Growth estimate for Costco (COST). Plan to spend no more than minutes on this activity. COST Research materials can be found in My Classes. FREE Trial version of the Online SSG 54 ADDING JUDGMENT SERIES CONTINUES Class 2, May 8 th Chart a Course to Better EPS Growth Forecasts Review Sales Growth page for Costco (practice) Complete page 2 of the Stock Research Form for Coach and project the future EPS growth rate Reminders: All class sessions are recorded and may be accessed until September 28, 2013 Class materials and recordings are available in My Classes under the Education Tab at READ THINK ANALYZE

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